WARBURG PINCUS GROWTH & INCOME FUND INC, 497, 1998-05-19

WARBURG PINCUS GROWTH & INCOME FUND INC
497, 1998-05-19

Previous: WARBURG PINCUS BALANCED FUND INC, 497, 1998-05-19

Next: LUCENT TECHNOLOGIES INC, SC 14D1/A, 1998-05-19

<PAGE> 1

PROSPECTUS

May 14, 1998

WARBURG PINCUS
GROWTH & INCOME FUND

WARBURG PINCUS
BALANCED FUND

[WARBURG PINCUS FUNDS LOGO]
<PAGE> 2

PROSPECTUS May 14, 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
- --------------------------------------------------------------------------------

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

The minimum initial investment in each Fund is $1,000 ($500 for an IRA or
Uniform Transfers/Gifts to Minors Act account) and the minimum subsequent
investment is $100. Through the Automatic Monthly Investment Plan, subsequent
investment minimums may be as low as $50. See "How to Purchase Shares."

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 3

THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
Warburg Pincus Growth & Income Fund and Warburg Pincus Balanced Fund (each a
"Fund" and together, the "Funds") currently offer two separate classes of
shares: Common Shares and Advisor Shares. For a description of Advisor Shares
see "General Information." Common Shares of the Balanced Fund pay the Fund's
distributor a 12b-1 fee. See "Management of the Funds -- Distributor."

<TABLE>
<CAPTION>
Growth &
Income Balanced
Fund Fund
---- ----
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................... 0 0
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after fee waivers)..................... .25% .37%+
12b-1 Fees.............................................. .00% .25%
Other Expenses (after expense reimbursements)........... .93% .73%+
---- ----
Total Fund Operating Expenses (after fee waivers and
expense reimbursements)............................... 1.18% 1.35%+
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 year................................................... $ 12 $ 14
3 years.................................................. $ 37 $ 43
5 years.................................................. $ 65 $ 74
10 years.................................................. $143 $162
</TABLE>

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

---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in a Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, each Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of the Balanced Fund may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc. (the "NASD").

2
<PAGE> 4

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

The tables below set forth certain information concerning the investment
results of the Common Shares of the Warburg Pincus Growth & Income and Balanced
Funds (formerly investment portfolios of The RBB Fund, Inc. (the "RBB Fund"))
for the periods indicated. The financial data included in this table for the
fiscal years ended August 31, 1996 and 1997 and for the two months ended October
31, 1997 has been audited by Coopers & Lybrand L.L.P., independent accountants,
whose report dated December 19, 1997 is incorporated by reference to the
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>

- --------------------------------------------------------------------------------
(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>

- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
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.

9
<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

10
<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.

11
<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.

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

12
<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

13
<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.

14
<PAGE> 16

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-

15
<PAGE> 17

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

16
<PAGE> 18

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

17
<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-

18
<PAGE> 20

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

19
<PAGE> 21

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.

20
<PAGE> 22

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.

21
<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

22
<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

23
<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.

24
<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

25
<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

26
<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

27
<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;

28
<PAGE> 30

- - 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.

29
<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

30
<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

31
<PAGE> 33

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

32
<PAGE> 34

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

33
<PAGE> 35

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

34
<PAGE> 36

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.

35
<PAGE> 37

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 LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
www.warburg.com

COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPGBT-1-0598
<PAGE> 38

PROSPECTUS
WARBURG PINCUS ADVISOR FUNDS MAY 14, 1998

GROWTH &

INCOME FUND

[WARBURG PINCUS LOGO]
ASSET MANAGEMENT
<PAGE> 39

PROSPECTUS December 31, 1997
AS SUPPLEMENTED MAY 14, 1998

Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:

WARBURG PINCUS GROWTH & INCOME FUND seeks long-term growth of capital and income
and a reasonable current return by investing primarily in equity securities.

The Fund currently offers two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Fund,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name "Warburg Pincus Advisor Funds." Individual investors may
purchase Advisor Shares only through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ("Institutions"). The Advisor Shares
impose a 12b-1 fee of .50% per annum, which is the economic equivalent of a
sales charge. The Fund's Common Shares are available for purchase by individuals
directly and are offered by a separate prospectus.

NO MINIMUM INVESTMENT
- --------------------------------------------------------------------------------

There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See "How to Purchase Shares."

This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission (the "SEC"). The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is also available upon request and without
charge by calling Warburg Pincus Advisor Funds at (800) 369-2728. Information
regarding the status of shareholder accounts may also be obtained by calling
Warburg Pincus Advisor Funds at the same number. Warburg Pincus Funds maintain a
Web site at www.warburg.com. The Statement of Additional Information relating to
the Fund, as amended or supplemented from time to time, bears the same date as
this Prospectus and is incorporated by reference in its entirety into this
Prospectus.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 40

THE FUND'S EXPENSES
- --------------------------------------------------------------------------------
Warburg Pincus Growth & Income Fund (the "Fund") currently offers two separate
classes of shares: Common Shares and Advisor Shares. See "General Information."
Because of the higher fees paid by Advisor Shares, the total return on such
shares can be expected to be lower than the total return on Common Shares.

<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................... 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees......................................... .75%
12b-1 Fees.............................................. .50%*
Other Expenses.......................................... .33%
----
Total Fund Operating Expenses........................... 1.58%
====
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 year................................................... $ 16
3 years.................................................. $ 50
5 years.................................................. $ 86
10 years.................................................. $188
</TABLE>

- --------------------------------------------------------------------------------
* Current 12b-1 fees are .50% out of a maximum of .75% authorized under the
Advisor Shares' Distribution Plan. At least a portion of these fees should be
considered by the investor to be the economic equivalent of a sales charge.

---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in the Fund's Advisor Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of Advisor Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc. (the "NASD").

2
<PAGE> 41

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The table below sets forth certain information concerning the investment
results of shares of the Fund (formerly an investment portfolio of The RBB Fund,
Inc. (the "RBB Fund")) for the periods indicated. The financial data included in
this table for the fiscal years ended August 31, 1996 and 1997 and for the two
months ended October 31, 1997 has been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report dated December 19, 1997 is incorporated by
reference to the Statement of Additional Information. The financial data
included in this table for the period from May 15, 1995 to August 31, 1995
relates solely to the Advisor Shares of the Warburg Pincus Growth & Income Fund
investment portfolio of the RBB Fund and is part of the RBB Fund's financial
statements, which have also been audited by Coopers & Lybrand L.L.P. Further
information about the performance of the Fund is contained in the Fund's annual
report for the period ended October 31, 1997, copies of which may be obtained
without charge by calling Warburg Pincus Funds at (800) 369-2728.

WARBURG PINCUS GROWTH & INCOME FUND

<TABLE>
<CAPTION>
For the Period
For the Years May 15, 1995
For the Two Ended August 31, (Commencement
Months Ended -------------------- of Operations) to
October 31, 1997 1997 1996 August 31, 1995
---------------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $18.42 $14.88 $16.38 $ 14.87
------ ------ ------ -------
Income From Investment
Operations:
Net Investment Income.......... 0.0118 0.0727 0.0800 0.0236
Net Gains (Losses) on
Securities (both realized and
unrealized).................. 0.1377 3.5474 (0.6931) 1.5323
------ ------ ------ -------
Total from Investment
Operations................... 0.1495 3.6201 (0.6131) 1.5559
------ ------ ------ -------
Less Distributions
Dividends (from Net Investment
Income)...................... (0.0193) (0.0808) (0.0736) (0.0459)
Distributions (from Realized
Gains)....................... -- -- (0.8133) --
------ ------ ------ -------
Total Distributions............ (0.0193) (0.0808) (0.8869) (0.0459)
------ ------ ------ -------
Net Asset Value, End of Period..... $18.55 $18.42 $14.88 $ 16.38
====== ====== ====== =======
Total Returns...................... .81%(b) 24.37% (3.92%) 10.49%(b)
Ratios/Supplemental Data
Net Assets, End of Period(000)..... $87,929 $84,867 $79,565 $56,902
Ratios to average daily net assets:
Operating expenses............... 1.58%(a)(c) 1.54%(c) 1.59%(c) 1.92%(a)
Net investment income............ .35%(a) .43% .28% .43%(a)
Decrease reflected in above
operating expense ratios due to
waivers/reimbursements......... .00% .00% .00% .00%
Portfolio Turnover Rate............ 19%(b) 148% 94% 109%(a)
Average Commission Rate............ $0.0600(d) $0.0587(d) $0.0596(d) N/A
</TABLE>

- --------------------------------------------------------------------------------
(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) 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> 42

INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objectives are to seek long-term growth of capital and
income and a reasonable current return. The Fund's objectives and policies are
non-fundamental policies and may be changed 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 Fund may make.
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 Fund's
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.

PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Fund may invest in debt securities and preferred stocks.
When Warburg believes that a defensive posture is warranted, the

4
<PAGE> 43

Fund may invest temporarily without limit in investment grade debt obligations
and in domestic and foreign money market obligations, including repurchase
agreements. Debt obligations of corporations in which the Fund may invest
include corporate bonds, debentures, debentures convertible into common stocks
and notes. The interest income to be derived may be considered as one factor in
selecting debt securities for investment by Warburg. The market value of debt
obligations may be expected to vary depending upon, among other factors,
interest rates, the ability of the issuer to repay principal and interest, any
change in investment rating and general economic conditions.
Up to 10% of the Fund's net asset 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. The Fund's holdings of debt
securities rated below investment grade (commonly referred to as "junk bonds")
may be rated as low as C by Moody's or D by S&P at the time of purchase, or may
be unrated securities considered to be of equivalent quality. Securities that
are rated C by Moody's comprise the lowest rated class and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated D by S&P is in default or is expected to default upon maturity or
payment date. In selecting debt securities for the Fund, Warburg will review and
monitor the creditworthiness of each issuer and issue, in addition to relying on
ratings assigned by Moody's or S&P. Interest rate trends and specific
developments which may affect individual issuers will also be analyzed.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.
Among the types of debt securities in which the Fund may invest are asset-
backed and mortgage-backed securities.
Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle has not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The remaining maturity of
any asset-backed security the Fund invests in will be 397 days or less. The Fund
may purchase asset-backed securities that are unrated.

5
<PAGE> 44

Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
U.S. GOVERNMENT SECURITIES. The obligations issued or guaranteed by the U.S.
government in which the Fund may invest include: direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association); instruments that are supported by the right of the issuer to
borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks);
and instruments that are supported by the credit of the instrumentality (such as
Federal National Mortgage Association and Federal Home Loan Mortgage Corporation
bonds).
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
market conditions, up to 20% of its assets in domestic and foreign short-term
(one year or less remaining to maturity) money market obligations. Money market
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments; commercial paper rated no lower than A-2 by
S&P or Prime-2 by Moody's or the equivalent from another major rating service
or, if unrated, of an issuer having an outstanding, unsecured debt issue then
rated within the three highest rating categories; and repurchase agreements with
respect to the foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain nonbank
dealers. Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under the terms of a typical repurchase agreement, the Fund
would acquire any underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the

6
<PAGE> 45

seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board, monitors the creditworthiness of those bank and non-bank dealers
with which the Fund enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the Investment Company Act
of 1940, as amended (the "1940 Act").
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund or Warburg. As a shareholder in any
mutual fund, the Fund will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Fund's
administration fees and other expenses with respect to assets so invested.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Up to 10% of the Fund's net assets may be invested
in convertible securities rated below investment grade at the time of purchase
(as low as C by Moody's or D by S&P) or deemed by Warburg to be of equivalent
quality. Subsequent to purchase by the Fund, convertible securities may cease to
be rated or a rating may be reduced. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.
WARRANTS. The Fund may invest up to 15% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.

7
<PAGE> 46

RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in securities is subject to the inherent risk of fluctuations in the
prices of such securities. For certain additional risks relating to the Fund's
investments, see "Portfolio Investments" beginning at page 4, and "Certain
Investment Strategies" beginning at page 10.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the "Securities Act"), but that can be sold to "qualified institutional buyers"
in accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board will carefully monitor any investments by the Fund in Rule 144A
Securities. The Board may adopt guidelines and delegate to Warburg the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board will retain ultimate responsibility for any determination
regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
BELOW INVESTMENT GRADE SECURITIES. Medium- and lower-rated debt securities and
comparable unrated securities (commonly referred to as "junk bonds") (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The market

8
<PAGE> 47

values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than higher
quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market value of securities in these ratings categories is more volatile
than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Fund's ability to dispose of particular issues and
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
For a complete description of the rating systems of Moody's and S&P, see the
appendix to the Statement of Additional Information for the Fund.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging
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 Fund and its shareholders
by Warburg and certain of its affiliates (collectively, the "Warburg Service
Providers") and the Fund's 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 Fund nor can there be any assurance that the
Year 2000 Issue will not have an adverse effect on the Fund's investments or on
global markets or economies, generally. In addition, it has been reported that
foreign institutions have made less progress in

9
<PAGE> 48

addressing the Year 2000 Issue than major U.S. entities, which could adversely
affect the Fund's foreign investments.
The Warburg Service Providers anticipate that their systems and those of the
Fund's 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 Fund's other major service
providers. The Warburg Service Providers will be monitoring the Year 2000 Issue
in an effort to ensure appropriate preparation.

PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
The Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the Fund. The Fund will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies. It is not possible to
predict the Fund's portfolio turnover rates. High portfolio turnover rates (100%
or more) may result in dealer markups or underwriting commissions as well as
other transaction costs, including correspondingly higher brokerage commissions.
In addition, short-term gains realized from portfolio turnover may be taxable to
shareholders as ordinary income. See "Dividends, Distributions and
Taxes -- Taxes" below and "Investment Policies -- Portfolio Transactions" in the
Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund are
placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ("Counsellors Securities"). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.

CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no current intention of doing so during the coming year, the
Fund is authorized to engage in the following investment strategies: (i) lending
portfolio securities and (ii) entering into reverse repurchase agreements.
Detailed information concerning the Fund's strategies and related risks is
contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in U.S. investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial

10
<PAGE> 49

reporting standards and other regulatory practices and requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Fund, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher valuation
and communications costs and the expense of maintaining securities with foreign
custodians.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with ADRs,
European Depositary Receipts ("EDRs") and International Depositary Receipts
("IDRs"), instruments that evidence ownership in underlying securities issued by
a foreign corporation. ADRs, EDRs and IDRs may not necessarily be denominated in
the same currency as the securities whose ownership they represent. ADRs are
typically issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe, and IDRs (sometimes
referred to as Global Depositary Receipts) are issued outside the United States,
each typically by non-U.S. banks and trust companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options,
futures and forward currency contracts. These strategies, commonly referred to
as "derivatives," may be used (i) for the purpose of hedging against a decline
in value of the Fund's current or anticipated portfolio holdings, (ii) as a
substitute for purchasing or selling portfolio securities, or (iii) except with
respect to currency exchange transactions, to seek to generate income to offset
expenses or increase return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD
BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE THE FUND'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect the Fund's net asset value and performance.
Therefore, an investment in the Fund may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. The
Fund's use of these strategies may be limited by

11
<PAGE> 50

position and exercise limits established by securities and commodities exchanges
and other applicable regulatory authorities.
Securities and Stock Index Options. The Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as "premiums") for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ("OTC"). The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option on a security has the right to purchase the
underlying security from the writer. A stock index measures the movement of a
certain group of stocks by assigning relative values to the stocks included in
the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of an interest rate sensitive security or, in
the case of index futures contracts, are settled in cash with reference to a
specified multiplier times the change in the specified interest rate or index.
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing exchange-
traded currency options. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date at a price set at the time

12
<PAGE> 51

of the contract. An option on a foreign currency operates similarly to an option
on a security. Risks associated with currency forward contracts and purchasing
currency options are similar to those described in this Prospectus for futures
contracts and securities and stock index options. In addition, the use of
currency transactions could result in losses from the imposition of foreign
exchange controls, suspension of settlement or other governmental actions or
unexpected events.
Hedging Considerations. A hedge is designed to offset a loss on a portfolio
position with a gain in the hedge position; at the same time, however, a
properly correlated hedge will result in a gain in the portfolio position being
offset by a loss in the hedge position. As a result, the use of options and
futures contracts and currency exchange transactions for hedging purposes could
limit any potential gain from an increase in value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. The Fund will engage in hedging transactions
only when deemed advisable by Warburg, and successful use of hedging
transactions will depend on Warburg's ability to correctly predict movements in
the hedge and the hedged position and the correlation between them, which could
prove to be inaccurate. Even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or liquid securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise "covered" through ownership of the underlying
security or financial instrument or by other portfolio positions or by other
means consistent with applicable regulatory policies. Segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
SHORT SALES AGAINST THE BOX. The Fund may enter into a short sale of
securities such that when the short position is open the Fund owns an equal

13
<PAGE> 52

amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one "against the box," may be entered into by the Fund to, for
example, lock in a sale price for a security the Fund does not wish to sell
immediately. The Fund will deposit, in a segregated account with its custodian
or a qualified subcustodian, the securities sold short or convertible or
exchangeable preferred stocks or debt securities in connection with short sales
against the box. Not more than 10% of the Fund's net assets (taken at current
value) may be held as collateral for short sales against the box at any one
time.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fund may 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. The Fund is required to segregate assets
equal to the amount of its when-issued and delayed-delivery purchase
commitments.
REITS. The 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.

14
<PAGE> 53

INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
The Fund may invest up to 15% of its net assets in securities with contractual
or other restrictions on resale and other instruments that are not readily
marketable ("illiquid securities"), including (i) securities issued as part of a
privately negotiated transaction between an issuer and one or more purchasers;
(ii) repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
Securities. The Fund may borrow from banks for temporary or emergency purposes,
such as meeting anticipated redemption requests, provided that reverse
repurchase agreements and any other borrowing by the Fund may not exceed 30% of
its total assets at the time of borrowing. The Fund may also pledge its assets
in connection with borrowings up to 125% of the amount borrowed. Whenever
borrowings (including reverse repurchase agreements) exceed 5% of the value of
the Fund's total assets, the Fund will not make any additional investments
(including rollovers). Except for the limitations on borrowing, the investment
guidelines set forth in this paragraph may be changed at any time without
shareholder consent by vote of the Board of each Fund, subject to the
limitations contained in the 1940 Act. A complete list of investment
restrictions that the Fund has adopted identifying additional restrictions that
cannot be changed without the approval of the majority of the Fund's outstanding
shares is contained in the Statement of Additional Information.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Fund employs Warburg as its investment adviser.
Warburg, subject to the control of the Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment objectives and stated investment policies. Warburg makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate of .75% of the Fund's average daily net assets. Warburg and
the Fund's co-administrators may voluntarily waive a portion of their fees from
time to time and temporarily limit the expenses to be paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of 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

15
<PAGE> 54

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 MANAGER. 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.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
("Counsellors Service"), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual and semiannual reports, assisting in the preparation of tax returns and
monitoring and developing compliance procedures for the Funds. As compensation,
the Fund pays Counsellors Service a fee calculated at an annual rate of .05% of
the Fund's first $125 million of average daily net assets and .10% of average
daily net assets over $125 million.
The Fund employs PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of
PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays PFPC a fee calculated at an annual rate of .15% of the Fund's first $500
million of average daily net assets, .10% of the next $1 billion in average
daily net assets, and .05% of average daily net assets over $1.5 billion. PFPC
has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC") serves as custodian of the
U.S. assets of the Fund and State Street Bank and Trust Company ("State Street")
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. State Street has

16
<PAGE> 55

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.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Advisor Shares to Counsellors Securities for distribution
services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of a Fund
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Fund. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. In some instances, these
incentives may be offered only to certain institutions whose representatives
provide services in connection with the sale or expected sale of significant
amounts of the Fund's shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.

HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
In order to invest in the Fund, an account application must first be completed
and signed. To obtain an application, telephone the Fund at (800) 369-2728. An
application may also be obtained by writing to:
Warburg Pincus Advisor Funds
P.O. Box 4906
Grand Central Station
New York, New York 10163
Attn: Institutional Services
OR
Overnight to:
Warburg Pincus Advisor Funds
335 Madison Avenue
15th Floor
New York, New York 10017
Attn: Institutional Services

17
<PAGE> 56

Completed and signed applications should be mailed to the above. References in
this Prospectus to shareholders or investors also include Institutions which may
act as record holders of the Advisor Shares.
UTMA/UGMA ACCOUNTS. For information about opening a Uniform Transfers to
Minors Act ("UTMA") account or Uniform Gifts to Minors Act ("UGMA") account, an
Institution should telephone the Fund at (800) 369-2728 or write to the Fund at
the address set forth above. Individual investors should consult their own tax
advisers about the establishment of UTMA or UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, telephone
the Fund at (800) 369-2728. Institutions and their customers are responsible for
maintaining current account registrations and addresses with the Fund. No
interest will be paid on amounts represented by uncashed distribution or
redemption checks.

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. References in this Prospectus to
shareholders or investors are generally to Institutions as the record holders of
the Advisor Shares.
Each Institution separately determines the rules applicable to its customers
investing in the Fund, including minimum initial and subsequent investment
requirements and the procedures to be followed to effect purchases, redemptions
and exchanges of Advisor Shares. There is no minimum amount of initial or
subsequent purchases of Advisor Shares imposed on Institutions, although the
Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Advisor 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
account number and the name of the Fund in which shares are being purchased. In
the interest of economy and convenience, physical certificates representing
shares in the Fund are not normally issued.
BY MAIL. To purchase Advisor Shares by mail, a check or money order made
payable to the Fund or Warburg Pincus Advisor Funds (in U.S. currency) should be
sent along with a completed account application to Warburg Pincus Advisor Funds
at an address set forth above. Checks payable to the investor and endorsed to
the order of the Fund or Warburg Pincus Advisor 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

18
<PAGE> 57

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 Fund should be made payable to Warburg Pincus Advisor 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. Advisor Shares in the Fund may also be purchased by wired funds from
a bank. 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. Orders should be placed with the Fund prior to wiring funds by
telephoning (800) 369-2728. 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
Warburg Pincus Growth & Income Fund
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.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application,
transactions may be conducted by telephone. Institutions 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 the Fund nor its agents will be liable for following instructions
communicated by telephone that it reasonably believes

19
<PAGE> 58

to be genuine. Reasonable procedures will be employed on behalf of the Fund
designed to give reasonable assurance that instructions communicated by
telephone are genuine. Such procedures include providing written confirmation of
telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
GENERAL. The Fund understands Institutions may impose certain conditions on
their clients or customers that invest in the Fund, which are in addition to or
different than those described in this Prospectus, and may charge their clients
or customers transaction or administrative changes or other direct fees. Certain
features of the Fund, such as the initial and subsequent investment minimums,
redemption fees and certain trading restrictions, may be modified or waived by
Institutions. Therefore, a client or customer should contact the Institution
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 account with the Institution. Institutions
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.
Institutions or, if applicable, their designees may enter confirmed purchase,
exchange or redemption orders on behalf of clients and customers, with payment
to follow no later than the Fund's pricing on the following business day. If
payment is not received by such time, the Institution could be held liable for
resulting fees or losses. The Fund may be deemed to have received a purchase or
redemption order when an Institution, 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 Institution or its authorized designee.
The 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, the Fund would be unable to invest the money effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. The Fund may discontinue sales of its shares
if management believes that a substantial further increase in assets may
adversely affect the Fund's ability to achieve its investment objective. In such
event, however, it is anticipated that existing shareholders would be permitted
to continue to authorize investment in the Fund and to reinvest any dividends or
capital gains distributions.

HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see "Net Asset Value" below). Requests for
the redemption (or exchange) of Advisor Shares are placed with

20
<PAGE> 59

an Institution by its customers, which is then responsible for the prompt
transmission of the request to the Fund or its agent.
Advisor Shares of the Fund 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 Advisor 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. Institutions may redeem Advisor Shares by calling Warburg
Pincus Advisor Funds at (800) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern
time) on any business day. An Institution 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. The Fund currently does not
impose a service charge for effecting wire transfers but reserves the right to
do so in the future. During periods of significant economic or market change,
telephone redemptions may be difficult to implement. If an investor is unable to
contact Warburg Pincus Advisor Funds by telephone, an investor may deliver the
redemption request to Warburg Pincus Advisor Funds by mail at an address shown
above under "How to Open an Account." Although the Fund will redeem shares
purchased by check before the funds or check clear, payments of the redemption
proceeds will be delayed for up to 10 days 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 the Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received 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
the Fund, the Fund reserves the right to pay the redemption proceeds within
seven days after the redemption order is effected. Furthermore, the Fund may
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend or postpone the

21
<PAGE> 60

recordation of an exchange of shares) for such periods as are permitted under
the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested, depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
"Redemption of Shares" above. If an exchange request is received by Warburg
Pincus Advisor Funds or its agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges will be effected without a sales charge. The
Fund may refuse exchange purchases at any time without prior notice.
The exchange privilege is available to shareholders residing in any state in
which Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact the Fund at
(800) 369-2728.
The Fund reserves the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. 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 Fund reserves 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. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
quarterly. The Fund declares distributions of its net realized short-term and
long-term capital gains annually and pays them in the calendar year in which
they are declared, generally in November or December. Net

22
<PAGE> 61

investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Unless an investor instructs the Fund to
pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Advisor Funds
at an address set forth under "How to Open an Account" or by calling Warburg
Pincus Advisor Funds at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a "regulated investment
company" within the meaning of the Code. The Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. The Fund expects to pay such additional dividends and to make such
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 Advisor Shares or whether received in cash or reinvested in
additional Advisor Shares. As a general rule, an investor's gain or loss on a
sale or redemption of his Fund shares will be long-term capital gain or loss if
he has held his shares for more than one year and will be short-term capital
gain or loss if he has held his shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain during such six-
month period with respect to such shares.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as "mid-term gain" at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after December 31, 2000 for
assets held for more than 5 years. However, the 18%

23
<PAGE> 62

rate applies only to assets acquired after December 31, 2000 unless the
taxpayer elects to treat an asset held prior to such date as sold for fair
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate is reduced to 10% and the 18% rate
for assets held for more than 5 years is reduced to 8%. The Fund will provide
information relating to that portion of a "capital gain dividend" that may be
treated by investors as eligible for the reduced capital gains tax rate for
capital assets held for more than 18 months.
Investors may be proportionately liable for taxes on income and gains of the
Fund, but investors not subject to tax on their income will not be required to
pay tax on amounts distributed to them. The Fund's investment activities will
not result in unrelated business taxable income to a tax-exempt investor. The
Fund will designate that portion of its dividends that will qualify for the
federal dividends received deduction for corporations. The Fund's investments in
foreign securities may subject it to certain withholding and other taxes imposed
by foreign countries with respect to dividends, interest, capital gains and
other income. It is not expected that the payment of such taxes by the Fund will
give rise to a direct credit or deduction available to the Fund's shareholders.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.

NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.

24
<PAGE> 63

PERFORMANCE
- --------------------------------------------------------------------------------
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading "Warburg Pincus Advisor Funds." From
time to time, the Fund may advertise average annual total return of Advisor
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis). Performance quotations
of the Fund will include performance of a predecessor fund.
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average 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).

25
<PAGE> 64

Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling the Fund at (800)
369-2728.
The 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) the S&P 500 Index; or (iii) other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. The Fund may include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, 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, the Fund
may from time to time compare the expense ratio of its Advisor Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render 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. The 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 Fund was incorporated on January 29, 1996 under the laws of
the State of Maryland under the name "Warburg, Pincus Growth & Income Fund,
Inc." On May 3, 1996 the Fund acquired all of the assets and liabilities of the
corresponding investment portfolio of the RBB Fund with a similar name.
The charter of the Fund authorizes the Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and two billion shares are
designated Advisor Shares. Under the Fund's charter documents, the Board

26
<PAGE> 65

has the power to classify or reclassify any unissued shares of the Fund into one
or more additional classes by setting or changing in any one or more respects
their relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Fund may be removed from office
upon the vote of no less than two-thirds of the outstanding shares, through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose. A meeting will be called for the purpose of voting on the
removal of a Board member at the written request of holders of 10% of the
outstanding shares of the Fund. Lionel I. Pincus may be deemed to be a
controlling person of the 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). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling Warburg Pincus Advisor Funds at (800) 369-2728 or on the Warburg Pincus
Funds web site at www.warburg.com. Each Institution that is the record owner of
Advisor Shares on behalf of its customers will send

27
<PAGE> 66

a statement to those customers periodically showing their indirect interest in
Advisor Shares, as well as providing other information about the Fund. See
"Shareholder Servicing."
The common share prospectus of another Warburg Pincus Fund is combined with
the Fund's Common Share Prospectus. Each fund offers only its own shares, yet it
is possible that the Fund may become liable for a misstatement, inaccuracy or
omission in that prospectus with regard to another fund.

SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ("Customers") are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
"Service Organizations") will enter into agreements ("Agreements") with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for Customers. Distribution services
would be marketing or other services in connection with the promotion and sale
of Advisor Shares. Shareholder services that may be provided include responding
to Customer inquiries, providing information on Customer investments and
providing other shareholder liaison services. Administrative and accounting
services related to the sale of Advisor Shares may include (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the Fund's transfer agent, (ii) processing
dividend payments from the Fund on behalf of Customers and (iii) providing
sub-accounting related to the sale of Advisor Shares beneficially owned by
Customers or the information to the Fund necessary for sub-accounting. The Board
has approved a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act under which each participating Service Organization will be paid, out
of the assets of the Fund (either directly by the Fund or by Counsellors
Securities on behalf of the Fund), a negotiated fee on an annual basis not to
exceed .75% (up to a .25% annual service fee and a .50% annual distribution
and/or administration services fee) of the value of the average daily net assets
of its Customers invested in Advisor Shares. The current 12b-1 fee is .50% per
annum. The Board evaluates the appropriateness of the Plan on a continuing basis
and in doing so considers all relevant factors.
To offset start-up costs and expenses associated with certain qualified
retirement plans making Advisor Shares available to plan participants,
Counsellors Securities pays CIGNA Financial Advisors, Inc., a registered
broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.

28
<PAGE> 67

Warburg, Counsellors Securities or any of their affiliates may, from time to
time, at their own expense, provide compensation to Service Organizations. To
the extent they do so, such compensation does not represent an additional
expense to the Fund or its shareholders. In addition, Warburg, Counsellors
Securities or any of their affiliates may, from time to time, at their own
expense, pay certain Fund transfer agent fees and expenses related to accounts
of Customers. A Service Organization may use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of Customers.

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.

29
<PAGE> 68

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 69

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 70

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund's Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 4
Portfolio Investments.................................... 4
Risk Factors and Special Considerations.................. 8
Portfolio Transactions and Turnover Rate................. 10
Certain Investment Strategies............................ 10
Investment Guidelines.................................... 15
Management of the Fund................................... 15
How to Open an Account................................... 17
How to Purchase Shares................................... 18
How to Redeem and Exchange Shares........................ 20
Dividends, Distributions and Taxes....................... 22
Net Asset Value.......................................... 24
Performance.............................................. 25
General Information...................................... 26
Shareholder Servicing.................................... 28
</TABLE>

[WARBURG PINCUS LOGO]

P.O. BOX 4906, GRAND CENTRAL STATION
NEW YORK, NY 10163
800-369-2728

COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADGRI-1-0598
<PAGE> 71
STATEMENT OF ADDITIONAL INFORMATION

May 14, 1998

WARBURG PINCUS BALANCED FUND

WARBURG PINCUS GROWTH & INCOME FUND

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

CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives.............................................................................................2
Investment Policies...............................................................................................2
Management Of The Fund...........................................................................................28
Additional Purchase And Redemption Information...................................................................36
Exchange Privilege...............................................................................................38
Additional Information Concerning Taxes..........................................................................38
Determination Of Performance.....................................................................................44
Independent Accountants And Counsel..............................................................................45
Miscellaneous....................................................................................................46
Financial Statements.............................................................................................48
Appendix - Description of Ratings...............................................................................A-1
</TABLE>

This Statement of Additional Information is meant to be read
in conjunction with the combined Prospectus for the Common Shares of Warburg
Pincus Balanced Fund (the "Balanced Fund") and Warburg Pincus Growth & Income
Fund (the "Growth & Income Fund," and collectively with the Balanced Fund, the
"Funds") and with the Prospectus for the Advisor Shares of each Fund, each dated
May 14, 1998, as amended or supplemented from time to time, and is incorporated
by reference in its entirety into those Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of a
Fund should be made solely upon the information contained herein. Copies of the
Funds' Prospectuses and information regarding each Fund's current performance
may be obtained by calling the Fund at (800) 927-2874. Information regarding the
status of shareholder accounts may be obtained by calling a Fund at (800)
927-2874 or by writing to the Fund, P.O. Box 9030, Boston, Massachusetts
02205-9030.
<PAGE> 72
INVESTMENT OBJECTIVES

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

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

INVESTMENT POLICIES

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

Options, Futures and Currency Exchange Transactions

Securities Options. A Fund may write covered call options and
put options on securities, and may purchase such options, that are traded on
exchanges, as well as over-the-counter ("OTC").

A Fund realizes fees (referred to as "premiums") for granting
the rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right of
its purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.

The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Fund as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
a Fund as a put or call writer retains the risk of a decline in the price of the
underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.

If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.

2
<PAGE> 73
In the case of options written by a Fund that are deemed
covered by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stock with respect to which the Fund
has written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may purchase
or temporarily borrow the underlying securities for purposes of physical
delivery. By so doing, the Fund will not bear any market risk, since the Fund
will have the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed securities, but the
Fund may incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.

Additional risks exist with respect to certain of the
securities for which a Fund may write covered call options. For example, if a
Fund writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Fund will compensate for the decline in the value of the cover by
purchasing an appropriate additional amount of mortgage-backed securities.

Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. A Fund may write (i) in-the-money call options
when Warburg Pincus Asset Management, Inc., each Fund's investment adviser
("Warburg"), expects that the price of the underlying security will remain flat
or decline moderately during the option period, (ii) at-the-money call options
when Warburg expects that the price of the underlying security will remain flat
or advance moderately during the option period and (iii) out-of-the-money call
options when Warburg expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, a Fund will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "Clearing Corporation") and of
the securities exchange on which the option is written.

Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by a Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which a Fund may realize a profit or loss from
the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the

3
<PAGE> 74
over-the-counter market. When a Fund has purchased an option and engages in a
closing sale transaction, whether the Fund realizes a profit or loss will depend
upon whether the amount received in the closing sale transaction is more or less
than the premium the Fund initially paid for the original option plus the
related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. A Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of a Fund under an option it has written
would be terminated by a closing purchase transaction, but a Fund would not be
deemed to own an option as a result of the transaction. So long as the
obligation of a Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or a Fund
effects a closing purchase transaction. A Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned an
exercise notice.

There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Fund's ability to terminate options positions established in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the Fund.
The Funds, however, intend to purchase over-the-counter options only from
dealers whose debt securities, as determined by Warburg, are considered to be
investment grade. If, as a covered call option writer, the Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise. In either case, the Fund would continue to be
at market risk on the security and could face higher transaction costs,
including brokerage commissions.

Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held,

4
<PAGE> 75
written or exercised in one or more accounts or through one or more brokers). It
is possible that a Fund and other clients of Warburg and certain of its
affiliates may be considered to be such a group. A securities exchange may order
the liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. These limits may restrict the number of options
the Fund will be able to purchase on a particular security.

Securities Index Options. A Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.

Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Securities index options may be offset by entering into
closing transactions as described above for securities options.

OTC Options. A Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Fund were to
purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by a Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.

Listed options generally have a continuous liquid market while
dealer options have none. Consequently, a Fund will generally be able to realize
the value of a dealer option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when a Fund writes a dealer option,
it generally will be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the

5
<PAGE> 76
Fund originally wrote the option. Although a Fund will seek to enter into dealer
options only with dealers who will agree to and that are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. The inability to enter into a closing transaction
may result in material losses to the Fund. Until a Fund, as a covered OTC call
option writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities (or other assets) used to cover the written option
until the option expires or is exercised. This requirement may impair a Fund's
ability to sell portfolio securities at a time when such sale might be
advantageous. In the event of insolvency of the other party, a Fund may be
unable to liquidate a dealer option.

Futures Activities. A Fund may enter into foreign currency,
interest rate and securities index futures contracts and purchase and write
(sell) related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in interest rates and/or market conditions and increasing return.

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

A Fund reserves the right to engage in transactions involving
futures contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may be
at risk with respect to futures activities.

Futures Contracts. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. An interest rate futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. Securities indexes are capitalization
weighted indexes which reflect the market value of the securities listed on the
indexes. An index futures contract is an agreement to be settled by delivery of
an amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract and
the price at which the agreement is made.

No consideration is paid or received by a Fund upon entering
into a futures contract. Instead, the Fund is required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt obligations,
equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange on which the contract is traded, and brokers may

6
<PAGE> 77
charge a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the financial instrument or securities index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." A Fund will also incur brokerage costs in connection with
entering into futures transactions.

At any time prior to the expiration of a futures contract, a
Fund may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Funds intend to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting a Fund to substantial losses. In such event, and in the
event of adverse price movements, a Fund would be required to make daily cash
payments of variation margin. In such situations, if a Fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances a
Fund may realize a loss on a futures contract or option that is not offset by an
increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect a Fund's
performance.

Options on Futures Contracts. A Fund may purchase and write
put and call options on foreign currency, interest rate and index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.

An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is

7
<PAGE> 78
less than, in the case of a put, the exercise price of the option on the futures
contract. The potential loss related to the purchase of an option on futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of a Fund.

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

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

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

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

Currency Hedging. A Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. A

8
<PAGE> 79
Fund may not position hedge to an extent greater than the aggregate market value
(at the time of entering into the hedge) of the hedged securities.

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

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

Hedging. A Fund may enter into options, futures and currency
exchange transactions as hedges to reduce investment risk, generally by making
an investment expected to move in the opposite direction of a portfolio
position. A hedge is designed to offset a loss in a portfolio position with a
gain in the hedged position; at the same time, however, a properly correlated
hedge will result in a gain in the portfolio position being offset by a loss in
the hedged position. As a result, the use of options, futures and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.

9
<PAGE> 80
In hedging transactions based on an index, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular security. The risk of
imperfect correlation increases as the composition of a Fund's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, a Fund's
hedge positions may be in a greater or lesser dollar amount than the dollar
amount of the hedged position. Such "over hedging" or "under hedging" may
adversely affect a Fund's net investment results if market movements are not as
anticipated when the hedge is established. Securities index futures transactions
may be subject to additional correlation risks. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which would distort the normal
relationship between the securities index and futures markets. Secondly, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market also may cause
temporary price distortions. Because of the possibility of price distortions in
the futures market and the imperfect correlation between movements in a
securities index and movements in the price of securities index futures, a
correct forecast of general market trends by Warburg still may not result in a
successful hedging transaction.

A Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currencies, interest
rates or securities markets, as the case may be, and to predict correctly
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect a Fund's
performance.

Asset Coverage for Options, Futures and Options on Futures. As
described in the Prospectuses, a Fund will comply with guidelines established by
the Securities and Exchange Commission (the "SEC") with respect to coverage of
options written by a Fund on securities and indexes and interest rate and index
futures contracts and options on these futures contracts. These guidelines may,
in certain instances, require segregation by a Fund of cash or liquid
securities.

For example, a call option written by a Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by a Fund on an index
may require the Fund to own portfolio securities that correlate with the index
or to segregate assets (as described above) equal to the excess of the index
value over the exercise price on a current

10
<PAGE> 81
basis. A put option written by a Fund may require the Fund to segregate assets
(as described above) equal to the exercise price. A Fund could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Fund. If a Fund holds a futures contract, the
Fund could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held. A Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.

Additional Information on Other Investment Practices

U.S. Government Securities. A Fund may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
government securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration, Export-Import
Bank of the United States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal
Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. A Fund may also invest in instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality. Because
the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a Fund will invest in obligations issued by such an
instrumentality only if Warburg determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Fund.

Mortgage-Backed Securities. A Fund may invest in
mortgage-backed securities issued by U.S. government entities, such as GNMA,
FNMA or FHLMC. In addition, a Fund may invest in mortgage-backed securities
sponsored by U.S. and foreign issuers as well as non-governmental issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable rate mortgages. Although there may be
government or private guarantees on the payment of interest and principal of
these securities, the guarantees do not extend to the securities' yield or
value, which are likely to vary inversely with fluctuations in interest rates,
nor do the guarantees extend to the yield or value of the Fund's shares. These
securities generally are "pass-through" instruments, through which the holders
receive a share of all interest and principal payments from the mortgages
underlying the securities, net of certain fees. Some mortgage-backed securities,
such as collateralized mortgage obligations ("CMOs"), make payments of both
principal and interest at a variety of intervals; others make

11
<PAGE> 82
semiannual interest payments at a predetermined rate and repay principal at
maturity (like a typical bond).

Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-backed securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting a Fund's
yield.

The rate of interest on mortgage-backed securities is lower
than the interest rates paid on the mortgages included in the underlying pool
due to the annual fees paid to the servicer of the mortgage pool for passing
through monthly payments to certificate holders and to any guarantor, such as
GNMA, and due to any yield retained by the issuer. Actual yield to the holder
may vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the issuer
receives mortgage payments from the servicer and the time the issuer makes the
payments on the mortgage-backed securities, and this delay reduces the effective
yield to the holder of such securities.

Asset-Backed Securities. A Fund may also invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, assets such as motor vehicle installment sales, installment
loan contracts, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts and special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit or a pool insurance
policy issued by a financial institution unaffiliated with the trust or
corporation.

Asset-backed securities present certain risks that are not
presented by other securities in which a Fund may invest. Automobile receivables
generally are secured by

12
<PAGE> 83
automobiles. Most issuers of automobile receivables permit the loan servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in the underlying automobiles. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities. Credit card receivables are generally
unsecured, and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Because asset-backed securities are relatively new, the market experience
in these securities is limited, and the market's ability to sustain liquidity
through all phases of the market cycle has not been tested.

Below Investment Grade Securities. While the market values of
medium- and lower-rated securities and unrated securities of comparable quality
tend to react less to fluctuations in interest rate levels than do those of
higher-rated securities, the market values of certain of these securities also
tend to be more sensitive to individual corporate developments and changes in
economic conditions than higher-quality securities. In addition, medium- and
lower-rated securities and comparable unrated securities generally present a
higher degree of credit risk. Issuers of medium- and lower-rated securities and
unrated securities are often highly leveraged and may not have more traditional
methods of financing available to them so that their ability to service their
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because medium- and lower-rated securities and unrated
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness.

The market for medium- and lower-rated and unrated securities
is relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.

A Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Funds
anticipate that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
these securities does exist, it generally is not as liquid as the secondary
market for higher-rated securities. The lack of a liquid secondary market, as
well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and a Fund's ability to
dispose of particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing the Fund and calculating its net asset
value.

13
<PAGE> 84
The market value of securities in medium- and lower-rated
categories is more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact a
Fund's net asset value. A Fund will rely on the judgment, analysis and
experience of Warburg in evaluating the creditworthiness of an issuer. In this
evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
its operating history, the quality of the issuer's management and regulatory
matters. Normally, medium- and lower-rated and comparable unrated securities are
not intended for short-term investment. A Fund may incur additional expenses to
the extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. Recent
adverse publicity regarding lower-rated securities may have depressed the prices
for such securities to some extent. Whether investor perceptions will continue
to have a negative effect on the price of such securities is uncertain.

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

Lending of Portfolio Securities. A Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). A Fund will not lend portfolio
securities to Warburg or its affiliates unless it has applied for and received
specific authority to do so from the SEC. Loans of portfolio securities will be
collateralized by cash, letters of credit or U.S. government securities, which
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Fund. From time to time, a Fund may return a part of the
interest earned from the investment of collateral received for securities loaned
to the borrower and/or a third party that is unaffiliated with the Fund and that
is acting as a "finder."

By lending its securities, a Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Funds, income
received could be used to pay a Fund's expenses and would increase an investor's
total return. A Fund will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Fund must receive at least 100% cash
collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the Fund must be able to terminate the loan at any time; (iv)
the Fund must

14
<PAGE> 85
receive reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the investment
occurs, the Board must terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon a
Fund's ability to recover the loaned securities or dispose of the collateral for
the loan.

Foreign Investments. The Balanced Fund may invest up to 15% of
its total assets and the Growth & Income Fund may invest up to 20% of its total
assets in the securities of foreign issuers. Investors should recognize that
investing in foreign companies involves certain risks, including those discussed
below, which are not typically associated with investing in U.S.
issuers.

Foreign Currency Exchange. Since a Fund may be investing in
securities denominated in currencies other than the U.S. dollar, and since a
Fund may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, a Fund's investments in foreign
companies may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the dollar value of the Fund's assets
denominated in that foreign currency. Changes in foreign currency exchange rates
may also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if any,
to be distributed to shareholders by a Fund. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. Changes in the exchange rate may result
over time from the interaction of many factors directly or indirectly affecting
economic and political conditions in the United States and a particular foreign
country, including economic and political developments in other countries. Of
particular importance are rates of inflation, interest rate levels, the balance
of payments and the extent of government surpluses or deficits in the United
States and the particular foreign country, all of which are in turn sensitive to
the monetary, fiscal and trade policies pursued by the governments of the United
States and foreign countries important to international trade and finance.
Governmental intervention may also play a significant role. National governments
rarely voluntarily allow their currencies to float freely in response to
economic forces. Sovereign governments use a variety of techniques, such as
intervention by a country's central bank or imposition of regulatory controls or
taxes, to affect the exchange rates of their currencies. A Fund may use hedging
techniques with the objective of protecting against loss through the fluctuation
of the valuation of foreign currencies against the U.S. dollar, particularly the
forward market in foreign exchange, currency options and currency futures. See
"Currency Exchange Transactions" and "Futures Activities" above.

Information. Many of the foreign securities held by a Fund
will not be registered with, nor the issuers thereof be subject to reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and about

15
<PAGE> 86
the foreign company or government issuing them than is available about a
domestic company or government entity. Foreign companies are generally not
subject to uniform financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies.

Political Instability. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of a Fund, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.

Delays. Securities of some foreign companies are less liquid
and their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of a Fund to market and foreign exchange fluctuations brought about by
such delays, and due to the corresponding negative impact on Fund liquidity, a
Fund will avoid investing in countries which are known to experience settlement
delays which may expose the Fund to unreasonable risk of loss.

Increased Expenses. The operating expenses of a Fund, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Fund, such as custodial costs, valuation costs and communication costs,
may be higher than those costs incurred by investment companies not investing in
foreign securities.

Dollar-Denominated Debt Securities of Foreign Issuers. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries and the effect of gains and losses in
the denominated currencies against the U.S. dollar, which have had a substantial
impact on investment in foreign fixed income securities. The relative
performance of various countries' fixed income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time.

General. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. A Fund may invest in securities of foreign
governments (or agencies or instrumentalities thereof), and many, if not all, of
the foregoing considerations apply to such investments as well.

Short Sales "Against the Box." In a short sale, a Fund sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
A Fund may engage in a short sale if at the time of the short sale the Fund owns
or has the right to obtain without additional cost an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the

16
<PAGE> 87
box." If a Fund engages in a short sale, the collateral for the short position
will be maintained by the Fund's custodian or qualified sub-custodian.

The Funds do not intend to engage in short sales against the
box for investment purposes. A Fund may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Fund (or a security convertible or
exchangeable for such security). In such case, any future losses in the Fund's
long position should be offset by a gain in the short position and, conversely,
any gain in the long position should be reduced by a loss in the short position.
The extent to which such gains or losses are reduced will depend upon the amount
of the security sold short relative to the amount the Fund owns. There will be
certain additional transaction costs associated with short sales against the
box, but a Fund will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.

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

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

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

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

17
<PAGE> 88
securities markets, and EDRs (CDRs) and IDRs (GDRs) in bearer form are designed
for use in European securities markets and non-U.S. securities markets,
respectively.

Non-Publicly Traded and Illiquid Securities. A Fund may not
invest more than 15% of its net assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market, time deposits maturing in more than seven days,
certain Rule 144A Securities (as defined below) and repurchase agreements which
have a maturity of longer than seven days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.

Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.

In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.

Rule 144A Securities. Rule 144A under the Securities Act
adopted by the SEC allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.

18
<PAGE> 89
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the Fund's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board and its
delegates may consider, inter alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).

Borrowing. A Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities, so long as there is asset
coverage of at least 300% for all borrowings of the Fund. Additional investments
(including roll-overs) will not be made when borrowings exceed 5% of a Fund's
net assets. The Growth & Income Fund will not purchase portfolio securities
whenever borrowings (including reverse repurchase agreements) exceed 5% of the
Fund's net assets. Although the principal of such borrowings will be fixed, the
Fund's assets may change in value during the time the borrowing is outstanding.
Each Fund expects that some of its borrowings may be made on a secured basis. In
such situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.

Reverse Repurchase Agreements. A Fund may enter into reverse
repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by a Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time a Fund enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with an approved custodian containing cash or liquid high-grade debt
securities having a value not less than the repurchase price (including accrued
interest). The assets contained in the segregated account will be
marked-to-market daily and additional assets will be placed in such account on
any day in which the assets fall below the repurchase price (plus accrued
interest). A Fund's liquidity and ability to manage its assets might be affected
when it sets aside cash or portfolio securities to cover such commitments.
Reverse repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale may decline below the price of the
securities the Fund has sold but is obligated to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Fund's obligation to
repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.

When Issued Securities and Delayed Delivery Transactions. A
Fund may use its assets to purchase securities on a "when-issued" basis or
purchase or sell securities for delayed delivery (i.e., payment or delivery
occur beyond the normal settlement date at a stated price and yield). When
issued transactions normally settle within 30-45 days. The Fund will

19
<PAGE> 90
enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for the purpose of leverage, but may sell the securities
before the settlement date if Warburg deems it advantageous to do so. The
payment obligation and the interest rate that will be received on when-issued
and delayed-delivery securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on such securities
may be higher or lower than the yields available in the market on the dates when
the investments are actually delivered to the buyers.

When a Fund agrees to purchase when-issued or delayed-
delivery securities, its custodian will set aside cash or certain liquid
securities that are acceptable as collateral to the appropriate regulatory
authority equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case, a Fund may be required subsequently to
place additional assets in the segregated account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. When a Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in a Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

Municipal Obligations. Municipal Obligations (as defined in
the Balanced Fund's Prospectuses) are issued by governmental entities to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately-owned facilities are included within
the term Municipal Obligations if the interest paid thereon is exempt from
federal income tax. See the Prospectuses, "Certain Investment Strategies
Municipal Obligations".

Among other instruments, the Balanced Fund may purchase
short-term tax anticipation notes, bond anticipation notes, revenue anticipation
notes and other forms of short term loans. Such notes are issued with a short
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.

There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Services ("S&P") represent their opinions as to the quality of Municipal
Obligations. It should be emphasized, however, that the ratings are general and
are not absolute standards of quality, and Municipal Obligations with the same
maturity, interest rate and rating may have different yields, while Municipal
Obligations of the same maturity and interest rate with different

20
<PAGE> 91
ratings may have the same yield. Subsequent to its purchase by the Balanced
Fund, an issue of Municipal Obligations may cease to be rated or its rating may
be reduced below the minimum rating required for purchase by the Fund. Warburg
will consider such an event in determining whether the Balanced Fund should
continue to hold the obligation. See the Appendix attached hereto for further
information concerning the rating of Moody's and S&P and their significance.

Municipal Obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, the laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. There
is also the possibility that as the result of litigation or other conditions the
power or ability of any one or more issuers to pay, when due, principal of and
interest on its, or their, Municipal Obligations may be materially affected.

Variable Rate Notes. Variable rate demand notes ("VRDN's") are
tax exempt obligations which contain a floating or variable interest rate
adjustment formula and an unconditional right of demand to receive payment of
the unpaid principal balance plus accrued interest upon a short notice period.
The interest rates are adjustable at intervals ranging from daily to up to every
six months to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment rate. The
adjustments are typically based upon the prime rate of a bank or some other
appropriate interest rate adjustment index.

Securities of Smaller Companies. The Balanced Fund's
investments in small companies involve considerations that are not applicable to
investing in securities of established, larger-capitalization issuers,
including reduced and less reliable information about issuers and markets, less
stringent accounting standards, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of smaller companies may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile.

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

21
<PAGE> 92
discount will be includible in determining the amount of dividends the Balanced
Fund must pay each year and, in order to generate cash necessary to pay such
dividends, the Balanced Fund may liquidate portfolio securities at a time when
it would not otherwise have done so.

Other Investment Limitations

The investment limitations numbered 1 through 11 may not be
changed without the affirmative vote of the holders of a majority of each of the
Balanced and Growth & Income Fund's outstanding shares. Such majority is defined
as the lesser of (i) 67% or more of the shares present at the meeting, if the
holders of more than 50% of the outstanding shares of a Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares. If a
percentage restriction (other than the percentage limitation set forth in No. 1
below) is adhered to at the time of an investment, a later increase or decrease
in the percentage of assets resulting from a change in the values of portfolio
securities or in the amount of a Fund's assets will not constitute a violation
of such restriction. Investment limitations 12 through 15 may be changed by a
vote of the Board at any time.

A Fund may not:

1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements and any other
transactions constituting borrowing by the Fund may not exceed 30% of the value
of the Fund's total assets at the time of such borrowing and only if after such
borrowing there is assets coverage of at least 300% for all borrowings of the
Fund. For purposes of this restriction, the entry into options, futures
contracts and options on futures contracts shall not constitute borrowing.

2. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer or more than 10% of the outstanding voting securities
of such issuer would be owned by the Fund, except that this 5% limitation does
not apply to U.S. government securities and except that up to 25% of the value
of the Fund's total assets may be invested without regard to this 5% limitation.

3. Make loans, except that the Fund may purchase or hold
fixed-income securities, lend portfolio securities and enter into repurchase
agreements in accordance with its investment objectives, policies and
limitations.

4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
or the purchase of securities directly from the issuer in accordance with the
Fund's investment objectives, policies and limitations may be deemed to be
underwriting.

5. Purchase or sell real estate, except that the Fund may
invest in (a) securities secured by real estate, mortgages or interests therein
or (b) issued by companies which invest in real estate or interests therein.

22
<PAGE> 93
6. Make short sales of securities or maintain a short
position, except that the Fund may maintain short positions in options on
currencies, securities and stock indexes, futures contracts and options on
futures contracts and enter into short sales "against the box."

7. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in options, futures
contracts and options on futures contracts will not be deemed to be a purchase
of securities on margin.

8. Invest in commodities, except that the Fund may purchase
and sell futures contracts and options on futures contracts, currencies,
securities or indexes.

9. Pledge, mortgage or hypothecate its assets, except (a) to
the extent necessary to secure permitted borrowings and (b) to the extent
related to the deposit of assets in escrow in connection with collateral and
initial or variation margin arrangements with respect to options, futures
contracts, and options on futures contracts and in amounts not in excess of 125%
of the dollar amount borrowed.

10. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.

11. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.

12. Make investments for the purpose of exercising control or
management.

13. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.

14. Invest in oil, gas or mineral exploration or development
programs, except that the Fund may invest in securities of companies that invest
in or sponsor oil, gas or mineral exploration or development programs.

15. Invest in warrants (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase) if, as
a result, the investments (valued at the lower of cost or market) would exceed
15% of the value of the Fund's total assets.

With regard to investment limitation No. 10, relating to a
Fund's holdings of illiquid securities, the Fund will monitor the liquidity of
its portfolio on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained. Particularly,
the Board will check routinely the value of illiquid securities in its portfolio
and should the value of such securities approach 15% of the net assets of the
Fund's

23
<PAGE> 94
portfolio, the Board will take action to reduce the Fund's holdings of illiquid
securities in an orderly fashion to maintain adequate liquidity. In no event,
however, will a Fund purchase an illiquid security if doing so would result in
more than 15% of the Fund's net assets being invested in illiquid securities.

Portfolio Valuation

The Prospectuses discuss the time at which the net asset value
of a Fund is determined for purposes of sales and redemptions. The following is
a description of the procedures used by a Fund in valuing its assets.

Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options and futures contracts will be
valued similarly. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary market
for such security. The valuation of short sales of securities, which are not
traded on a national exchange, will be at the mean of bid and asked prices.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to other debt obligations with 60 days or less remaining to
maturity. In determining the market value of portfolio investments, the Fund may
employ outside organizations (a "Pricing Service") which may use a matrix,
formula or other objective method that takes into consideration market indexes,
matrices, yield curves and other specific adjustments. The procedures of Pricing
Services are reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and other assets of the Fund will be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. In addition, the Board or its delegates may
value a security at fair value if it determines that such security's value
determined by the methodology set forth above does not reflect its fair value.

Trading in securities in certain foreign countries is
completed at various times prior to the close of business on each business day
in New York (i.e., a day on which the NYSE is open for trading). In addition,
securities trading in a particular country or countries may not take place on
all business days in New York. Furthermore, trading takes place in various
foreign markets on days which are not business days in New York and days on
which a Fund's net asset value is not calculated. As a result, calculation of
the Fund's net asset value may not take place contemporaneously with the
determination of the prices of certain portfolio securities used in such
calculation. Events affecting the values of portfolio securities that

24
<PAGE> 95
occur between the time their prices are determined and the close of regular
trading on the NYSE will not be reflected in the Fund's calculation of net asset
value unless the Board or its delegates deems that the particular event would
materially affect net asset value, in which case an adjustment may be made. All
assets and liabilities initially expressed in foreign currency values will be
converted into U.S. dollar values at the prevailing rate as quoted by a Pricing
Service. If such quotations are not available, the rate of exchange will be
determined in good faith pursuant to consistently applied procedures established
by the Board.

Portfolio Transactions

Warburg is responsible for establishing, reviewing and, where
necessary, modifying a Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by a Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.

Warburg will select specific portfolio investments and effect
transactions for a Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to a
Fund and/or other accounts over which Warburg exercises investment discretion.
Warburg may place portfolio transactions with a broker or dealer with whom it
has negotiated a commission that is in excess of the commission another broker
or dealer would have charged for effecting the transaction if Warburg determines
in good faith that such amount of commission was reasonable in relation to the
value of such brokerage and research services provided by such broker or dealer
viewed in terms of either that particular transaction or of the overall
responsibilities of Warburg. Research and other services received may be useful
to Warburg in serving both a Fund and its other clients and, conversely,
research or other

25
<PAGE> 96
services obtained by the placement of business of other clients may be useful to
Warburg in carrying out its obligations to the Fund. Research may include
furnishing advice, either directly or through publications or writings, as to
the value of securities, the advisability of purchasing or selling specific
securities and the availability of securities or purchasers or sellers of
securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services; and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Warburg in carrying out its
responsibilities. Research received from brokers or dealers is supplemental to
Warburg's own research program. The fees to Warburg under its advisory agreement
with the Fund are not reduced by reason of its receiving any brokerage and
research services. For the two-month period ended October 31, 1997 and the
fiscal year ended August 31, 1997, the Balanced Fund paid $2,628 and $18,615 of
total brokerage commissions, respectively, to brokers and dealers who provided
such research and other services. For the two-month period ended October 31,
1997 and the fiscal year ended August 31, 1997, the Growth & Income Fund paid
$47,124 and $635,174 of total brokerage commissions, respectively, to brokers
and dealers who provided such research and other services.

During the two-month period ended October 31, 1997 and the
fiscal years ended August 31, 1997, 1996 and 1995 the Balanced Fund and, for
relevant periods, the Warburg Pincus Balanced Fund investment portfolio of The
RBB Fund (the "RBB Fund") paid brokerage commissions of $14,333, $87,403,
$61,926 and $8,122, respectively. (The Balanced Fund is the successor to the
Warburg Pincus Balanced Fund investment portfolio of the RBB Fund, having
acquired its assets and liabilities on May 3, 1996.) As of October 31, 1997, the
Balanced Fund had an outstanding repurchase agreement in the amount of
$1,141,000 with Goldman, Sachs & Co., one of the Fund's regular broker-dealers.

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

Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions

26
<PAGE> 97
are averaged as to price and available investments allocated as to amount, in a
manner which Warburg believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or sold
for the Fund. To the extent permitted by law, Warburg may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.

Any portfolio transaction for a Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the Fund a
commission rate consistent with those charged by Counsellors Securities to
comparable unaffiliated customers in similar transactions. All transactions with
affiliated brokers will comply with Rule 17e-1 under the 1940 Act.

In no instance will portfolio securities be purchased from or
sold to Warburg or Counsellors Securities or any affiliated person of such
companies.

Transactions for a Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Fund will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.

A Fund may participate, if and when practicable, in bidding
for the purchase of securities for the Fund's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when Warburg,
in its sole discretion, believes such practice to be otherwise in the Fund's
interest.

Portfolio Turnover

The Funds do not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. A Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.

Certain practices that may be employed by a Fund could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the

27
<PAGE> 98

price of the underlying security (market rise) and later sold. To the extent
that its portfolio is traded for the short-term, a Fund will be engaged
essentially in trading activities based on short-term considerations affecting
the value of an issuer's stock instead of long-term investments based on
fundamental valuation of securities. Because of this policy, portfolio
securities may be sold without regard to the length of time for which they have
been held.

MANAGEMENT OF THE FUND

Officers and Board of Directors

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

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

Jack W. Fritz (70) Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director of
Advo, Inc. (direct mail advertising);
Director/Trustee of other investment
companies advised by Warburg.

John L. Furth* (67) Chairman of the Board
466 Lexington Avenue Chief Executive Officer and Director
New York, New York 10017-3147 of Warburg; Associated with Warburg since
1970; Chairman of the Board and officer of
other investment companies advised by
Warburg; Director/Trustee of other
investment companies advised by Warburg.

Jeffrey E. Garten (51) Director
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and Finance;
Undersecretary of

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

28
<PAGE> 99
Commerce for International Trade from
November 1993 to October 1995; Professor at
Columbia University from September 1992 to
November 1993; Director/Trustee of other
investment companies advised by Warburg.

Thomas A. Melfe (66) Director
1251 Avenue of the Americas Partner in the law firm Piper & Marbury,
29th Floor L.L.P.; Partner in the law firm of Donovan
New York, New York 10020-1104 Leisure Newton & Irvine from April 1984 to
April 1998; Director of Municipal Fund for
New York Investors, Inc.; Director/Trustee
of other investment companies advised by
Warburg.

Alexander B. Trowbridge (68) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990 to
November 1996; Director or Trustee of New
England Mutual Life Insurance Co., ICOS
Corporation (biopharmaceuticals), Waste
Management, Inc. (solid and hazardous waste
collection and disposal), IRI International
(energy services), The Rouse Company (real
estate development), Harris Corp.
(electronics and communications equipment),
The Gillette Co. (personal care products)
and Sun Company Inc. (petroleum refining and
marketing); Director/Trustee of other
investment companies advised by Warburg.

Arnold M. Reichman* (49) Director
466 Lexington Avenue Managing Director and Assistant Secretary
New York, New York 10017-3147 of Warburg; Associated with Warburg since
1984; Officer of Counsellors Securities;
Director/Trustee of other investment
companies advised by Warburg.

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

29
<PAGE> 100
Eugene L. Podsiadlo (41) President
466 Lexington Avenue Managing Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1991; Vice
President of Citibank, N.A. from 1987 to
1991; Officer of Counsellors Securities
and of other investment companies advised
by Warburg.

Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director of Warburg,
New York, New York 10017-3147 Associated with Warburg since 1984;
Officer of Counsellors Securities and of
other investment companies advised by
Warburg.

Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg since April 1994;
Attorney-at-law from September 1989 to April
1994; life insurance agent, New York Life
Insurance Company from 1993 to 1994; Officer
of Counsellors Securities and of other
investment companies advised by Warburg.

Howard Conroy, CPA (44) Vice President and Chief Financial Officer
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1992; Officer of other
investment companies advised by Warburg.

Daniel S. Madden, CPA (32) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1995; Associated with
BlackRock Financial Management, Inc. from
September 1994 to October 1996; Associated
with BEA Associates from April 1993 to
September 1994; Associated with Ernst &
Young LLP from 1990 to 1993; Officer of
other investment companies advised by
Warburg.

Janna Manes, Esq. (30) Assistant Secretary
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1996; Associated with the
law firm of Willkie Farr & Gallagher from
1993 to 1996; Officer of other investment
companies advised by Warburg.

30
<PAGE> 101
No employee of Warburg or PFPC Inc., each Funds' co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund for
acting as an officer or director of the Fund. Each Director who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.

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

<TABLE>
<CAPTION>
Total Compensation from
Compensation from all Investment Companies
Name of Director each Fund Managed by Warburg*
---------------- --------- -------------------
<S> <C> <C>
John L. Furth None** None**

Arnold M. Reichman None** None**

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

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

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

Jeffrey E. Garten**** N/A N/A

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

Alexander B. Trowbridge $1,750 $44,500
</TABLE>

* Each Director also serves as a Director or Trustee of 25 other investment
companies advised by Warburg, except for Mr. Melfe, who also serves as a
Director or Trustee of 23 other investment companies advised by Warburg.

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

*** Mr. Donahue resigned as a Director of each Fund effective February 6,
1998.

**** Mr. Garten became a Director of each Fund effective February 6, 1998 and,
accordingly, received no compensation from the Funds for the period ended
October 31, 1997.

As of March 30, 1998 Directors or officers of the Fund as a group owned
less than 1% of the outstanding shares of each Fund.

31
<PAGE> 102
Portfolio Managers of the Funds

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

Mr. Lewis is also a Vice President and a research analyst at
Warburg. Prior to joining Warburg, Mr. Lewis was an assistant portfolio
manager at Bench Corporation from 1984 to 1985 and a trader at
Atlanta/Sosnoff Management Corp. from 1984 to 1985 and a trader at E.F.
Hutton & Co. from 1982 to 1984. Mr. Lewis received his M.B.A. and B.S.
degrees from New York University.

Mr. Christensen is also the Co-Portfolio Manager of Warburg
Pincus Fixed Income Fund, Warburg Pincus Global Fixed Income Fund, Warburg
Pincus Intermediate Maturity Government Fund and Warburg Pincus New York
Intermediate Municipal Fund, the Global Fixed Income Portfolios of Warburg
Pincus Institutional Fund, Inc. and Warburg Pincus Trust II and the Fixed
Income Portfolio of Warburg Pincus Trust. He also directs the fixed income
group at Warburg, which he joined in 1989, providing portfolio management for
institutional clients around the world. Mr. Christensen was a vice president
in the International Private Banking division at Citicorp from 1984 to 1989.
Prior to that, Mr. Christensen was a fixed income portfolio manager at CIC
Asset Management from 1982 to 1984. Mr. Christensen earned a B.S. in
Agriculture from the University of Alberta and a B.Ed. in Mathematics from
the University of Calgary, both located in Canada.

Investment Adviser and Co-Administrators

Warburg serves as investment adviser to each Fund pursuant to a
written agreement (the "Advisory Agreement"). Counsellors Funds Service, Inc.
("Counsellors Service") and PFPC both serve as co-administrators to each Fund
pursuant to separate written agreements (the "Counsellors Service
Co-Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by the Funds to,
Warburg under the Advisory Agreement, Counsellors Service under the Counsellors
Service Co-Administration Agreement and PFPC under the PFPC Co-Administration
Agreement are described in the Prospectuses. Each class of shares of a Fund
bears its proportionate share of fees payable to Warburg, Counsellors Service
and PFPC in the proportion that its assets bear to the aggregate assets of the
Fund at the time of calculation. These fees are calculated at an annual rate
based on a percentage of a Fund's average daily net assets. See the
Prospectuses, "Management of the Fund."

For the Balanced Fund, for the two-month period ended October 31,
1997 and the fiscal years ended August 31, 1997 and 1996, Warburg earned $24,883
($60,121 without

32
<PAGE> 103
waivers), $178,795 ($319,264 without waivers) and $25,040 ($170,672 without
waivers), respectively, in investment advisory fees. For the fiscal year ended
August 31, 1995, Warburg received $0 ($14,367 without waivers) in advisory fees
with respect to the Warburg Pincus Balanced Fund investment portfolio of the RBB
Fund and PNC Institutional Management Corp. received $0 ($362 without waivers).
Under the Counsellors Service Co-Administration Agreement, for the two-month
period ended October 31, 1997 and the fiscal years ended August 31, 1997, 1996
and 1995, Counsellors Service was paid $6,680, $35,474, $18,949 and $1,597,
respectively. Counsellors Service did not waive any fees during those fiscal
years. Under the PFPC Co-Administration Agreement, for the two-month period
ended October 31, 1997 and the fiscal years ended August 31, 1997, 1996 and
1995, PFPC received $10,020, $53,211, $4,713 ($28,445 without waivers) and $0
($2,394 without waivers), respectively, in co-administration fees.

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

Custodians and Transfer Agent

PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company serve as custodians of each Funds' U.S. and non-U.S. assets,
respectively, pursuant to separate custodian agreements (the "Custodian
Agreements"). Under the Custodian Agreements, PNC and State Street each (i)
maintains a separate account or accounts in the name of the Fund, (ii) holds and
transfers portfolio securities on account of the Fund, (iii) makes receipts and
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions for the account of the Fund's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Fund's custodial arrangements. PNC may delegate its duties under
its Custodian Agreement with the Fund to a wholly owned direct or indirect
subsidiary of PNC or PNC Bank Corp. upon notice to the Fund and upon the
satisfaction of certain other conditions. With the approval of the Board, State
Street is authorized to select one or more foreign banking institutions and
foreign securities depositories to serve as sub-custodian on behalf of the Fund.
PNC is an indirect, wholly owned subsidiary of PNC Bank Corp. and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101. The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.

State Street also acts as the shareholder servicing, transfer and
dividend disbursing agent of each Fund pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of the Fund,
(ii) addresses and mails all communications by the Fund to record owners of Fund
shares, including reports to

33
<PAGE> 104
shareholders, dividend and distribution notices and proxy material for its
meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Board concerning
the transfer agent's operations with respect to the Fund. State Street has
delegated to Boston Financial Data Services, Inc., an affiliated company
("BFDS"), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, Boston, Massachusetts 02171.

Organization of the Fund

The Balanced Fund and the Growth & Income Fund were incorporated on
January 29, 1996, under the laws of the State of Maryland under the names
Warburg, Pincus Balanced Fund, Inc. and Warburg, Pincus Growth & Income Fund,
Inc., respectively. Each Fund's charter authorizes the Board to issue three
billion full and fractional shares of common stock, $.001 par value per share
("Common Shares"), of which one billion shares are designated Common Stock and
two billion shares are designated Advisor Shares.

Shareholders of each Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.

Distribution and Shareholder Servicing

Common Shares. The Balanced Fund has entered into a Shareholder
Servicing and Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which the Fund will pay Counsellors Securities, in
consideration for Services (as defined below), a fee calculated at an annual
rate of .25% of the average daily net assets of the Common Shares of the Fund.
Services performed by Counsellors Securities include (i) the sale of the Common
Shares, as set forth in the 12b-1 Plan ("Selling Services"), (ii) ongoing
servicing and/or maintenance of the accounts of Common Shareholders of the Fund,
as set forth in the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer
agency services, subaccounting services or administrative services related to
the sale of the Common Shares, as set forth in the 12b-1 Plan ("Administrative
Services" and collectively with Selling Services and Administrative Services,
"Services") including, without limitation, (a) payments reflecting an allocation
of overhead and other office expenses of Counsellors Securities related to
providing Services; (b) payments made to, and reimbursement of expenses of,
persons who provide support services in connection with the distribution of the
Common Shares including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Fund, and
providing any other Shareholder Services; (c) payments made to compensate
selected dealers or other authorized persons for providing any Services; (d)
costs relating to the formulation and implementation of marketing and
promotional activities for the Common Shares, including, but not limited to,
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, and related travel and entertainment expenses; (e) costs of
printing and distributing prospectuses, statements of additional information and
reports of the Fund to prospective shareholders of the Fund; and (f) costs

34
<PAGE> 105
involved in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities that the Fund may, from time to time, deem
advisable.

Pursuant to the 12b-1 Plan, Counsellors Securities provides the
Board with periodic reports of amounts expended under the 12b-1 Plan and the
purpose for which the expenditures were made.

For the fiscal period ended October 31, 1997, the Common Shares of
the Balanced Fund paid $105,101 to Counsellors Securities, which was expended on
advertising, marketing communications and public relations, printing and
fulfillment of marketing literature.

Advisor Shares. The Funds have entered into agreements
("Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and financial
intermediaries ("Institutions") to provide certain distribution, shareholder
servicing, administrative and accounting services for their clients or customers
(or participants in the case of retirement plans) ("Customers") who are
beneficial owners of Advisor Shares. See the Advisor Prospectuses, "Shareholder
Servicing." Agreements will be governed by a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act. The Distribution
Plan requires the Board, at least quarterly, to receive and review written
reports of amounts expended under the Distribution Plan and the purposes for
which such expenditures were made.

An Institution with which a Fund has entered into an Agreement with
respect to its Advisor Shares may charge a Customer one or more of the following
types of fees, as agreed upon by the Institution and the Customer, with respect
to the cash management or other services provided by the Institution: (i)
account fees (a fixed amount per month or per year); (ii) transaction fees (a
fixed amount per transaction processed); (iii) compensation balance requirements
(a minimum dollar amount a Customer must maintain in order to obtain the
services offered); or (iv) account maintenance fees (a periodic charge based
upon the percentage of assets in the account or of the dividend paid on those
assets). Services provided by an Institution to Customers are in addition to,
and not duplicative of, the services to be provided under the Fund's
co-administration and distribution and shareholder servicing arrangements. A
Customer of an Institution should read the relevant Prospectus and this
Statement of Additional Information in conjunction with the Agreement and other
literature describing the services and related fees that would be provided by
the Institution to its Customers prior to any purchase of Fund shares.
Prospectuses are available from the Funds' distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.

For the two-month period ended October 31, 1997 and the fiscal year
ended August 31, 1997, the Advisor Shares of the Balanced Fund paid $131 and
$437, respectively to Institutions.

35
<PAGE> 106
For the two-month period ended October 31, 1997 and the fiscal year
ended August 31, 1997, the Advisor Shares of the Growth & Income Fund paid
$75,076 and $372,841, respectively, to Institutions.

General. The Distribution Plans and the 12b-1 Plan will continue in
effect for so long as their continuance is specifically approved at least
annually by the Board, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plans or the 12b-1 Plan
("Independent Directors"). Any material amendment of the Distribution Plans or
the 12b-1 Plan would require the approval of the Board in the same manner.
Neither the Distribution Plans nor the 12b-1 Plan may be amended to increase
materially the amount to be spent thereunder without shareholder approval of the
relevant class of shares. The Distribution Plans and the 12b-1 Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of a Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The offering price of a Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund. Information on how to
purchase and redeem Fund shares and how such shares are priced is included in
the Prospectuses under "Net Asset Value."

Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (A Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)

If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, a Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds. The Funds will comply with Rule 18f-1 promulgated under the 1940 Act
with respect to redemptions in kind.

Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of a Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in a Fund, there will be a reduction
in the value of the shareholder's investment and continued withdrawal payments

36
<PAGE> 107
may reduce the shareholder's investment and ultimately exhaust it. Withdrawal
payments should not be considered as income from investment in a Fund.

37
<PAGE> 108
EXCHANGE PRIVILEGE

An exchange privilege with certain other funds advised by Warburg is
available to investors in each Fund. The funds into which exchanges of Common
Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.

The exchange privilege enables shareholders to acquire shares in a
fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. Subject to the restrictions
on exchange purchases contained in the Common Share Prospectus and any other
applicable restrictions, this privilege is available to shareholders residing in
any state in which the Common Shares or Advisor Shares being acquired, as
relevant, may legally be sold. Prior to any exchange, the investor should obtain
and review a copy of the current prospectus of the relevant class of each fund
into which an exchange is being considered. Shareholders may obtain a prospectus
of the relevant class of the fund into which they are contemplating an exchange
from Counsellors Securities.

Subject to the restrictions described above, upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange are redeemed at the then-current net asset value of the relevant class
and the proceeds are invested on the same day, at a price as described above, in
shares of the relevant class of the fund being acquired. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.

ADDITIONAL INFORMATION CONCERNING TAXES

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

The Funds and Their Investments

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

38
<PAGE> 109
one issuer, to an amount not greater than 5% of the Fund's assets and not
greater than 10% of the outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its assets is invested in the securities
(other than United States government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that the Fund
controls and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The Fund expects that all of its
foreign currency gains will be directly related to its principal business of
investing in stocks and securities.

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

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

39
<PAGE> 110
The Code imposes a 4% nondeductible excise tax on a Fund to the
extent the Fund does not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by the Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. Each Fund anticipates that it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.

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

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

A Fund's short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause the Fund to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes. Each Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment

40
<PAGE> 111
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.

Passive Foreign Investment Companies. If a Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income tax on
a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by the Fund to
its shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such distributions or gains.
Any tax paid by a Fund as a result of its ownership of shares in a PFIC will not
give rise to any deduction or credit to the Fund or any shareholder. If a Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified electing
fund" under the Code, in lieu of the foregoing requirements, the Fund might be
required to include in income each year a portion of the ordinary earnings and
net capital gains of the qualified election fund, even if not distributed to the
Fund, and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, a Fund would be
required to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or not possible
to obtain. On October 9, 1997, the Ways and Means Committee of the U.S. Congress
approved technical corrections legislation that would treat PFICs as
pass-through entities for purposes of applying the 20% rate to the portion of a
PFIC's long-term gain attributable to assets held more than 18 months.

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

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

41
<PAGE> 112
be treated as a tax-free return of capital, to the extent of a shareholder's
basis in his shares of the Fund, and as a capital gain thereafter (if the
shareholder holds his shares of the Fund as capital assets).

Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.

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

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

Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference between
the amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in a Fund, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss. Any loss realized by
a shareholder on the sale of a Fund share held by the shareholder for six months
or less will be treated for United States federal income tax purposes as a
long-term capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the shareholder with
respect to such share.

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

42
<PAGE> 113
investment company taxable income received by the Fund from non-US sources will
be treated as United States source income.

Backup Withholding. A Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and distributions
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.

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

Other Taxation

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

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

43
<PAGE> 114
DETERMINATION OF PERFORMANCE

From time to time, each Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. Average annual total return is calculated by
finding the average annual compounded rates of return for the one-, five- and
ten- (or such shorter period as the relevant class of shares has been offered)
year periods that would equate the initial amount invested to the ending
redeemable value according to the following formula: P (1 + T)(n) = ERV. For
purposes of this formula, "P" is a hypothetical investment of $1,000; "T" is
average annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
one-, five- or ten-year periods (or fractional portion thereof). Total return or
"T" is computed by finding the average annual change in the value of an initial
$1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period.

The average annual total return of the Common Shares of the Balanced
Fund for the one-year period ended October 31, 1997 was 19.47% (18.79% without
waivers), and for Advisor Shares it was 19.12% (18.40% without waivers). The
average annual total return for the Common Shares for the five-year period ended
October 31, 1997, was 14.75% (14.13% without waivers). For the period beginning
on the commencement of a predecessor fund's operations (October 6, 1988) and
ended October 31, 1997, the average annual total return for the Common Shares
was 13.59% (12.05% without waivers). For the period beginning on the
commencement of the predecessor fund's offering of Advisor Shares (July 31,
1995) and ending on October 31, 1997, the average annual total return for the
Advisor Shares was 16.56% (13.50% without waivers).

The average annual total return for Common Shares of the Growth &
Income Fund for the one-year period ended October 31, 1997 was 26.47% and for
Advisor Shares 26.02%. The average annual total return for Common Shares for the
five-year period ended October 31, 1997 was 17.47%. The average annual total
return for Common Shares for the period beginning on the commencement of
operations of a predecessor fund (October 6, 1988) and ended October 31, 1997
was 14.18% (13.45% without waivers). The average annual total return for Advisor
Shares for the period beginning on the commencement of offering of Advisor
Shares by the predecessor fund (May 15, 1995) and ended October 31, 1997 was
12.28%.

The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be. Investors should note that this performance may not be representative of
the Fund's total return in longer market cycles.

44
<PAGE> 115
The Fund may also advertise its yield. Yield is calculated by
annualizing the net investment income generated by the Fund over a specified
thirty-day period according to the following formula:

YIELD = 2[( a-b + 1)(6) -1]
-----
cd

For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.

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

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

The performance of a class of Fund shares will vary from time to
time depending upon market conditions, the composition of the Fund's portfolio
and operating expenses allocable to it. As described above, total return is
based on historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Fund's performance will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in a Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.

In addition, reference may be made in advertising a class of Fund
shares to opinions of Wall Street economists and analysts regarding economic
cycles and their effects historically on the performance of small companies,
both as a class and relative to other investments. A Fund may also discuss its
beta, or volatility relative to the market, and make reference to its relative
performance in various market cycles in the United States.

INDEPENDENT ACCOUNTANTS AND COUNSEL

Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for each Fund. The financial statements for the Funds
that are incorporated by reference in this Statement of Additional Information
have been audited by Coopers & Lybrand and have been included herein by
reference in reliance upon the report of such firm of independent accountants
given upon their authority as experts in accounting and auditing.

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

45
<PAGE> 116
MISCELLANEOUS

As of March 31, 1998, the names, addresses and percentage ownership
of each person that owned 5% or more of the outstanding shares of the Balanced
Fund were as follows:

<TABLE>
<CAPTION>
Percent Owned as of
Type of Shares Name and Address March 31, 1998
-------------- ---------------- --------------
<S> <C> <C>
Common Shares Charles Schwab & Co Inc. 50.40%
Reinvest Account
Attn Mutual Funds Dept
101 Montgomery St.
San Francisco, CA 94104-4122

Nat'l Financial Svcs Corp. 14.32%
PBC Customers 14.32%
P.O. Box 3908
Church St. Station
New York, NY 10008-3908

Advisor Shares OLCOBA CO 67.30%
P.O. Box 1000
Minneapolis MN 55480-1000

Bradley M. Lines
Tina K. Pankiewicz TTEES 19.39%
Axxess TECH Inc. 401K Retire
Plan
U/A DTD 10/01/96
1555 W. 10th PL
Tempe, AZ 85281-5234

Albert J. Lagerman 12.36%
Gene W. Reisinger TTEES
Family Practice Center PC
401K Trust
307 E. Chestnut St.
Mifflinburg, PA 17844-9678

</TABLE>

46
<PAGE> 117
As of March 31, 1998, the names, addresses and percentage ownership
of each person that owned 5% or more of the outstanding shares of the Growth &
Income Fund were as follows:

<TABLE>
<CAPTION>
Percent owned as of
Type of Shares Name and Address March 31, 1998
- -------------- ---------------- --------------
<S> <C> <C>
Common Shares Charles Schwab & Co. Inc. 25.28%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery St.
San Francisco, CA 94104-4122

Nat'l Financial Svcs. Corp. 18.53%
FBO Customers
Church St. Station
P.O. Box 3908
New York, NY 10008-3908

Advisor Shares Connecticut General Life Ins. Co. 99.11%
On Behalf of Its Separate Account
55S c/o Melissa Spencer M110
Cigna Corp. P.O. Box 2975
Hartford, CT 06104-2975
</TABLE>

47
<PAGE> 118
FINANCIAL STATEMENTS

Each Fund's audited report for the period ended October 31, 1997,
which either accompanies this Statement of Additional Information or has
previously been provided to the investor to whom this Statement of Additional
Information is being sent, is incorporated herein by reference with respect to
all information regarding the relevant Fund included therein. Each Fund will
furnish without charge a copy of the annual reports upon request by calling the
Fund at (800) 927-2874.

48
<PAGE> 119
APPENDIX
DESCRIPTION OF RATINGS

Commercial Paper Ratings

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

The rating Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.

Short-Term Note Ratings

The following summarizes the two highest ratings used by S&P for
short-term notes:
SP-1 - Loans bearing this designation evidence a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus sign
designation.

SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest..

The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:

MIG-1/VMIG-1 - Obligations bearing these designations are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both.

MIG-2/VMIG-2 - Obligations bearing these designations are of high
quality with margins of protection ample although not so large as in the
preceding group.

A-1
<PAGE> 120
Corporate Bond and Municipal Obligations Ratings

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

AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.

AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.

BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.

BB, B, CCC, CC and C - Debt rated BB and B are regarded, on balance,
as predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.

B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.

A-2
<PAGE> 121
CC - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.

C - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt rated
D.

To provide more detailed indications of credit quality, the ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.

D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

The following summarizes the ratings used by Moody's for corporate
bonds and Municipal Obligations:

Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

A-3
<PAGE> 122
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "B." The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.

Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

A-4