<PAGE> 1
PROSPECTUS
May 14, 1998,
as revised June 12, 1998
WARBURG PINCUS
GROWTH & INCOME FUND
-
WARBURG PINCUS
BALANCED FUND
[WARBURG PINCUS FUNDS LOGO]
<PAGE> 2
PROSPECTUS May 14, 1998,
as revised June 12, 1998
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 equity and fixed income securities.
NO LOAD CLASS OF COMMON SHARES
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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 Statement of Additional Information relating to
the Funds, 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.
LOW MINIMUM INVESTMENT
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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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE> 3
THE FUNDS' EXPENSES
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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)..................... .75% .37%+
12b-1 Fees.............................................. .00% .25%
Other Expenses (after fee waivers and expense
reimbursements)....................................... .43% .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>
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+ Absent the waiver of fees by the Fund's 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").
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
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(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
Statement 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.
WARBURG PINCUS GROWTH & INCOME FUND
<TABLE>
<CAPTION>
For the Two For the Years Ended August 31,
Months Ended -------------------------------------------------------------
October 31, 1997 1997 1996 1995 1994 1993
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.............. $ 18.44 $ 14.90 $ 16.40 $ 14.56 $ 16.72 $ 11.99
------- -------- -------- ---------- -------- -------
Income from
Investment
Operations:
Net investment
income............. 0.0239 0.1393 0.1116 0.2224 0.0785 0.0464
Net gain (loss) on
securities (both
realized and
unrealized)........ 0.1383 3.5352 (0.6633) 1.9834 1.8151 4.8499
------- -------- -------- ---------- -------- -------
Total from
investment
operations......... 0.1622 3.6745 (0.5517) 2.2058 1.8936 4.8963
------- -------- -------- ---------- -------- -------
Less Distributions:
Dividends from net
investment
income............. (0.0391) (0.1332) (0.1350) (0.1824) (0.0785) (0.0875)
Distributions (from
realized gains).... -- -- (0.8133) (0.1834) (3.9751) (0.0788)
------- -------- -------- ---------- -------- -------
Total
distributions...... (0.0391) (0.1332) (0.9483) (0.3658) (4.0536) (0.1663)
------- -------- -------- ---------- -------- -------
Net asset value, end
of period........... $ 18.56 $ 18.44 $ 14.90 $ 16.40 $ 14.56 $ 16.72
======= ======== ======== ========== ======== =======
Total Returns........ 0.85%(b) 24.78% (3.54)% 15.62% 14.41% 41.17%(d)
Ratios/Supplemental
Data:
Net assets, end of
period (000)....... $608,205 $601,159 $727,627 $1,038,193 $410,658 $60,689
Ratios to average
daily net assets:
Operating
expenses........... 1.18%(a)(c) 1.15%(c) 1.21%(c) 1.22% 1.28% 1.14%
Net investment
income........... .75%(a) .80% .69% 1.64% .41% .30%
Decrease reflected
in above
operating expense
ratios due to
waivers/
reimbursements... .00% .00% .00% .00% .00% .00%
Portfolio turnover
rate................ 19%(b) 148% 94% 109% 150% 344%
Average commission
rate................ $0.0600(e) $0.0587(e) $0.0596(e) N/A N/A N/A
<CAPTION>
For the Period
October 6, 1988
(Commencement
For the Years Ended August 31, of Operations) to
-------------------------------------- August 31,
1992 1991 1990 1989
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value,
beginning of
period.............. $ 12.11 $ 11.00 $ 11.53 $ 10.00
------- ------- -------- ----------
Income from
Investment
Operations:
Net investment
income............. 0.1912 0.3744 0.3574 0.3876
Net gain (loss) on
securities (both
realized and
unrealized)........ 0.0402 1.6891 (0.1856) 1.4225
------- ------- -------- ----------
Total from
investment
operations......... 0.2314 2.0635 0.1718 1.8101
------- ------- -------- ----------
Less Distributions:
Dividends from net
investment
income............. (0.1871) (0.4043) (0.3951) (0.2833)
Distributions (from
realized gains).... (0.1643) (0.5492) (0.3067) --
------- ------- -------- ----------
Total
distributions...... (0.3514) (0.9535) (0.7018) (0.2833)
------- ------- -------- ----------
Net asset value, end
of period........... $ 11.99 $ 12.11 $ 11.00 $ 11.53
======= ======= ======== ==========
Total Returns........ 1.99%(d) 19.91%(d) 1.48%(d) 18.48%(b)(d)
Ratios/Supplemental
Data:
Net assets, end of
period (000)....... $28,976 $24,726 $1,396 $1,150
Ratios to average
daily net assets:
Operating
expenses........... 1.25% 1.30% 1.40% 1.40%(a)
Net investment
income........... 1.66% 3.42% 3.32% 4.32%(a)
Decrease reflected
in above
operating expense
ratios due to
waivers/
reimbursements... .03% .87% 2.41% 1.42%(a)
Portfolio turnover
rate................ 175% 41% 98% 111%(b)
Average commission
rate................ N/A N/A N/A N/A
</TABLE>
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(a) Annualized.
(b) Non-annualized.
(c) 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.
(d) Sales load not reflected in total return. The sales load was eliminated
effective July 29, 1993.
(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.
3
<PAGE> 5
WARBURG PINCUS BALANCED FUND
<TABLE>
<CAPTION>
For the Two For the Years Ended August 31,
Months Ended ------------------------------------------
October 31, 1997 1997 1996 1995
---------------- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 14.24 $ 11.94 $ 11.12 $ 11.01
-------- ------- ------- -------
Income from
Investment
Operations:
Net investment
income.............. 0.0348 0.2275 0.1573 0.2080
Net gain (loss) on
securities and
foreign currency
related items (both
realized and
unrealized)......... 0.1521 2.4649 0.9389 1.7225
-------- ------- ------- -------
Total from investment
operations.......... 0.1869 2.6924 1.0962 1.9305
-------- ------- ------- -------
Less Distributions:
Dividends from net
investment income... (0.0468) (0.2429) (0.1300) (0.3136)
Distributions (from
realized gains)..... -- (0.1511) (0.1462) (1.5069)
-------- ------- ------- -------
Total
distributions....... (0.0468) (0.3940) (0.2762) (1.8205)
-------- ------- ------- -------
Net asset value, end
of period............ $ 14.38 $ 14.24 $ 11.94 $ 11.12
======== ======= ======= =======
Total Returns......... 1.30%(b) 23.03% 9.99% 21.56%
Ratios/Supplemental
Data:
Net assets, end of
period (000)........ $38,294 $38,926 $30,853 $5,342
Ratios to average
daily net assets:
Operating expenses... 1.35%(a)(c) 1.35%(c) 1.53%(c) 1.53%
Net investment
income.............. 1.38%(a) 1.76% 1.66% 2.30%
Decrease reflected in
above operating
expense ratios due
to
waivers/reimbursements.. .68%(a) .55% .90% 4.51%
Portfolio turnover
rate................. 15%(b) 120% 108% 107%
Average commission
rate................. $ 0.0430(e) $0.0400(e) $0.0453(e) N/A
<CAPTION>
For the Period
October 6, 1988
(Commencement
For the Years Ended August 31, of Operations) to
-------------------------------------------------------- August 31,
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 11.71 $ 12.04 $ 12.05 $ 10.60 $ 11.32 $ 10.00
------- ------- ------- ------- ------- -------
Income from
Investment
Operations:
Net investment
income.............. 0.4132 0.5555 0.4408 0.4213 0.4080 0.4371
Net gain (loss) on
securities and
foreign currency
related items (both
realized and
unrealized)......... 0.3248 1.1253 0.5155 1.7196 (0.2785) 1.2239
------- ------- ------- ------- ------- -------
Total from investment
operations.......... 0.7380 1.6808 0.9563 2.1409 0.1295 1.6610
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income... (0.4586) (0.5412) (0.3713) (0.4128) (0.4296) (0.3419)
Distributions (from
realized gains)..... (0.9794) (1.4696) (0.5950) (0.2781) (0.4199) --
------- ------- ------- ------- ------- -------
Total
distributions....... (1.4380) (2.0108) (0.9663) (0.6909) (0.8495) (0.3419)
------- ------- ------- ------- ------- -------
Net asset value, end
of period............ $ 11.01 $ 11.71 $ 12.04 $ 12.05 $ 10.60 $ 11.32
======= ======= ======= ======= ======= =======
Total Returns......... 6.86%(d) 15.27%(d) 8.07%(d) 21.18%(d) 1.09%(d) 17.03%(b)(d)
Ratios/Supplemental
Data:
Net assets, end of
period (000)........ $808 $762 $1,026 $1,290 $1,373 $1,128
Ratios to average
daily net assets:
Operating expenses... 0% 0% 0.67% 1.40% 1.40% 1.40%(a)
Net investment
income.............. 3.76% 4.13% 3.68% 3.58% 3.80% 4.90%(a)
Decrease reflected in
above operating
expense ratios due
to
waivers/reimbursemen 5.46% 5.37% 3.21% 2.49% 2.36% 1.43%(a)
Portfolio turnover
rate................. 32% 30% 93% 76% 95% 35%(b)
Average commission
rate................. N/A N/A N/A N/A N/A N/A
</TABLE>
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(a) Annualized.
(b) Non-annualized.
(c) 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.
(d) Sales load not reflected in total return. The sales load was eliminated
effective August 31, 1994.
(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.
4
<PAGE> 6
INVESTMENT OBJECTIVES AND POLICIES
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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.
5
<PAGE> 7
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 investing in equity and
fixed income 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. Compliance with
these percentage requirements may limit the ability of the Fund to maximize
total return. 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 may invest
up to 15% of its total assets in securities of foreign issuers.
Although the Fund may hold securities of companies with capitalizations of any
size, the Fund currently expects to focus on equity securities of large U.S.
companies, i.e., companies having market capitalizations within the range of
capitalizations of companies represented in the S&P 500 Index. (As of March 31,
1998, the S&P 500 Index included companies with market capitalizations between
$483 million and $282 billion.) The Fund's general investment policy with
respect to equity securities is to invest in those securities that Warburg
considers to be undervalued. In making this determination, Warburg may consider,
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. These factors are not applied in a mechanical way;
rather, Warburg analyzes each security individually, taking into account all
relevant factors.
Equity securities held by the Fund may 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's
fixed income securities consist primarily of corporate bonds, debentures and
notes; non-convertible preferred stocks; government, municipal, bank and
commercial obligations and asset-backed and mortgage-backed securities.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
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 ex-
6
<PAGE> 8
pected 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.
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.
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 underly-
7
<PAGE> 9
ing 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 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; 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
8
<PAGE> 10
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 underlying 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 6 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
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<PAGE> 11
and therefore subject to each Fund's limitation on the purchase of illiquid
securities, unless the Fund's Board determines on an ongoing basis that an
adequate trading market exists for the security. In addition to an adequate
trading market, the Boards will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Funds to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board of each Fund will carefully monitor
any investments by the Fund in Rule 144A Securities. The Boards may adopt
guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although each Board will
retain ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and a Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
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
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<PAGE> 12
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 the Funds.
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.
YEAR 2000 COMPLIANCE. Many services provided to the Funds and their
shareholders by Warburg and certain of its affiliates (collectively, the
"Warburg Service Providers") and the Funds' other service providers rely on the
functioning of their respective computer systems. Many computer systems cannot
distinguish the year 2000 from the year 1900, with resulting potential
difficulty in performing various calculations (the "Year 2000 Issue"). The Year
2000 Issue could potentially have an adverse impact on the handling of security
trades, the payment of interest and dividends, pricing, account services and
other Fund operations.
The Warburg Service Providers recognize the importance of the Year 2000 Issue
and are taking appropriate steps necessary in preparation for the year 2000. At
this time, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Funds nor can there be any assurance that the
Year 2000 Issue will not have an adverse effect on the Funds' investments or on
global markets or economies, generally. In addition, it has been reported that
foreign institutions have made less progress in addressing the Year 2000 Issue
than major U.S. entities, which could adversely affect the Funds' foreign
investments.
The Warburg Service Providers anticipate that their systems and those of the
Funds' other service providers will be adapted in time for the year 2000. To
further this goal, the Warburg Service Providers have coordinated a plan to
repair, adapt or replace systems that are not year 2000 compliant, and are
seeking to obtain similar representations from the Funds' other major service
providers. The Warburg Service Providers will be monitoring the Year 2000 Issue
in an effort to ensure appropriate preparation.
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<PAGE> 13
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 the Funds'
Statement of Additional Information.
All orders for transactions in securities or options on behalf of a Fund are
placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ("Counsellors Securities"). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Fund's Board.
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no current intention of doing so during the coming year,
each Fund is authorized to engage in the following investment strategies: (i)
lending portfolio securities and (ii) entering into reverse repurchase
agreements. Detailed information concerning each Fund's strategies and related
risks is contained below and in the Funds' 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
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<PAGE> 14
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 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
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<PAGE> 15
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
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.
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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 security
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 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 pre-
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ferred 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 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
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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.
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
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<PAGE> 19
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 Funds' 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 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 para-
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graph 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 the Funds' 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 March 31, 1998,
Warburg managed approximately $21.2 billion of assets, including approximately
$12.4 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. 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. Brian S. Posner, Scott T. Lewis and Dale C. Christensen serve
as Co-Portfolio Managers of the Fund. Mr. Posner and Mr. Lewis, each
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of whom has been a Co-Portfolio Manager of the Fund since March 1998, manage the
equity portion of the Fund, and Mr. Christensen, who has been a Co-Portfolio
Manager of the Fund since its inception, manages the fixed income portion. Mr.
Posner's background is described immediately above. Mr. Christensen is a
Managing Director of Warburg and has been associated with Warburg since 1989.
Mr. Lewis is a Vice President of Warburg and has been associated with Warburg
since 1986.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
("Counsellors Service"), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds, including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Funds' Boards, preparing proxy
statements and annual 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., an affiliated company
("BFDS"), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, North Quincy, Massachusetts
02171.
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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-
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.
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<PAGE> 23
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
OR
Overnight to:
BFDS
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, Massachusetts 02171
Completed and signed account applications should be sent to the above.
RETIREMENT PLANS AND UTMA/UGMA ACCOUNTS. For information (i) about investing
in the Funds through a tax-advantaged retirement plan, such as an Individual
Retirement Account ("IRA") or (ii) about opening a Uniform Gifts to Minors Act
("UGMA") account or Uniform Transfers to Minors Act ("UTMA") account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874 or write to
Warburg Pincus Funds at an address set forth above. Investors should consult
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, address and/or privileges, 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 unsecured
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 and automated clearing house transactions ("ACH on
Demand"). 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 or by ACH on Demand,
as described below. For certain retirement plans (described above) and UTMA/UGMA
accounts, the minimum initial investment is $500. The Fund reserves the right to
change the initial and subsequent investment minimum requirements at any time.
In addition, each Fund may, in its sole discretion, waive the initial and
subsequent investment minimum requirements with respect to investors who are
employees of Warburg or its affiliates or persons with whom Warburg has entered
into an investment advisory agreement. Existing investors will be
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<PAGE> 24
given 15 days' notice by mail of any increase in minimum investment
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 a Fund are
not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check or
money order made payable to a Fund or Warburg Pincus Funds (in U.S. currency)
should be sent along with the completed account application to Warburg Pincus
Funds through its distributor, Counsellors Securities, at an 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 prior to 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 at or after the close of regular trading
on the NYSE, the purchase will be effected at the Fund's net asset value
determined for the next business day after payment has been received. Checks or
money orders that are not in proper form or that are not accompanied or preceded
by a complete account application will be returned to the sender. Shares
purchased by check or money order are entitled to receive dividends and
distributions beginning on the day payment is 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 the 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
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<PAGE> 25
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 Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
[Insert Warburg Pincus Fund name(s) here]
DDA# 9904-649-2
F/F/C: [Account; Number and Account Registration]
If a telephone order is received prior to 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. However, if a wire in proper
form that is not preceded by a telephone order is received at or 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.
AUTOMATIC MONTHLY INVESTMENT PLAN AND ACH ON DEMAND. The Automatic Monthly
Investment Plan allows shareholders to authorize a Fund or its agent 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. Shareholders may
also purchase shares by calling (800) 927-2874 on any business day to request
direct debit or credit (for redemptions) of their bank account through an ACH on
Demand transaction.
To establish the Automatic Monthly Investment Plan and/or ACH on Demand
option, obtain a separate application or complete the relevant section of the
account application. Only an account maintained at a financial institution which
is an automated clearing house member may be used, and one common name must
appear on both the shareholder's Fund registration and bank account
registration. Shareholders using this service must satisfy the initial
investment minimum for the Fund prior to or concurrent with the start of any
Automatic Monthly Investment Plan or ACH on Demand transaction. Please contact
Warburg Pincus Funds at (800) 927-2874 for additional information. Investors
should allow a period of up to 30 days in order to implement an Automatic
Monthly Investment Plan or ACH on Demand transaction. The failure to provide
complete information could result in further delays.
If an ACH on Demand transaction request is received prior to the close of
regular trading on the NYSE, the shares will be priced according to the net
asset value of Fund shares on that day and are entitled to dividends and
distributions are described above for wire purchases. If a request is received
at or after the close of regular trading on the NYSE, the shares will be priced
at the relevant Fund's net asset value on the following business day.
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<PAGE> 26
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application
or if the ACH on Demand option is elected an investor may request transactions
by telephone. Investors should realize that in conducting transactions by
telephone they may be giving up a measure of security that they may have if they
were to conduct these transactions in writing. 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 designed to give reasonable assurance that instructions
communicated by telephone are genuine. Such procedures include providing a
written confirmation of telephone transactions, tape recording telephone
instructions and requiring specific personal information prior to acting upon
telephone instructions.
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,
exchanges or redemptions. Each Fund is also available through certain
broker-dealers, financial institutions and other industry professionals
(including the brokerage firms offering the programs described above,
collectively, "Service Organizations"). Certain features of each Fund, 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 Fund. 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, exchange 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 Fund in
accordance with their agreements with the fund and 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 a Fund's 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. The Fund may be deemed to have received a
purchase or redemption order when a Service Organization, or, if applicable, its
authorized designee, accepts the order. Such orders received by the 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 a fee of up to .40% (the
"Service
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<PAGE> 27
Fee") of the average annual value of accounts with the Fund maintained by such
Service Organizations or recordkeepers. A portion of the Service Fee may be
borne by the Fund 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 services provided, the operations processing requirements of the
relationship and the standardized fee schedule of the Service Organization or
recordkeeper.
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, 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. 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 the 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. If
an investor desires to redeem his shares by mail, a written request for
redemption should be sent to Warburg Pincus Funds at an 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. Payment of redemption proceeds may be delayed in
connection with account changes. 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. An investor making a telephone withdrawal should state
(i) the name of the Fund, (ii) the account number of the Fund, (iii) the name of
the investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn
and (v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
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<PAGE> 28
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
an address shown above under "How to Open an Account." Although each Fund will
redeem shares purchased by check, through the Automatic Monthly Investment Plan
or by ACH on Demand before the funds or check clear, payments of the redemption
proceeds will be delayed for up to five days (for funds received through the
Automatic Monthly Investment Plan or by ACH on Demand) or up to 10 days (for
check purchases) from the date of purchase. Investors should consider purchasing
shares using a certified or bank check, money order or federal funds wire 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 at or 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
$2,000 ($250 in the case of a retirement plan or UTMA/UGMA account), 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 $250 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
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<PAGE> 29
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. The Fund may refuse exchange purchases at any time
without prior notice. Currently, exchanges may be made among the Funds and with
the following other funds:
- - WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
- - WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
- - WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
- - WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
- - WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
- - WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies,
including U.S. dollars;
- - WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing 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;
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- - WARBURG PINCUS SMALL COMPANY GROWTH FUND* -- an equity fund seeking capital
growth by investing in equity securities of small-sized domestic companies;
- - WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;
- - WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
- - WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity securities of
U.S. and foreign issuers in their post-venture capital stage of development;
- - WARBURG PINCUS MAJOR FOREIGN MARKETS FUND -- an equity fund seeking long-term
capital appreciation by investing in equity securities of issuers consisting
of companies in major foreign securities markets;
- - 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.
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
- ---------------
* 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.
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<PAGE> 31
otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. The Funds reserve the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.
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 the Fund's portfolio securities for the applicable period less
applicable expenses. Each Fund declares and pays its dividends from its net
investment income quarterly. Each Fund declares distributions of 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 an
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. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains 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
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<PAGE> 32
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 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. A Fund's 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. Each 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 a Fund 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
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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 which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, 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 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
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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 the average annual total return of its Common
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Common
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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).
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 total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describe the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Funds at
(800) 927-2874.
Each Fund may compare its performance with (i) 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 S&P 500 Index; or (iii) 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, Mutual Fund Magazine, Smart Money, The Wall Street Journal and
Worth. 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 also describe the general biography or work experience of the portfolio
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managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Fund with respect
to relevant market and industry benchmarks. Each Fund may also discuss measures
of risk, 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,
qualifications and terms and conditions of redemption. A 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) 927-2874.
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
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no meetings of investors for the purpose of electing members of the governing
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. Lionel I. Pincus may be deemed to be a controlling person of the Balanced
Fund and the Growth & Income Fund because he may be deemed to possess or share
investment power over shares owned by clients of Warburg.
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 Monthly
Investment Plan). 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 or on the Warburg Pincus Funds' Web site
at www.warburg.com.
The Common Share prospectuses of the Funds are combined in this Prospectus.
Each Fund offers only its own shares, yet it is possible that a Fund might
become liable for a misstatement, inaccuracy or omission in this Prospectus with
regard to another Fund.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE 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 EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE COMMON SHARES
OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 5
Portfolio Investments.................................... 6
Risk Factors and Special Considerations.................. 9
Portfolio Transactions and Turnover Rate................. 12
Certain Investment Strategies............................ 12
Investment Guidelines.................................... 18
Management of the Funds.................................. 19
How to Open an Account................................... 22
How to Purchase Shares................................... 22
How to Redeem and Exchange Shares........................ 26
Dividends, Distributions and Taxes....................... 30
Net Asset Value.......................................... 32
Performance.............................................. 32
General Information...................................... 34
</TABLE>
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPGBT-1-0598A
