WARBURG PINCUS GROWTH & INCOME FUND INC, 485BPOS, 1999-02-16

WARBURG PINCUS GROWTH & INCOME FUND INC
485BPOS, 1999-02-16

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<PAGE> 1

As filed with the U.S. Securities and Exchange Commission
on February 16, 1999

Securities Act File No. 333-00527
Investment Company Act File No. 811-07515

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 7 [x]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]

Amendment No. 8 [x]

(Check appropriate box or boxes)

Warburg, Pincus Growth & Income Fund, Inc.
................................................................................
(Exact Name of Registrant as Specified in Charter)

466 Lexington Avenue
New York, New York 10017-3147
........................................ ................
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 878-0600

Janna Manes, Esq.
Warburg, Pincus Growth & Income Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147

.........................................
(Name and Address of Agent for Service)

Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<PAGE> 2
Approximate Date of Proposal Public Offering: February 16, 1999

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

[x ] immediately upon filing pursuant to paragraph (b)
[ ] on _________________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on _________________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on _____ pursuant to paragraph (a)(2) of rule 485

If appropriate, check following box:

[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

<PAGE> 3

PROSPECTUS

Common Class

February 16, 1999

WARBURG PINCUS
BALANCED FUND

[ ]

WARBURG PINCUS
GROWTH & INCOME FUND

[ ]

WARBURG PINCUS
CAPITAL APPRECIATION FUND

[ ]

WARBURG PINCUS
HEALTH SCIENCES FUND

As with all mutual funds, the Securities and Exchange
Commission has not approved these funds, nor has it passed
upon the adequacy or accuracy of this Prospectus. It is a
criminal offense to state otherwise.

[Warburg Pincus Funds Logo]
<PAGE> 4
CONTENTS

<TABLE>
<S> <C>
KEY POINTS.................... .................... 4
Goals and Principal Strategies.................. 4
Investor Profile................................ 4
A Word About Risk............................... 5
PERFORMANCE SUMMARY............... ................ 6
Year-by-Year Total Returns...................... 6
Average Annual Total Returns.................... 7
INVESTOR EXPENSES................ ................. 9
Fees and Fund Expenses.......................... 9
Example......................................... 10
THE FUNDS IN DETAIL............... ................ 11
The Management Firm............................. 11
Multi-Class Structure........................... 11
Fund Information Key............................ 12
BALANCED FUND.................. ................... 13
GROWTH & INCOME FUND............... ............... 17
CAPITAL APPRECIATION FUND............ ............. 19
HEALTH SCIENCES FUND............... ............... 21
MORE ABOUT RISK................. .................. 23
Introduction.................................... 23
Types of Investment Risk........................ 23
Certain Investment Practices.................... 26
MEET THE MANAGERS................ ................. 30
ABOUT YOUR ACCOUNT................ ................ 32
Share Valuation................................. 32
Buying and Selling Shares....................... 32
Account Statements.............................. 33
Distributions................................... 33
Taxes........................................... 33
OTHER INFORMATION................ ................. 35
About the Distributor........................... 35
FOR MORE INFORMATION............... ............... back cover
</TABLE>

<PAGE> 5
KEY POINTS

GOALS AND PRINCIPAL STRATEGIES

<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>

BALANCED FUND Maximum total return - Invests in equity and
Risk factors: (through a combination of fixed-income securities
Market risk long-term growth of - Focuses stock investments on
Interest-rate risk capital, and current medium to large U.S. companies
income) consistent with - Uses both growth and value
preservation of capital investment criteria (seeks
"growth at a reasonable price")
- Favors intermediate-term,
investment-grade bonds

GROWTH & INCOME FUND Long-term growth of - Invests primarily in equity
Risk factors: capital, income and a securities
Market risk reasonable current return - Focuses on large U.S.
companies
- Analyzes such factors as
price-to-earnings and
price-to-book ratios, using a
value investment style

CAPITAL APPRECIATION Long-term capital - Invests primarily in equity
FUND appreciation securities of U.S. companies
Risk factors: - Seeks sectors and companies that
Market risk will outperform the overall
market
- Looks for themes or patterns
associated with growth
companies, such as significant
fundamental changes, generation
of a large free cash flow or
company share-buyback programs

HEALTH SCIENCES FUND Capital appreciation - Invests mainly in equity
Risk factors: securities of U.S. companies
Market risk - Emphasizes the health services,
Sector concentration pharmaceuticals, biotechnology
Legal risk and medical-devices industries
Regulatory risk - Can invest in companies of any
size
- Focuses on individual
stock-picking, assisted by a
top-down approach to four
categories of health sciences
companies -- buyers, providers,
suppliers and innovators
</TABLE>

INVESTOR PROFILE

THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:

- are investing for long-term goals that may include college or retirement

- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns

- are investing for total return, growth and income, or capital appreciation

- want to diversify their portfolios into common stocks

THEY MAY NOT BE APPROPRIATE IF YOU:

- are investing for a shorter time horizon

- are uncomfortable with an investment that will fluctuate in value

- are looking primarily for income

You should base your selection of a fund on your own goals, risk preferences
and time horizon.
4

<PAGE> 6

A WORD ABOUT RISK

All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.

Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to your fund. As with any
mutual fund, you could lose money over any period of time.

Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

MARKET RISK
All funds

The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments--including stocks
and bonds, and the mutual funds that invest in them.

Bonds and other fixed-income securities generally involve less market risk
than stocks. However, the risk of bonds can vary significantly depending upon
factors such as issuer and maturity. The bonds of some companies may be riskier
than the stocks of others.

INTEREST-RATE RISK
Balanced Fund

Changes in interest rates may cause a decline in the market value of an
investment. With bonds and other fixed-income securities, a rise in interest
rates typically causes a fall in values, while a fall in interest rates
typically causes a rise in values.

SECTOR CONCENTRATION
Health Sciences Funds

A fund that invests more than 25% of its net assets in a group of related
industries (market sector) is subject to increased risk.

- Fund performance will largely depend upon the sector's performance, which may
differ in direction and degree from that of the overall stock market.

- Financial, economic, business, political and other developments affecting the
sector will have a greater effect on the fund.

LEGAL RISK
Health Sciences Fund

Lawsuits or other legal proceedings against the issuer of a security may
adversely affect the issuer, the market value of the security, or a fund's
performance.

REGULATORY RISK
Health Sciences Fund

Governments, agencies or other regulatory bodies may adopt or change laws or
regulations that could adversely affect the issuer, the market value of the
security, or a fund's performance.

Because the Health Sciences Fund involves a high level of risk, you should
consider it only for the aggressive portion of your portfolio. The Health
Sciences Fund may not be appropriate for everyone.

5
<PAGE> 7
PERFORMANCE SUMMARY

The bar chart below and the table on the next page provide an indication of the
risks of investing in these funds. The bar chart shows you how each fund's
performance has varied from year to year for up to 10 years. The table compares
each fund's performance over time to that of a broadly based securities market
index and other indexes, if applicable. As with all mutual funds, past
performance is not a prediction of
the future.

YEAR-BY-YEAR TOTAL RETURNS

<TABLE>
<CAPTION>
Best quarter: 10.42% (Q3 95)
Worst quarter: -7.16% (Q3 98)
Inception date: 10/6/88
BALANCED
FUND
<S> <C>
1989 19.55
1990 3.09
1991 25.13
1992 7.51
1993 10.73
1994 1.32
1995 31.55
1996 12.88
1997 16.37
1998 10.36
</TABLE>

<TABLE>
<CAPTION>
Best quarter: 17.93% (Q2 93)
Worst quarter: -14.40% (Q3 98)
Inception date: 10/6/88
GROWTH &
INCOME FUND
<S> <C>
1989 20.74
1990 4.03
1991 13.01
1992 8.55
1993 35.79
1994 7.58
1995 20.42
1996 -1.2
1997 30.25
1998 12.66
</TABLE>

<TABLE>
<CAPTION>
Best quarter: 21.44% (Q4 98)
Worst quarter: -12.23% (Q3 90)
Inception date: 8/17/87
CAPITAL
APPRECIATION
FUND
<S> <C>
1989 26.79
1990 -5.47
1991 26.29
1992 7.61
1993 15.87
1994 -2.86
1995 38.10
1996 23.27
1997 31.39
1998 25.77
</TABLE>

<TABLE>
<CAPTION>
Best quarter: 17.78% (Q2 97)
Worst quarter: -6.36% (Q3 98)
Inception date: 12/31/96
HEALTH
SCIENCES FUND
<S> <C>
1989
1990
1991
1992
1993
1994
1995
1996
1997 27.35
1998 33.19
</TABLE>

<PAGE> 8

AVERAGE ANNUAL TOTAL RETURNS

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS 10 YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/98: 1998 1994-1998 1989-1998 FUND DATE
<S> <C> <C> <C> <C> <C>
BALANCED FUND(1) 10.36% 14.08% 13.50% 13.13% 10/6/88
S&P 500 INDEX(2) 28.57% 24.03% 19.17% 19.01%(3)
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE BOND
INDEX(4) 8.44% 6.60% 8.51% 8.36%(3)
LIPPER BALANCED FUNDS INDEX(5) 15.09% 13.86% 13.31% 13.18%(3)
GROWTH & INCOME FUND(6) 12.66% 13.44% 14.67% 14.36% 10/6/88
S&P 500 INDEX(2) 28.57% 24.03% 19.17% 19.01%(3)
CAPITAL APPRECIATION FUND 25.77% 22.27% 17.83% 15.30% 8/17/87
S&P 500 INDEX(2) 28.57% 24.03% 19.17% 15.47%(7)
HEALTH SCIENCES FUND 33.19% NA NA 30.19% 12/31/96
S&P 500 INDEX(2) 28.57% NA NA 30.93%(8)
LIPPER HEALTH/BIOTECHNOLOGY
FUNDS INDEX(9) 26.00% NA NA 23.24%(8)
</TABLE>

( 1) Warburg Pincus assumed management of the fund on September 30, 1994.

( 2) The S&P 500 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinvestment of dividends, and is a
registered trademark of McGraw-Hill Co., Inc.

( 3) Performance since September 30, 1988.

( 4) The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index (with no defined investment objective) of intermediate-term
government and corporate bonds, and is calculated by Lehman Brothers Inc.

( 5) The Lipper Balanced Funds Index is an equal-weighted performance index,
adjusted for capital-gain distributions and income dividends, of the
largest qualifying funds in this investment objective, and is compiled by
Lipper Inc.

( 6) Warburg Pincus assumed management of the fund on January 1, 1992.

( 7) Performance since August 31, 1987.

( 8) Performance since December 31, 1996.

(9) Lipper Health/Biotechnology Funds Index is an equal-weighted performance
index, adjusted for capital-gain distributions and income dividends, of the
largest qualifying funds in this investment objective, and is compiled by
Lipper Inc.

7
<PAGE> 9

UNDERSTANDING PERFORMANCE

- TOTAL RETURN tells you how much an investment in a fund has changed in
value over a given time period. It assumes that all dividends and capital
gains (if any) were reinvested in additional shares. The change in value
can be stated either as a cumulative return or as an average annual rate
of return.

- A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are
examples of one-year cumulative total returns.

- An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what constant annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, assuming you held it for the entire
period.

- Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.

8
<PAGE> 10
INVESTOR EXPENSES

FEES AND FUND EXPENSES

This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended October 31, 1998.

GROWTH & CAPITAL HEALTH
BALANCED INCOME APPRECIATION SCIENCES
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(paid directly from your investment)
Sales charge "load" on purchases NONE NONE NONE NONE
Deferred sales charge "load" NONE NONE NONE NONE
Sales charge "load" on reinvested
distributions NONE NONE NONE NONE
Redemption fees NONE NONE NONE NONE
Exchange fees NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
Management fee .90% .75% .70% 1.00%
Distribution and service (12b-1)
fee .25% NONE NONE .25%
Other expenses .82% .44% .30% .72%
TOTAL ANNUAL FUND OPERATING
EXPENSES* 1.97% 1.19% 1.00% 1.97%
</TABLE>

* Actual fees and expenses for the fiscal year ended October 31, 1998 are shown
below. Fee waivers and expense reimbursements or credits reduced expenses for
some funds during 1998 but may be discontinued at any time.

<TABLE>
<CAPTION>
GROWTH & CAPITAL HEALTH
EXPENSES AFTER WAIVERS AND BALANCED INCOME APPRECIATION SCIENCES
REIMBURSEMENTS FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Management fee .43% .75% .70% .71%
Distribution and service (12b-1)
fee .25% NONE NONE .25%
Other expenses .67% .44% .30% .63%
----- ----- ----- -----
TOTAL ANNUAL FUND OPERATING
EXPENSES 1.35% 1.19% 1.00% 1.59%
</TABLE>

<PAGE> 11

EXAMPLE

This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.

Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the first table on the opposite page (before fee waivers and
expense reimbursements and credits), and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
BALANCED FUND $200 $618 $1,062 $2,296
GROWTH & INCOME FUND $121 $378 $ 654 $1,443
CAPITAL APPRECIATION FUND $102 $318 $ 552 $1,225
HEALTH SCIENCES FUND $200 $618 $1,062 $2,296
</TABLE>

10
<PAGE> 12
THE FUNDS IN DETAIL

- THE MANAGEMENT FIRM

WARBURG PINCUS ASSET
MANAGEMENT, INC.
466 Lexington Avenue
New York, NY 10017-3147

- Investment adviser for the funds

- Responsible for managing each fund's assets according to its goal and
strategies

- A professional investment-advisory firm providing investment services to
individuals since 1970 and to institutions since 1973

- Currently manages approximately $22 billion in assets

For easier reading, Warburg Pincus Asset Management, Inc. will be referred to
as "Warburg Pincus" or "we" throughout this Prospectus.

- MULTI-CLASS STRUCTURE

This Prospectus offers Common Class shares of the funds. Common Class shares
are no-load.

Each of the funds except the Health Sciences Fund offers Advisor Class shares
described in separate prospectuses. Advisor Class shares are available through
financial-services firms.

<PAGE> 13

- FUND INFORMATION KEY

Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:

GOAL AND STRATEGIES

The fund's particular investment goal and the strategies it intends to use in
pursuing that goal. Percentages of fund assets are based on total assets unless
indicated otherwise.

PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."

RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."

PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser to handle the fund's
day-to-day management.

INVESTOR EXPENSES
Actual fund expenses for the 1998 fiscal year. Future expenses may be higher
or lower.

- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the fund. Expressed as a percentage of average net assets
after waivers.

- DISTRIBUTION AND SERVICE (12b-1) FEES Fees paid by the fund to the
distributor for making shares of the fund available to you. Expressed as a
percentage of average net assets.

- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets after
waivers, credits and reimbursements.

FINANCIAL HIGHLIGHTS
A table showing the fund's audited financial performance for up to five
years.

- TOTAL RETURN How much you would have earned on an investment in the fund,
assuming you had reinvested all dividend and capital-gain distributions.

- PORTFOLIO TURNOVER An indication of trading frequency. The funds may sell
securities without regard to the length of time they have been held. A high
turnover rate may increase the fund's transaction costs and negatively affect
its performance. Portfolio turnover may also result in capital-gain
distributions that could raise your income-tax liability.

The Annual Report includes the auditor's report, along with the fund's
financial statements. It is available free upon request.

12
<PAGE> 14
BALANCED FUND

- GOAL AND STRATEGIES

The Balanced Fund seeks to maximize total return (through a combination of
long-term growth of capital, and current income) consistent with preservation of
capital. To pursue this goal, the fund allocates its assets among a diversified
mix of equity and fixed-income securities. At least 25% of fund assets will be
in securities of each type, and it is anticipated that more than 25% of fund
assets will usually be in fixed-income securities, although the relative
weightings of equity and fixed-income securities will shift over time.

In choosing equity securities, the fund's portfolio managers seek to identify
companies that are attractively valued relative to their projected growth rates
and/or the intrinsic value of their assets. Because it includes elements of
growth and value investment styles, this approach can be described as a "blended
approach" or "growth at a reasonable price." The fund focuses on large U.S.
companies comparable in size to those in the S&P 500. As of December 31, 1998,
market capitalizations of S&P 500 companies ranged from $438 million to $394
billion.

For its fixed-income investments, the fund favors investment-grade debt
securities with between three and 10 years left to maturity. The Board of
Directors may change the fund's goal without shareholder approval.

- PORTFOLIO INVESTMENTS

The fund's equity holdings may include:

- common stocks

- securities convertible into common stocks

- securities such as rights and warrants, whose values are based on common
stocks

Fixed-income investments will consist primarily of:

- corporate bonds, debentures and notes

- non-convertible preferred stocks

- government, bank and commercial obligations

- asset-backed and mortgage-backed securities

This fund may invest up to:

- 10% of net assets in debt securities rated from BB/Ba to C (junk bonds)

- 15% of assets in zero-coupon bonds

- 15% of assets in foreign securities

To a limited extent, the fund may also engage in other investment practices.

- RISK FACTORS

This fund's principal risk factors are:

- market risk

- interest-rate risk

The value of your investment will fluctuate in response to stock and bond
market movements.

<PAGE> 15

The fund's fixed-income holdings are intended to reduce its volatility and
downside risk. Of course, this is not guaranteed.

Fixed-income investments are generally considered less risky than stocks,
although their risk can vary widely depending upon factors such as issuer and
maturity. In the long run, the fund may produce more modest returns than riskier
funds as a trade-off for this potentially lower risk.

"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.

- - PORTFOLIO MANAGEMENT

Brian S. Posner and Scott T. Lewis manage the fund's equity portion. M.
Anthony E. van Daalen and Charles C. Van Vleet manage the fixed-income portion.
You can find out more about the fund's managers in "Meet the Managers."

- - INVESTOR EXPENSES

Management fee .43%

Distribution and service

(12b-1) fee .25%

All other expenses .67%

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

Total expenses 1.35%

14
<PAGE> 16

FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.

PERIOD ENDED: 10/98 10/97(1) 8/97 8/96 8/95 8/94
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period $14.38 $14.24 $11.94 $11.12 $11.01 $11.71
Investment activities:
Net investment income 0.25 0.03 0.23 0.16 0.21 0.41
Net gains or losses on investments
(both realized and unrealized) 0.42 0.15 2.46 0.94 1.72 0.32
Total from investment activities 0.67 0.19 2.69 1.10 1.93 0.74
Distributions:
From net investment income (0.26) (0.05) (0.24) (0.13) (0.31) (0.46)
From realized capital gains (1.29) -- (0.15) (0.15) (1.51) (0.98)
Total distributions (1.55) (0.05) (0.39) (0.28) (1.82) (1.44)
Net asset value, end of period $13.50 $14.38 $14.24 $11.94 $11.12 $11.01
Total return 5.33% 1.30%(2) 23.03% 9.99% 21.56% 6.86%(3)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s
omitted) $35,542 $38,294 $38,926 $30,853 $5,342 $808
Ratio of expenses to average net
assets 1.35%(5) 1.35%(4,5) 1.35%(5) 1.53%(5) 1.53% 0%
Ratio of net income to average net
assets 1.76% 1.38%(4) 1.76% 1.66% 2.30% 3.76%
Decrease reflected in above
operating expense ratios due to
waivers/reimbursements .62% .68%(4) .55% .90% 4.51% 5.46%
Portfolio turnover rate 132.01% 15%(2) 120% 108% 107% 32%
</TABLE>

(1) For the two months ended October 31, 1997.

(2) Not annualized.

(3) Sales load not reflected in total return. The sales load was eliminated
effective August 31, 1994.

(4) Annualized.

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

15
<PAGE> 17

This page is intentionally left blank

16
<PAGE> 18
GROWTH & INCOME FUND

- GOAL AND STRATEGIES

The Growth & Income Fund seeks long-term growth of capital, income and a
reasonable current return. To pursue this goal, it invests primarily in equity
securities of value companies.

Value companies are companies whose earnings power or asset value does not
appear to be reflected in the current stock price. As a result, value companies
look underpriced according to financial measurements of their intrinsic worth or
business prospects. These measurements include price-to-earnings, price-to-book
and debt-to-equity ratios. The portfolio manager determines value based upon
research and analysis, taking all relevant factors into account.

This fund expects to focus on large U.S. companies with market
capitalizations of $1 billion or more, although it may invest in companies of
any size.

The fund pursues its income objective by investing in dividend-paying equity
securities. However, the fund's dividend distribution will vary and may be low.
The Board of Directors may change the fund's goal without shareholder approval.

- PORTFOLIO INVESTMENTS

Normally this fund invests substantially all of its assets in equity
securities, including:

- common stocks

- securities convertible into common stocks

- securities such as rights and warrants, whose values are based on common
stocks

It may also invest in preferred stocks and non-convertible debt securities
such as bonds, debentures and notes.

This fund may invest up to:

- 10% of net assets in debt securities rated from BB/Ba to C (junk bonds)

- 15% of assets in real-estate investment trusts (REITs)

- 20% of assets in foreign securities

To a limited extent, the fund may also engage in other investment practices.

- RISK FACTORS

This fund's principal risk factor is:

- market risk

The value of your investment will fluctuate in response to stock-market
movements. The amount of income you receive from the fund also will fluctuate.

The fund's emphasis on large-company value stocks may reduce its volatility
and downside risk. Of course, this is not guaranteed. Value stocks in theory are
already underpriced, and large-company stocks tend to be less volatile than
small-company stocks. However, a value stock may never reach what the manager
believes is its full value, or may even go down in price. In the long run, the
fund may produce more modest returns than riskier stock funds as a trade-off for
this potentially lower risk.

"More About Risk" details certain other investment practices the fund may
17

<PAGE> 19

use. Please read that section carefully before you invest.

- PORTFOLIO MANAGEMENT

Brian S. Posner manages the fund's investment portfolio. You can find out
more about him in "Meet the Managers."

- INVESTOR EXPENSES

Management fee .75%

All other expenses .44%

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

Total expenses 1.19%

FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.

PERIOD ENDED: 10/98 10/97(1) 8/97 8/96 8/95 8/94
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning
of period $18.56 $18.44 $14.90 $16.40 $14.56 $16.72
Investment activities:
Net investment income 0.14 0.02 0.14 0.11 0.22 0.08
Net gains or losses on
investments (both realized
and unrealized) 1.36 0.14 3.54 (0.66) 1.98 1.81
Total from investment
activities 1.50 0.16 3.67 (0.55) 2.21 1.89
Distributions:
From net investment income (0.14) (0.04) (0.13) (0.14) (0.18) (0.08)
From realized capital
gains (2.95) -- -- (0.81) (0.18) (3.98)
Total distributions (3.09) (.04) (0.13) (0.95) (0.37) (4.05)
Net asset value, end of
period $16.97 $18.56 $18.44 $14.90 $16.40 $14.56
Total return 9.11% .85%(2) 24.78% (3.54%) 15.62% 14.41%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $703,808 $608,205 $601,159 $727,627 $1,038,193 $410,658
Ratio of expenses to
average net assets 1.19%(3) 1.18%(3,4) 1.15%(3) 1.21%(3) 1.22% 1.28%
Ratio of net income to
average net assets .83% .75%(4) .80% .69% 1.64% .41%
Decrease reflected in
above operating expense
ratios due to
waivers/reimbursements .00% .00% .00% .00% .00% .00%
Portfolio turnover rate 78.33% 19%(2) 148% 94% 109% 150%
</TABLE>

(1) For the two months ended October 31, 1997.

(2) Not annualized.

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

(4) Annualized.
18
<PAGE> 20
CAPITAL APPRECIATION FUND

- GOAL AND STRATEGIES

This fund seeks long-term capital appreciation. To pursue its goal, the fund
invests primarily in a broadly diversified portfolio of stocks and other equity
securities of U.S. companies.

Warburg Pincus seeks to identify growth opportunities for the fund. We look
for sectors and companies that we believe will outperform the overall market. We
also look for themes or patterns that we generally associate with growth
companies, such as:

- significant fundamental changes, including changes in senior management

- generation of a large free cash flow

- proprietary products and services

- company share-buyback programs

The portfolio manager selects growth companies whose stocks appear to be
available at a reasonable price relative to projected growth.

- PORTFOLIO INVESTMENTS

This fund will ordinarily invest substantially all of its assets--but no less
than 80% of assets--in the following types of equity securities:

- common stocks

- rights and warrants

- securities convertible into or exchangeable for common stocks

- depositary receipts relating to equity securities

The fund may invest up to 20% of assets in foreign securities. To a limited
extent, it may also engage in other investment practices.

- RISK FACTORS

This fund's principal risk factor is:

- market risk

The value of your investment will fluctuate in response to stock-market
movements.

Different types of stocks (such as "growth" vs. "value" stocks) tend to shift
in and out of favor depending on market and economic conditions. Accordingly,
the fund's performance may sometimes be lower or higher than that of other types
of funds (such as those emphasizing value stocks).

"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.

<PAGE> 21

- PORTFOLIO MANAGEMENT

Susan L. Black manages the fund's investment portfolio. You can find out more
about her in "Meet the Managers."

- INVESTOR EXPENSES

Management fee .70%

All other expenses .30%

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

Total expenses 1.00%

FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.

PERIOD ENDED: 10/98 10/97 10/96 10/95 10/94
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $21.09 $17.95 $16.39 $14.29 $15.32
Investment activities:
Net investment income 0.01 0.11 0.08 0.04 0.04
Net gains or losses on investments
(both realized and unrealized) 2.31 4.93 3.53 3.08 0.17
Total from investment activities 2.32 5.04 3.61 3.12 0.21
Distributions:
From net investment income (0.08) (0.10) (0.01) (0.04) (0.05)
From realized capital gains (3.81) (1.80) (2.04) (0.98) (1.19)
Total distributions (3.89) (1.90) (2.05) (1.02) (1.24)
Net asset value, end of period $19.52 $21.09 $17.95 $16.39 $14.29
Total return 12.75% 30.98% 24.67% 24.05% 1.65%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s
omitted) $646,657 $587,091 $407,707 $235,712 $159,346
Ratio of expenses to average net
assets 1.00%(*) 1.01%(*) 1.04%(*) 1.12% 1.05%
Ratio of net income to average net
assets .05% .54% .59% .31% .26%
Decrease reflected in above
operating expense ratios due to
waivers/reimbursements .00% .00% .00% .00% .01%
Portfolio turnover rate 168.67% 238.11% 170.69% 146.09% 51.87%
</TABLE>

* Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' net expense ratio by .00%, .01% and .01% for the years ended
October 31, 1998, 1997 and 1996, respectively. The Common Shares' operating
expense ratio after reflecting these arrangements were 1.00%, 1.00% and 1.03%
for the years ended October 31, 1998, 1997 and 1996, respectively.

20
<PAGE> 22
HEALTH SCIENCES FUND

- GOAL AND STRATEGIES

The Health Sciences Fund seeks capital appreciation. To pursue this goal, it
invests in equity and debt securities of health-sciences companies.

The health sciences consist of health care, medicine and the life sciences.
Health-sciences companies are principally engaged in research and development,
production, or distribution of health-sciences products or services. The fund
may invest in companies of any size.

Under normal market conditions, the fund will invest at least:

- 65% of assets in equity and debt securities of health-sciences companies,
including small and medium-size companies

- 25% of assets in the health-services, pharmaceuticals and medical-devices
industries combined

The portfolio managers focus on individual stock-picking, using by a top-
down approach to four categories of health sciences companies -- buyers,
providers, suppliers and innovators. The managers seek to identify the most
promising sub-categories and individual companies within these categories.

When its assets reach $150 million, the fund will be closed to new investors.
Existing shareholders will be permitted to continue investing in the fund. After
six months, the fund will evaluate whether to reopen to new investors.

- PORTFOLIO INVESTMENTS

This fund intends to invest at least 80% of assets in equity securities of
health-sciences companies. Equity holdings may consist of:

- common and preferred stocks

- rights and warrants

- securities convertible into or exchangeable for common stocks

This fund may invest up to:

- 20% of assets in debt securities, including those rated below investment
grade (junk bonds)

- 35% of assets in foreign securities

To a limited extent, the fund may also engage in other investment practices.

- RISK FACTORS

This fund's principal risk factors are:

- market risk

- sector concentration

- legal and regulatory risks

The value of your investment will fluctuate in response to stock-market
movements. Fund performance will largely depend upon a limited number of
industries, which may perform differently from (or be more volatile than) the
overall stock market.

To the extent that the fund invests in smaller companies and foreign
securities, it takes on further risks that could hurt its performance. Start-up
and other small companies may have less-experienced management, limited product
lines, unproven track records or inadequate

<PAGE> 23

capital reserves. Their securities may carry increased market, information and
liquidity risks. Risks associated with foreign securities include currency,
information and political risks. These risks are defined in "More About Risk."
That section also details other investment practices the fund may use. Please
read "More About Risk" carefully before
you invest.
- PORTFOLIO MANAGEMENT

Susan L. Black and Patricia F. Widner manage the fund's investment portfolio.
You can find out more about them in "Meet the Managers."

- INVESTOR EXPENSES

Management fee .71%

Distribution and

service (12b-1) fee .25%

All other expenses .63%

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

Total expenses 1.59%

FINANCIAL HIGHLIGHTS

The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.

PERIOD ENDED: 10/98 10/97(1)
<S> <C> <C>
PER-SHARE DATA

- ------------------------------------------------------------------------------------
Net asset value, beginning of period $12.22 $10.00

- ------------------------------------------------------------------------------------
Investment activities:
Net investment income (0.06) (0.02)
Net gains or losses on investments (both realized and
unrealized) 2.97 2.24

- ------------------------------------------------------------------------------------
Total from investment activities 2.91 2.22

- ------------------------------------------------------------------------------------
Distributions:
From net investment income (0.04) --
From realized capital gains (0.68) --

- ------------------------------------------------------------------------------------
Total distributions (0.72) --

- ------------------------------------------------------------------------------------
Net asset value, end of period $14.41 $12.22

- ------------------------------------------------------------------------------------
Total return 25.25% 22.20%(2)

- ------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA

- ------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $64,336 $18,246
Ratio of expenses to average net assets(3) 1.59% 1.59%(4)
Ratio of net income to average net assets (.58)%(4) (.24%)(4)
Decrease reflected in above operating expense ratio due to
waivers/reimbursements .38% 1.83%(4)
Portfolio turnover rate 62.89% 159.57%(2)

- ------------------------------------------------------------------------------------
</TABLE>

(1) For the period December 31, 1996 (Commencement of Operations) through
October 31, 1997.

(2) Not annualized.

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

(4) Annualized.
22
<PAGE> 24
MORE ABOUT RISK

- INTRODUCTION

A fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of each fund's risk profile in "Key Points."
The fund-by-fund discussions contain more detailed information. This section
discusses other risks that may affect the funds.

The funds may use certain investment practices that have higher risks
associated with them. However, each fund has limitations and policies designed
to reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.

- TYPES OF INVESTMENT RISK

The following risks are referred to throughout this Prospectus.

CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.

CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.

CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency-
denominated investments and may widen any losses.

EURO CONVERSION RISK The introduction of a new single European currency, the
euro, may result in uncertainties for securities of European companies, European
markets and the operation of the funds. The euro was introduced on January 1,
1999, by 11 European Union member countries who are participating in European
Monetary Union (EMU).

The introduction of the euro results in the redenomination of certain
European debt and equity securities over a period of time, which may bring
differences in various accounting, tax and/or legal treatments that would not
otherwise occur. Any market disruptions relating to the introduction of the euro
could adversely affect the value of European securities and currencies held by
the funds. Other risks relate to the ability of financial institutions' systems
to process euro transactions. Additional economic and operational issues are
raised by the fact that certain European Union member countries, including the
United Kingdom, did not participate in EMU on January 1, 1999, and therefore did
not implement the euro on that date.

At this early stage no one knows what the degree of impact of the
introduction of the euro will be. To the extent that the market impact or effect
on a fund holding is negative or fund service-provider systems cannot process
the euro conversion, the fund's performance could be hurt.

EXPOSURE RISK The risk associated with investments (such as derivatives) or

<PAGE> 25

practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.

- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can
reduce or eliminate losses, it can also reduce or eliminate gains.

- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses
from writing uncovered call options and from speculative short sales
are unlimited.

EXTENSION RISK An unexpected rise in interest rates may extend the life of a
mortgage-backed security beyond the expected prepayment time, typically reducing
the security's value.

INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.

INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.

LEGAL RISK Lawsuits or other legal proceedings against the issuer of a
security may adversely affect the issuer, the market value of the security, or a
fund's performance.

LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell
at the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead or forego an investment opportunity. Any of
these could have a negative effect on fund management or performance.

MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments--including stocks and bonds, and the mutual funds that invest in
them.

OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject the
fund to losses from fraud, negligence, and delay or other actions.

24
<PAGE> 26

POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.

PREPAYMENT RISK Securities with high stated interest rates may be prepaid
prior to maturity. During periods of falling interest rates, a fund would
generally have to reinvest the proceeds at lower rates.

REGULATORY RISK Governments, agencies or other regulatory bodies may adopt or
change laws or regulations that could adversely affect the issuer, the market
value of the security, or a fund's performance.

VALUATION RISK The lack of an active trading market may make it difficult to
obtain an accurate price for a fund security.

YEAR 2000 PROCESSING RISK The funds' investment adviser is working to address
the Year 2000 issue relating to the change from "99" to "00" on January 1, 2000,
and has obtained assurances from major service providers that they are taking
similar steps. The adviser is working on the Year 2000 issue pursuant to a plan
designed to address potential problems, and progress is proceeding according to
the plan. The adviser anticipates the completion of testing of internal systems
in the first part of 1999, and is developing contingency plans intended to
address any unexpected service problems.

The fund's operations are dependent upon interactions among many participants
in the financial-services and related industries. There is no assurance that
preparations by the adviser and other industry participants will be sufficient,
and any noncompliant computer systems could hurt key fund operations, such as
shareholder servicing, pricing and trading.

The Year 2000 issue affects practically all companies, organizations,
governments, markets and economies throughout the world -- including companies
or governmental entities in which the fund invests and markets in which they
trade. However, at this time no one knows precisely what the degree of impact
will be. To the extent that the impact on a fund holding or on markets or
economies is negative, it could seriously affect the fund's performance.

25
<PAGE> 27

CERTAIN INVESTMENT PRACTICES

For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.

KEY TO TABLE:

<TABLE>
<S> <C>
[-] Permitted without limitation; does not indicate
actual use
20% Italic type (e.g., 20%) represents an investment
limitation as a percentage of NET fund assets; does
not indicate actual use
20% Roman type (e.g., 20%) represents an investment
limitation as a percentage of TOTAL fund assets; does
not indicate actual use
[ ] Permitted, but not expected to be used to a
significant extent
- -- Not permitted
</TABLE>

<TABLE>
GROWTH CAPITAL HEALTH
BALANCED & INCOME APPRECIATION SCIENCES
FUND FUND FUND FUND

INVESTMENT PRACTICE LIMIT
<S> <C> <C> <C> <C>
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
Speculative exposure risk. 30% 30% 10% 30%
- -----------------------------------------------------------------------------------------------------------

FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable a fund to hedge against or speculate on future
changes in currency values, interest rates or stock indexes.
Futures obligate the fund (or give it the right, in the case
of options) to receive or make payment at a specific future
time based on those future changes.(1) Correlation,
currency, hedged exposure, interest-rate, market,
speculative exposure risks.(2) [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. Currency, information,
liquidity, market, political, valuation risks. 15% 20% 20% 35%
- -----------------------------------------------------------------------------------------------------------
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
within the four highest grades (AAA/Aaa through BBB/Baa) by
Standard & Poor's or Moody's rating service, and unrated
securities of comparable quality. Credit, interest-rate,
market risks. 75% 20% 20% 20%
- -----------------------------------------------------------------------------------------------------------

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities
backed by pools of mortgages, including passthrough
certificates and other senior classes of collateralized
mortgage obligations (CMOs), or other receivables. Credit,
extension, interest-rate, liquidity, prepayment risks. [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
below the fourth-highest grade (BBB/Baa) by Standard &
Poor's or Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk bonds.
Credit, information, interest-rate, liquidity, market,
valuation risks. 10% 10% 5% 20%
- -----------------------------------------------------------------------------------------------------------
</TABLE>

LOGO
<PAGE> 28

<TABLE>
<CAPTION>
GROWTH CAPITAL HEALTH
BALANCED & INCOME APPRECIATION SCIENCES
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
INVESTMENT PRACTICE LIMIT
OPTIONS Instruments that provide a right to buy (call) or
sell (put) a particular security, currency or index of
securities at a fixed price within a certain time period. A
fund may purchase or sell (write) both put and call options
for hedging or speculative purposes.(1) Correlation, credit,
hedged exposure, liquidity, market, speculative exposure
risks. 25% 25% 25% 25%
- --------------------------------------------------------------------------------------------------------
REAL-ESTATE INVESTMENT TRUSTS (REITS) Pooled investment
vehicles that invest primarily in income-producing real
estate or real-estate-related loans or interests. Credit,
interest-rate, market risks. [ ] [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with
restrictions on trading, or those not actively traded. May
include private placements. Liquidity, market, valuation
risks. 15% 15% 10% 15%
- ---------------------------------------------------------------------------------------------------------
SECTOR CONCENTRATION Investing more than 25% of a fund's net
assets in a group of related industries (market sector).
Performance will largely depend upon the sector's
performance, which may differ in direction and degree from
that of the overall stock market. Financial, economic,
business, political and other developments affecting the
sector will have a greater effect on the fund. -- -- -- --
- ---------------------------------------------------------------------------------------------------------
SECURITIES LENDING Lending portfolio securities to financial
institutions; a fund receives cash, U.S. government
securities or bank letters of credit as collateral. Credit,
liquidity, market, operational risks. 33 1/3% 33 1/3% 33 1/3% 33 1/3%
- ---------------------------------------------------------------------------------------------------------
SHORT SALES Selling borrowed securities with the intention
of repurchasing them for a profit on the expectation that
the market price will drop. Liquidity, market, speculative
exposure risks. -- -- -- 10%
- ---------------------------------------------------------------------------------------------------------
</TABLE>

27
<PAGE> 29

<TABLE>
<CAPTION>
GROWTH CAPITAL HEALTH
BALANCED & INCOME APPRECIATION SCIENCES
FUND FUND FUND FUND
INVESTMENT PRACTICE LIMIT
<S> <C> <C> <C> <C>
SHORT SALES "AGAINST THE BOX" A short sale when the fund
owns enough shares of the security involved to cover the
borrowed securities, if necessary. Liquidity, market,
speculative exposure risks. 10% 10% -- 10%
- -------------------------------------------------------------------------------------------------------
SPECIAL-SITUATION COMPANIES Companies experiencing unusual
developments affecting their market values. Special
situations may include acquisition, consolidation,
reorganization, recapitalization, merger, liquidation,
special distribution, tender or exchange offer, or
potentially favorable litigation. Securities of a
special-situation company could decline in value and hurt a
fund's performance if the anticipated benefits of the
special situation do not materialize. Information, market
risks. [ ] [ ] [ ] [ ]
- -------------------------------------------------------------------------------------------------------
START-UP AND OTHER SMALL COMPANIES Companies with small
relative market capitalizations, including those with
continuous operations of less than three years. Information,
liquidity, market, valuation risks. [ ] [ ] [ ] [ ]
- -------------------------------------------------------------------------------------------------------
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's
assets in investments such as money-market obligations and
investment-grade debt securities for defensive purposes.
Although intended to avoid losses in adverse market,
economic, political or other conditions, defensive tactics
might be inconsistent with a fund's principal investment
strategies and prevent a fund from achieving its goal. [ ] [ ] [ ] [ ]
- -------------------------------------------------------------------------------------------------------
WARRANTS Options issued by a company granting the holder the
right to buy certain securities, generally common stock, at
a specified price and usually for a limited time. Liquidity,
market, speculative exposure risks. 15% 15% 10% 15%
- -------------------------------------------------------------------------------------------------------
</TABLE>

28
<PAGE> 30

<TABLE>
<CAPTION>
GROWTH CAPITAL HEALTH
BALANCED & INCOME APPRECIATION SCIENCES
FUND FUND FUND FUND
INVESTMENT PRACTICE LIMIT
<S> <C> <C> <C> <C>
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks. 20% 20% 20% 20%
- -------------------------------------------------------------------------------------------------------
ZERO-COUPON BONDS Debt securities that pay no cash income to
holders until maturity and are issued at a discount from
maturity value. At maturity, the entire return comes from
the difference between purchase price and maturity value.
Interest-rate, market risks. [ ] [ ] [ ] [ ]
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) The funds are not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used
effectively or may be unable to be used for other reasons.

(2) Each fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.

29
<PAGE> 31
MEET THE MANAGERS

[Susan Black Photo]

SUSAN L. BLACK, CFA, CIC
Managing Director

- Portfolio Manager,
Capital Appreciation Fund
since December 1994

- Co-Portfolio Manager,
Health Sciences Fund
since fund inception

- With Warburg Pincus since 1985

[Scott Lewis Photo]

SCOTT T. LEWIS
Managing Director

- Co-Portfolio Manager,
Balanced Fund
since March 1998

- With Warburg Pincus since 1986

[Brian Posner Photo]

BRIAN S. POSNER
Managing Director

- Portfolio Manager,
Growth & Income Fund
since January 1997

- Co-Portfolio Manager,
Balanced Fund since March 1998

- With Warburg Pincus since 1997

- Portfolio manager with Fidelity
Investments, 1987 to 1996

[Patricia Widner Photo]

PATRICIA F. WIDNER
Managing Director

- Co-Portfolio Manager,
Health Sciences Fund
since fund inception

- With Warburg Pincus since 1991

- Health-care analyst/venture capitalist with Citibank/CCM, 1985 to 1991

- Health-care industry experience, 1977 to 1985

Job titles indicate position with the investment adviser.

<PAGE> 32

[M. Anthony Van Daalen Photo]

M. ANTHONY E. VAN DAALEN, CFA
Senior Vice President

- Co-Portfolio Manager,
Balanced Fund
since 1998

- With Warburg Pincus since 1992

[Charles Van Vleet Photo]

CHARLES C. VAN VLEET
Vice President

- Co-Portfolio Manager,
Balanced Fund
since 1998

- With Warburg Pincus since 1998

- Senior vice president and senior global strategist with Putnam Investment
Management, 1994 to 1998

- Previously vice president and senior portfolio manager at Alliance Capital in
New York and Alliance Limited in London, 1989 to 1994

31
<PAGE> 33
ABOUT YOUR ACCOUNT

-- SHARE VALUATION

The price of your shares is also referred to as their net asset value (NAV).

The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the Common Class's total assets, less its
liabilities, by the number of Common Class shares outstanding.

Each fund values its securities based on market quotations when it calculates
its NAV. If market quotations are not readily available, securities and other
assets are valued by another method that the Board of Directors/Trustees
believes accurately reflects fair value. Debt obligations that will mature in 60
days or less are valued on the basis of amortized cost, unless the Board of
Directors/ Trustees determines that using this method would not reflect an
investment's value.

Some fund securities may be listed on foreign exchanges that are open on days
(such as U.S. holidays) when the funds do not compute their prices. This could
cause the value of a fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.

-- BUYING AND
SELLING SHARES

The accompanying Shareholder Guide explains how to invest directly with the
funds. You will find information about purchases, redemptions, exchanges and
services.

Each fund is open on those days when the NYSE is open, typically Monday
through Friday. If we receive your request in proper form by the close of the
NYSE (usually 4 p.m. ET), your transaction will be priced at that day's NAV. If
we receive it after that time, it will be priced at the next business day's NAV.

FINANCIAL-SERVICES FIRMS

You can also buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The funds have authorized
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by the fund and will be priced at the next-computed NAV.

Financial-services firms may charge transaction fees or other fees that you
could avoid by investing directly with the fund. Please read their program
materials for any special provisions or additional service features that may
apply to your investment. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may
be modified.

Some of the firms through which the funds are available include:

- Charles Schwab & Co., Inc. Mutual Fund OneSource(R) service

- Fidelity Brokerage Services, Inc. FundsNetwork(TM) Program

- Waterhouse Securities, Inc.

<PAGE> 34

- ACCOUNT STATEMENTS

In general, you will receive account statements as follows:

- after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)

- after any changes of name or address of the registered owner(s)

- otherwise, every quarter

You will receive annual and semiannual financial reports.

- DISTRIBUTIONS

As a fund investor, you are entitled to your share of the fund's net income
and gains on its investments. The fund passes these earnings along to its
shareholders as distributions.

Each fund earns dividends from stocks and interest from bond, money-market
and other investments. These are passed along as dividend distributions. A fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital-gain distributions.

The Balanced and Growth & Income funds distribute dividends quarterly. The
Capital Appreciation and Health Sciences funds distribute dividends annually.

Each of the funds typically distributes capital gains annually, usually in
December.

Most investors have their distributions reinvested in additional shares of
the same fund. Distributions will be reinvested unless you choose on your
account application to have a check for your distributions mailed to you or sent
by electronic transfer.

- TAXES

As with any investment, you should consider how your investment in a fund
will be taxed. If your account is not a tax-advantaged retirement account, you
should be especially aware of the following potential tax implications. Please
consult your tax professional concerning your own tax situation.

TAXES ON DISTRIBUTIONS

As long as a fund continues to meet the requirements for being a tax-
qualified regulated investment company, it pays no federal income tax on the
earnings it distributes to shareholders.

Distributions you receive from a fund, whether reinvested or taken in cash,
are generally considered taxable. Fund distributions are taxed based on the
length of time the fund holds its assets, regardless of how long you have held
fund shares. Distributions from a fund's long-term capital gains are taxed as
capital gains; distributions from short-term capital gains and other sources are
generally taxed as ordinary income. The funds will mostly make capital-gain
distributions, which could be short-term or long-term.

If you buy shares shortly before or on the "record date"--the date that
establishes you as the person to receive the upcoming distribution--you may

33
<PAGE> 35

receive a portion of the money you just invested in the form of a taxable
distribution.

The Form 1099 that is mailed to you every January details your distributions
and their federal tax category.

TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss
on the transaction. You are responsible
for any tax liabilities generated by
your transactions.

34
<PAGE> 36
OTHER INFORMATION

- ABOUT THE DISTRIBUTOR

Counsellors Securities Inc., a wholly owned subsidiary of Warburg Pincus, is
responsible for:

- making the funds available to you

- account servicing and maintenance

- other administrative services related to sale of the Common Class

As part of their business strategies, the Balanced and Health Sciences funds
each have adopted a Rule 12b-1 shareholder-servicing and distribution plan to
compensate Counsellors Securities for the above services. Under the plan,
Counsellors Securities receives fees at an annual rate of 0.25% of average daily
net assets of the fund's Common Class. Because the fees are paid out of a fund's
assets on an ongoing basis, over time they will increase the cost of your
investment and may cost you more than paying other types of sales charges.

<PAGE> 37
FOR MORE INFORMATION

More information about these funds is available free upon request, including
the following:

- SHAREHOLDER GUIDE

Explains how to buy and sell shares. The Shareholder Guide is incorporated by
reference into (is legally part of) this Prospectus.

- ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes financial statements, portfolio investments and detailed performance
information.

The Annual Report also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.

- OTHER INFORMATION

A current Statement of Additional Information (SAI), which provides more
detail about the funds, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.

You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference, and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
800-SEC-0330) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009.

Please contact Warburg Pincus Funds to obtain, without charge, the SAI and
Annual and Semiannual Reports and to make shareholder inquiries:

BY TELEPHONE:
800-WARBURG
(800-927-2874)

BY MAIL:
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030

BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, MA 02171

ON THE INTERNET:
www.warburg.com

SEC FILE NUMBERS:

Warburg Pincus Balanced Fund 811-07517

Warburg Pincus Growth & Income Fund 811-07515

Warburg Pincus Capital
Appreciation Fund 811-05041

Warburg Pincus Health Sciences Fund 811-07901

[Warburg Pincus Funds Logo]

P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) B www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPUSL-1-0299
<PAGE> 38

PROSPECTUS
Advisor Class
February 16, 1999

WARBURG PINCUS
GROWTH & INCOME FUND

[Warburg Pincus Funds Logo]
<PAGE> 39
CONTENTS

<TABLE>
<S> <C>
KEY POINTS.................... .................... 4
Goal and Principal Strategies................... 4
Investor Profile................................ 4
A Word About Risk............................... 4
PERFORMANCE SUMMARY............... ................ 6
Year-by-Year Total Returns...................... 6
Average Annual Total Returns.................... 6
INVESTOR EXPENSES................ ................. 8
Fees and Fund Expenses.......................... 8
Example......................................... 9
THE FUND IN DETAIL................ ................ 10
The Management Firm............................. 10
Multi-Class Structure........................... 10
Fund Information Key............................ 11
Goal and Strategies............................. 12
Portfolio Investments........................... 12
Risk Factors.................................... 12
Portfolio Management............................ 13
Investor Expenses............................... 13
MORE ABOUT RISK................. .................. 14
Introduction.................................... 14
Types of Investment Risk........................ 14
Certain Investment Practices.................... 17
MEET THE MANAGER................. ................. 19
ABOUT YOUR ACCOUNT................ ................ 20
Share Valuation................................. 20
Account Statements.............................. 20
Distributions................................... 20
Taxes........................................... 20
OTHER INFORMATION................ ................. 22
About the Distributor........................... 22
BUYING SHARES.................. ................... 23
SELLING SHARES.................. .................. 25
SHAREHOLDER SERVICES............... ............... 27
OTHER POLICIES.................. .................. 28
FOR MORE INFORMATION............... ............... back cover
</TABLE>

<PAGE> 40
KEY POINTS

GOAL AND PRINCIPAL STRATEGIES

<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
GROWTH & INCOME FUND Long-term growth of - Invests primarily in equity
Risk factors: capital, income and a securities
Market risk reasonable current return - Focuses on large U.S. companies
- Analyzes such factors as
price-to-earnings and
price-to-book ratios, using a
value investment style
</TABLE>

INVESTOR PROFILE

THIS FUND IS DESIGNED FOR INVESTORS WHO:

- - are investing for long-term goals that may include college or retirement

- - are willing to assume the risk of losing money in exchange for attractive
potential long-term returns

- - are investing for growth and income

- - want to diversify their portfolios into common stocks

IT MAY NOT BE APPROPRIATE IF YOU:

- - are investing for a shorter time horizon

- - are uncomfortable with an investment that will fluctuate in value

- - are looking primarily for income

You should base your investment decision on your own goals, risk preferences
and time horizon.

A WORD ABOUT RISK

All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.

Principal risk factors for the fund are discussed below. Before you invest,
please make sure you understand the risks that apply to the fund. As with any
mutual fund, you could lose money over any period of time.

Investments in the fund are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

MARKET RISK

<PAGE> 41

This page is intentionally left blank

5
<PAGE> 42
PERFORMANCE SUMMARY

The bar chart and the table below provide an indication of the risks of
investing in this fund. The bar chart shows you how the fund's performance has
varied from year to year for up to 10 years. The table compares the fund's
performance over time to that of a broadly based securities market index. As
with all mutual funds, past performance is not a prediction of the future.

YEAR-BY-YEAR TOTAL RETURNS

YEAR ENDED 12/31: 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH & INCOME FUND........ -1.60% 29.82% 12.23%
</TABLE>

Best quarter: 16.49% (Q4 98)
Worst quarter: -14.57% (Q3 98)
Inception date: 5/15/95

AVERAGE ANNUAL TOTAL RETURNS

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS 10 YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/98: 1998 1994-1998 1989-1998 FUND DATE
<S> <C> <C> <C> <C> <C>
GROWTH & INCOME FUND(1) 12.23% NA NA 13.27% 5/15/95
S&P 500 INDEX(2) 28.57% NA NA 28.65%(3)
</TABLE>

(1) Warburg Pincus assumed management of the fund on January 1, 1992.

(2) The S&P 500 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinvestment of dividends, and is a
registered trademark of McGraw-Hill Co., Inc.

(3) Performance since May 31, 1995.

<PAGE> 43

UNDERSTANDING PERFORMANCE

- A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are
examples of one-year cumulative total returns.

- Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.

7
<PAGE> 44
INVESTOR EXPENSES

FEES AND FUND EXPENSES

This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended October 31, 1998.

<TABLE>
<S> <C>
SHAREHOLDER FEES (paid directly from your investment)
Sales charge "load" on purchases NONE
Deferred sales charge "load" NONE
Sales charge "load" on reinvested distributions NONE
Redemption fees NONE
Exchange fees NONE
ANNUAL FUND OPERATING EXPENSES (deducted from fund assets)
Management fee .75%
Distribution and service (12b-1) fee .50%
Other expenses .30%
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.55%
</TABLE>

* Actual fees and expenses for the fiscal year ended October 31, 1998 are shown
below. Fee waivers and expense reimbursements or credits reduced expenses for
the fund during 1998 but may be discontinued at any time.

<TABLE>
<CAPTION>
EXPENSES AFTER WAIVERS AND
REIMBURSEMENTS
<S> <C>
Management fee .75%
Distribution and service (12b-1) fee .50%
Other expenses .30%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.55%
</TABLE>

<PAGE> 45

EXAMPLE

This example may help you compare the cost of investing in this fund with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.

Assume you invest $10,000, the fund returns 5% annually, expense ratios remain
as listed in the first table on the opposite page (before fee waivers and
expense reimbursements and credits), and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C>
$158 $490 $845 $1,845
</TABLE>

9
<PAGE> 46
THE FUND IN DETAIL

THE MANAGEMENT FIRM

WARBURG PINCUS ASSET
MANAGEMENT, INC.
466 Lexington Avenue
New York, NY 10017-3147

- - Investment adviser for the fund

- - Responsible for managing the fund's assets according to its goal and
strategies

- - A professional investment-advisory firm providing investment services to
individuals since 1970 and to institutions since 1973

- - Currently manages approximately $22 billion in assets

For easier reading, Warburg Pincus Asset Management, Inc. will be referred to
as "Warburg Pincus" or "we" throughout this Prospectus.

MULTI-CLASS STRUCTURE

This fund offers two classes of shares, Common and Advisor. This Prospectus
offers the Advisor Class of shares, which are sold through financial-services
firms.

The Common Class of shares is described in a separate prospectus.

<PAGE> 47

FUND INFORMATION KEY

The description on the next page provides the following information about the
fund:

GOAL AND STRATEGIES

The fund's particular investment goal and the strategies it intends to use in
pursuing that goal. Percentages of fund assets are based on total assets unless
indicated otherwise.

PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."

RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."

PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser to handle the fund's
day-to-day management.

INVESTOR EXPENSES
Actual fund expenses for the 1998 fiscal year. Future expenses may be higher
or lower.

- - MANAGEMENT FEE The fee paid to the investment adviser for providing investment
advice to the fund. Expressed as a percentage of average net assets after
waivers.

- - DISTRIBUTION AND SERVICE (12b-1) FEES Fees paid by the fund to the distributor
for making shares of the fund available to you. Expressed as a percentage of
average net assets.

- - OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets after
waivers, credits and reimbursements.

FINANCIAL HIGHLIGHTS
A table showing the fund's audited financial performance for up to five
years.

- - TOTAL RETURN How much you would have earned on an investment in the fund,
assuming you had reinvested all dividend and capital-gain distributions.

- - PORTFOLIO TURNOVER An indication of trading frequency. The fund may sell
securities without regard to the length of time they have been held. A high
turnover rate may increase the fund's transaction costs and negatively affect
its performance. Portfolio turnover may also result in capital-gain
distributions that could raise your income-tax liability.

The Annual Report includes the auditor's report, along with the fund's
financial statements. It is available free upon request.

11
<PAGE> 48

GOAL AND STRATEGIES

The Growth & Income Fund seeks long-term growth of capital, income and a
reasonable current return. To pursue this goal, it invests primarily in equity
securities of value companies.

This fund expects to focus on large U.S. companies with market
capitalizations of $1 billion or more, although it may invest in companies of
any size.

PORTFOLIO INVESTMENTS

Normally this fund invests substantially all of its assets in equity
securities, including:

- - common stocks

- - securities convertible into common stocks

- - securities such as rights and warrants, whose values are based on common
stocks

It may also invest in preferred stocks and non-convertible debt securities
such as bonds, debentures and notes.

This fund may invest up to:

- - 10% of net assets in debt securities rated from BB/Ba to C (junk bonds)

- - 15% of assets in real-estate investment trusts (REITs)

- - 20% of assets in foreign securities

To a limited extent, the fund may also engage in other investment practices.

RISK FACTORS

This fund's principal risk factor is:

- - market risk

The value of your investment will fluctuate in response to stock-market
movements. The amount of income you receive from the fund also will fluctuate.

"More About Risk" details certain other investment practices the fund may

12
<PAGE> 49

use. Please read that section carefully before you invest.

PORTFOLIO MANAGEMENT

Brian S. Posner manages the fund's investment portfolio. You can find out
more about him in "Meet the Manager."

INVESTOR EXPENSES

Management fee .75%

Distribution and service
(12b-1) fee .50%

All other expenses .30%
----

Total expenses 1.55%

FINANCIAL HIGHLIGHTS

The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.

PERIOD ENDED: 10/98 10/97(1) 8/97 8/96 8/95(2)
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period $18.55 $18.42 $14.88 $16.38 $14.87
====== ====== ====== ====== =====
Investment activities:
Net investment income 0.10 0.01 0.07 0.08 0.02
Net gains or losses on
investments (both realized
and unrealized) 1.35 0.14 3.55 (0.69) 1.53
------ ------ ------ ------ -----
Total from investment activities 1.45 0.15 3.62 (0.61) 1.56
------ ------ ------ ------ -----
Distributions:
From net investment income (0.09) (0.02) (0.08) (0.07) (0.05)
From realized capital gains (2.95) 0.00 0.00 (0.81) 0.00
------ ------ ------ ------ -----
Total distributions (3.04) (0.02) (0.08) (0.89) (0.05)
------ ------ ------ ------ -----
Net asset value, end of period $16.96 $18.55 $18.42 $14.88 $16.38
====== ====== ====== ====== =====
Total return 8.70% .81%(3) 24.37% (3.92%) 10.49%(3)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $96,397 $87,929 $84,867 $79,565 $56,902
Ratio of expenses to average net
assets 1.55%(4) 1.58%(4,5) 1.54%(4) 1.59%(4) 1.92%(5)
Ratio of net income to average net
assets .47% .35%(5) .43% .28% .43%(5)
Decrease reflected in above
operating expense ratios due to
waivers/reimbursements .00% .00% .00% .00% .00%
Portfolio turnover rate 78.33% 19%(3) 148% 94% 109%(3,5)
</TABLE>

(1) For the two months ended October 31, 1997.

(2) For the period May 15, 1995 (Commencement of Operations) to August 31, 1995.

(3) Not annualized.

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

(5) Annualized.
13
<PAGE> 50

MORE ABOUT RISK

INTRODUCTION

The fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of the fund's risk profile in "Key Points."
The fund discussion contains more detailed information. This section discusses
other risks that may affect the funds.

The fund may use certain investment practices that have higher risks
associated with them. However, the fund has limitations and policies designed to
reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.

TYPES OF INVESTMENT RISK

The following risks are referred to throughout this Prospectus.

CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.

CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.

EURO CONVERSION RISK The introduction of a new single European currency, the
euro, may result in uncertainties for securities of European companies, European
markets and the operation of the fund. The euro was introduced on January 1,
1999, by 11 European Union member countries who are participating in European
Monetary Union (EMU).

The introduction of the euro results in the redenomination of certain
European debt and equity securities over a period of time, which may bring
differences in various accounting, tax and/or legal treatments that would not
otherwise occur. Any market disruptions relating to the introduction of the euro
could adversely affect the value of European securities and currencies held by
the fund. Other risks relate to the ability of financial institutions' systems
to process euro transactions. Additional economic and operational issues are
raised by the fact that certain European Union member countries, including the
United Kingdom, did not participate in EMU on January 1, 1999, and therefore did
not implement the euro on that date.

EXPOSURE RISK The risk associated with investments (such as derivatives) or

14
<PAGE> 51

practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.

- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can reduce
or eliminate losses, it can also reduce or eliminate gains.

- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.

EXTENSION RISK An unexpected rise in interest rates may extend the life of a
mortgage-backed security beyond the expected prepayment time, typically reducing
the security's value.

INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.

15
<PAGE> 52

ability to bring its capital or income back to the U.S. Other political risks
include economic policy changes, social and political instability, military
action and war.

VALUATION RISK The lack of an active trading market may make it difficult to
obtain an accurate price for a fund security.

YEAR 2000 PROCESSING RISK The fund's investment adviser is working to address
the Year 2000 issue relating to the change from "99" to "00" on January 1, 2000,
and has obtained assurances from major service providers that they are taking
similar steps. The adviser is working on the Year 2000 issue pursuant to a plan
designed to address potential problems, and progress is proceeding according to
the plan. The adviser anticipates the completion of testing of internal systems
in the first part of 1999, and is developing contingency plans intended to
address any unexpected service problems.

16
<PAGE> 53

CERTAIN INVESTMENT PRACTICES

For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.

KEY TO TABLE:

<TABLE>
<S> <C>
/x/ Permitted without limitation; does not indicate actual use
20% Italic type (e.g., 20%) represents an investment limitation as a percentage of
/x/ ET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a percentage of
TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
</TABLE>

<TABLE>
<S> <C>
INVESTMENT PRACTICE LIMIT
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
Speculative exposure risk. 30%
- --------------------------------------------------------------------
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable a fund to hedge against or speculate on future
changes in currency values, interest rates or stock indexes.
Futures obligate the fund (or give it the right, in the case
of options) to receive or make payment at a specific future
time based on those future changes.(1) Correlation,
currency, hedged exposure, interest-rate, market,
speculative exposure risks.(2) / /
- --------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. Currency, information,
liquidity, market, political, valuation risks. 20%
- --------------------------------------------------------------------
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
within the four highest grades (AAA/Aaa through BBB/Baa) by
Standard & Poor's or Moody's rating service, and unrated
securities of comparable quality. Credit, interest-rate,
market risks. 20%
- --------------------------------------------------------------------
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities
backed by pools of mortgages, including passthrough
certificates and other senior classes of collateralized
mortgage obligations (CMOs), or other receivables. Credit,
extension, interest-rate, liquidity, prepayment risks. / /
- --------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
below the fourth-highest grade (BBB/Baa) by Standard &
Poor's or Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk bonds.
Credit, information, interest-rate, liquidity, market,
valuation risks. 10%
- --------------------------------------------------------------------
OPTIONS Instruments that provide a right to buy (call) or
sell (put) a particular security, currency or index of
securities at a fixed price within a certain time period. A
fund may purchase or sell (write) both put and call options
for hedging or speculative purposes.(1) Correlation, credit,
hedged exposure, liquidity, market, speculative exposure
risks. 25%
- --------------------------------------------------------------------
</TABLE>

17
<PAGE> 54

<TABLE>
<S> <C>
INVESTMENT PRACTICE LIMIT
REAL-ESTATE INVESTMENT TRUSTS (REITs) Pooled investment
vehicles that invest primarily in income-producing real
estate or real-estate related loans or interests. Credit,
interest-rate, market risks. / /
- --------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with
restrictions on trading, or those not actively traded. May
include private placements. Liquidity, market, valuation
risks. 15%
- --------------------------------------------------------------------
SECURITIES LENDING Lending portfolio securities to financial
institutions; a fund receives cash, U.S. government
securities or bank letters of credit as collateral. Credit,
liquidity, market, operational risks. 33 1/3%
- --------------------------------------------------------------------
SHORT SALES "AGAINST THE BOX" A short sale when the fund
owns enough shares of the security involved to cover the
borrowed securities, if necessary. Liquidity, market,
speculative exposure risks. 10%
- --------------------------------------------------------------------
SPECIAL-SITUATION COMPANIES Companies experiencing unusual
developments affecting their market values. Special
situations may include acquisition, consolidation,
reorganization, recapitalization, merger, liquidation,
special distribution, tender or exchange offer, or
potentially favorable litigation. Securities of a
special-situation company could decline in value and hurt a
fund's performance if the anticipated benefits of the
special situation do not materialize. Information, market
risks. / /
- --------------------------------------------------------------------
START-UP AND OTHER SMALL COMPANIES Companies with small
relative market capitalizations, including those with
continuous operations of less than three years. Information,
liquidity, market, valuation risks. / /
- --------------------------------------------------------------------
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's
assets in investments such as money-market obligations and
investment-grade debt securities for defensive purposes.
Although intended to avoid losses in adverse market,
economic, political or other conditions, defensive tactics
might be inconsistent with a fund's principal investment
strategies and prevent a fund from achieving its goal. / /
- --------------------------------------------------------------------
WARRANTS Options issued by a company granting the holder the
right to buy certain securities, generally common stock, at
a specified price and usually for a limited time. Liquidity,
market, speculative exposure risks. 15%
- --------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks. 20%
- --------------------------------------------------------------------
ZERO-COUPON BONDS Debt securities that pay no cash income to
holders until maturity and are issued at a discount from
maturity value. At maturity, the entire return comes from
the difference between purchase price and maturity value.
Interest-rate, market risks. / /
- --------------------------------------------------------------------
</TABLE>

(1) The fund is not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used
effectively or may be unable to be used for other reasons.

(2) The fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.

18
<PAGE> 55
MEET THE MANAGER

[Brian S. Posner Photo]

BRIAN S. POSNER
Managing Director

- - Portfolio Manager,
Growth & Income Fund
since January 1997

- - With Warburg Pincus since 1997

- - Portfolio manager with
Fidelity Investments,
1987 to 1996

Job title indicates position with the investment adviser.

<PAGE> 56

ABOUT YOUR ACCOUNT

SHARE VALUATION

The price of your shares is also referred to as their net asset value (NAV).

The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the Advisor Class's total assets, less
its liabilities, by the number of Advisor Class shares outstanding.

The fund values its securities based on market quotations when it calculates
its NAV. If market quotations are not readily available, securities and other
assets are valued by another method that the Board of Directors believes
accurately reflects fair value. Debt obligations that will mature in 60 days or
less are valued on the basis of amortized cost, unless the Board of Directors
determines that using this method would not reflect an investment's value.

Some fund securities may be listed on foreign exchanges that are open on days
(such as U.S. holidays) when the fund does not compute its prices. This could
cause the value of the fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.

ACCOUNT STATEMENTS

In general, you will receive account statements as follows:

- - after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)

- - after any changes of name or address of the registered owner(s)

- - otherwise, every quarter

You will also receive annual and semiannual financial reports.

DISTRIBUTIONS

As a fund investor, you are entitled to your share of the fund's net income
and gains on its investments. The fund passes these earnings along to its
shareholders as distributions.

The fund earns dividends from stocks and interest from bond, money-market and
other investments. These are passed along as dividend distributions. A fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital-gain distributions.

The fund typically distributes dividends quarterly and capital gains
annually, usually in December.

TAXES

As with any investment, you should consider how your investment in the fund
will be taxed. If your account is not a tax-

20
<PAGE> 57

advantaged retirement account, you should be especially aware of the following
potential tax implications. Please consult your tax professional concerning your
own tax situation.

TAXES ON DISTRIBUTIONS
As long as the fund continues to meet the requirements for being a
tax-qualified regulated investment company, it pays no federal income tax on the
earnings it distributes to shareholders.

Distributions you receive from the fund, whether reinvested or taken in cash,
are generally considered taxable. Fund distributions are taxed based on the
length of time the fund holds its assets, regardless of how long you have held
fund shares. Distributions from the fund's long-term capital gains are taxed as
capital gains; distributions from short-term capital gains and other sources are
generally taxed as ordinary income. The fund will mostly make capital-gain
distributions, which could be short-term or long-term.

If you buy shares shortly before or on the "record date"--the date that
establishes you as the person to receive the upcoming distribution--you may
receive a portion of the money you just invested in the form of a taxable
distribution.

The Form 1099 that is mailed to you every January details your distributions
and their federal-tax category.

TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.

21
<PAGE> 58

OTHER INFORMATION

ABOUT THE DISTRIBUTOR

Counsellors Securities Inc., a wholly owned subsidiary of Warburg Pincus, is
the fund's distributor. Counsellors Securities is responsible for:

- - making the fund available to you

- - account servicing and maintenance

- - other administrative services related to sale of the Advisor Class

Certain institutions and financial-services firms may offer Advisor Class
shares to their clients and customers (or participants in the case of retirement
plans). These firms provide distribution, administrative and shareholder
services for fund shareholders. The fund has adopted Rule 12b-1
shareholder-servicing and distribution plans to compensate these firms for their
services. The current 12b-1 fee is .50% per annum of the fund's average daily
net assets, although under the 12b-1 plan the fund is authorized to pay up to
.75%.

<PAGE> 59

BUYING SHARES
OPENING AN ACCOUNT

Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.

If you need an application, call our Institutional Shareholder Service Center
to receive one by mail or fax.

You can make your initial investment by check or wire. The "By Wire" method
in the table enables you to buy shares on a particular day at that day's closing
NAV.

BUYING AND SELLING SHARES

The fund is open on those days when the NYSE is open, typically Monday
through Friday. If we receive your request in proper form by the close of the
NYSE (usually 4 p.m. ET), your transaction will be priced at that day's NAV. If
we receive it after that time, it will be priced at the next business day's NAV.

FINANCIAL-SERVICES FIRMS

You can buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The fund has authorized
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by the fund and will be priced at the next-computed NAV.

ADDING TO AN ACCOUNT

You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.

INVESTMENT CHECKS

Please use either a personal or bank check payable in U.S. dollars to Warburg
Pincus Advisor Funds. Unfortunately, we cannot accept "starter" checks that do
not have your name pre-printed on them. We also cannot accept checks payable to
you or to another party and endorsed to the order of Warburg Pincus Advisor
Funds. These types of checks may be returned to you and your purchase order may
not be processed. Limited exceptions include properly endorsed government
checks.

<PAGE> 60

<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY CHECK
- - Complete the Warburg Pincus Advisor - Make your check payable to Warburg
Funds New Account Application. Pincus Advisor Funds.
- - Make your check payable to Warburg - Write the account number and the fund
Pincus Advisor Funds. name on your check.
- - Write the fund name on the check. - Mail to Warburg Pincus Advisor Funds.
- - Mail to Warburg Pincus Advisor Funds.
BY EXCHANGE
- - Call our Institutional Shareholder - Call our Institutional Shareholder
Service Center to request an exchange Service Center to request an exchange
from another Warburg Pincus fund or from another Warburg Pincus fund or
portfolio. Be sure to read the current portfolio.
Prospectus for the new fund or If you do not have telephone privileges,
portfolio. mail or fax a letter of instruction.
If you do not have telephone privileges,
mail or fax a letter of instruction.
BY WIRE
- - Complete and sign the New Account - Call our Institutional Shareholder
Application. Service Center by 4 p.m. ET to inform us
- - Call our Institutional Shareholder of the incoming wire. Please be sure to
Service Center and fax the signed New specify the account registration,
Account Application by 4 p.m. ET. account number and the fund name on
- - The Institutional Shareholder Service your wire advice.
Center will telephone you with your - Wire the money for receipt that day.
account number. Please be sure to
specify the account registration,
account number and the fund name on
your wire advice.
- - Wire your initial investment for
receipt that day.
- - Mail the original, signed application
to Warburg Pincus Advisor Funds.
BY ACH TRANSFER

- - Cannot be used to open an account. - Call our Institutional Shareholder
Service Center to request an ACH transfer
from your bank.
- Your purchase will be effective at the
next NAV calculated after we receive your
order in proper form.
Requires ACH on Demand privileges.
</TABLE>

INSTITUTIONAL SHAREHOLDER SERVICE CENTER

800-222-8977
MONDAY - FRIDAY, 8 A.M. - 5 P.M. ET

24
<PAGE> 61
\
SELLING SHARES

<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
<S> <C>
BY MAIL

Write us a letter of instruction that - Sales of any amount.
includes:
- - your name(s) and signature(s) or, if
redeeming on an investor's behalf, the
name(s) of the registered owner(s) and
the signature(s) of their legal
representative(s)
- - the fund name and account number
- - the dollar amount you want to sell
- - how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling
Shares in Writing").
Mail the materials to Warburg Pincus
Advisor Funds.
If only a letter of instruction is
required, you can fax it to the
Institutional Shareholder Service Center
(unless a signature guarantee is
required).
BY EXCHANGE
- - Call our Institutional Shareholder - Accounts with telephone privileges.
Service Center to request an exchange If you do not have telephone privileges,
into another Warburg Pincus fund or mail or fax a letter of instruction to
portfolio. Be sure to read the current exchange shares.
Prospectus for the new fund or portfolio.
BY PHONE
Call our Institutional Shareholder - Accounts with telephone privileges.
Service Center to request a redemption.
You can receive the proceeds as:
- - a check mailed to the address of record
- - an ACH transfer to your bank
- - a wire to your bank
See "By Wire or ACH Transfer" for
details.
BY WIRE OR ACH TRANSFER
- - Complete the "Wire Instructions" or - Requests by phone or mail.
"ACH on Demand" section of your New
Account Application.
- - For federal-funds wires, proceeds will
be wired on the next business day. For
ACH transfers, proceeds will be
delivered within two business days.
</TABLE>

<PAGE> 62

HOW TO REACH US

INSTITUTIONAL SHAREHOLDER SERVICE CENTER

Toll free: 800-222-8977

Fax: 212-370-9833

MAIL

Warburg Pincus Advisor Funds

P.O. Box 9030

Boston, MA 02205-9030

OVERNIGHT/COURIER SERVICE

Boston Financial

Attn: Warburg Pincus Advisor Funds

2 Heritage Drive

North Quincy, MA 02171

INTERNET WEB SITE

www.warburg.com

WIRE INSTRUCTIONS

State Street Bank and Trust Company

ABA# 0110 000 28

Attn: Mutual Funds/Custody Dept.

[Warburg Pincus Advisor Fund Name]

DDA# 9904-649-2

F/F/C: [Account Number and Account registration]

SELLING SHARES IN WRITING

Some circumstances require a written sell order, along with a signature
guarantee. These include:

- - accounts whose address of record has been changed within the past 30 days

- - redemptions in certain large accounts (other than by exchange)

- - requests to send the proceeds to a different payee or address

- - shares represented by certificates, which must be returned with your sell
order

A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.

RECENTLY PURCHASED SHARES

If the fund has not yet collected payment for the shares you are selling, it
will delay sending you the proceeds until your purchase payment clears. This may
take up to 10 calendar days after the purchase. To avoid the collection period,
consider buying shares by bank wire, bank check, certified check or money order.

INSTITUTIONAL SHAREHOLDER SERVICE CENTER

800-222-8977
MONDAY - FRIDAY, 8 A.M. - 5 P.M. ET

26
<PAGE> 63
SHAREHOLDER SERVICES

AUTOMATIC SERVICES

Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Institutional Shareholder Service Center.

AUTOMATIC MONTHLY INVESTMENT PLAN

For making automatic investments from a designated bank account.

AUTOMATIC WITHDRAWAL PLAN

For making automatic monthly, quarterly, semiannual or annual withdrawals.

TRANSFERS/GIFTS TO MINORS

Depending on state laws, you can set up a custodial account under the Uniform
Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act (UGMA). Please
consult your tax professional about these types of accounts.

ACCOUNT CHANGES

Call our Institutional Shareholder Service Center to update your account
records whenever you change your address. The Institutional Shareholder Service
Center can also help you change your account information or privileges.

<PAGE> 64
OTHER POLICIES

TRANSACTION DETAILS

You are entitled to capital-gain and earned-dividend distributions as soon as
your purchase order is executed.

Your purchase order will be canceled and you may be liable for losses or fees
incurred by the fund if:

- - your investment check or ACH transfer does not clear

- - you place a telephone order by 4 p.m. ET and we do not receive your wire that
day

If you wire money without first calling our Institutional Shareholder Service
Center to place an order, and your wire arrives after the close of regular
trading on the NYSE, then your order will not be executed until the end of the
next business day. In the meantime, your payment will be held uninvested. Your
bank or other financial-services firm may charge a fee to send or receive wire
transfers.

While we monitor telephone-servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.

Uncashed redemption or distribution checks do not earn interest.

SPECIAL SITUATIONS

The fund reserves the right to:

- - refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading

- - change or discontinue its exchange privilege after 30 days' notice to current
investors, or temporarily suspend this privilege during unusual market
conditions

- - impose minimum investment amounts after 15 days' notice to current investors
of any increases

- - charge a wire-redemption fee

- - make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations

- - suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940 (such as during periods other than weekends or holidays
when the NYSE is closed or trading on the NYSE is restricted, or any other
time that the SEC permits)

- - stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)

INSTITUTIONAL SHAREHOLDER SERVICE CENTER

800-222-8977
MONDAY - FRIDAY, 8 A.M. - 5 P.M. ET

<PAGE> 65
FOR MORE INFORMATION

More information about this fund is available free upon request, including
the following:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes financial statements, portfolio investments and detailed performance
information.

The Annual Report also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.

OTHER INFORMATION

A current Statement of Additional Information (SAI), which provides more
detail about the fund, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.

You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference, and other information. You can also obtain
copies by visiting the SEC's Public
Reference Room in Washington, DC (phone 800-SEC-0330) or by sending your request
and a duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.

Please contact Warburg Pincus Funds to obtain, without charge, the SAI and
Annual and Semiannual Reports and to make shareholder inquiries:

BY TELEPHONE:
800-222-8977

BY MAIL:

Warburg Pincus Advisor Funds

P.O. Box 9030

Boston, MA 02205-9030

BY OVERNIGHT OR COURIER SERVICE:

Boston Financial

Attn: Warburg Pincus Advisor Funds

2 Heritage Drive

North Quincy, MA 02171

ON THE INTERNET:
www.warburg.com

SEC FILE NUMBER:

Warburg Pincus Growth & Income Fund 811-07515

[WARBURG PINCUS LOGO]

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

800-222-8977 - www.warburg.com

COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADGRI-1-0299
<PAGE> 66

WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE

Common Class
December 3, 1998

This Shareholder Guide is incorporated into and legally part of each
Warburg Pincus (Common Class) prospectus.

[Warburg Pincus Funds Logo]
<PAGE> 67

OPENING AN ACCOUNT

Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.

If you need an application, call our Shareholder Service Center to receive
one by mail or fax. Or you can download it from our Internet Web site:
www.warburg.com.

You can make your initial investment by check or wire. The "By Wire" method
in the table enables you to buy shares on a particular day at that day's closing
NAV.

ADDING TO AN ACCOUNT

You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.

INVESTMENT CHECKS

Please use either a personal or bank check payable in U.S. dollars to Warburg
Pincus Funds. Unfortunately, we cannot accept "starter" checks that do not have
your name preprinted on them. We also cannot accept checks payable to you or to
another party and endorsed to the order of Warburg Pincus Funds. These types of
checks may be returned to you and your purchase order may not be processed.
Limited exceptions include properly endorsed IRA Rollover and government checks.

MINIMUM INITIAL INVESTMENT

<TABLE>
<S> <C>
Cash Reserve Fund: $ 1,000
New York Tax Exempt
Fund: $ 1,000
Balanced Fund: $ 1,000
Growth & Income Fund: $ 1,000
WorldPerks(R) Funds: $ 5,000
Long-Short Funds $ 25,000
All other funds: $ 2,500
IRAs: $ 500*
Transfers/Gifts to
Minors: $ 500*

* $25,000 minimum for Long-Short
Funds.
</TABLE>

WIRE INSTRUCTIONS

State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Warburg Pincus Fund Name]
DDA# 9904-649-2
F/F/C: [Account Number and Registration]

HOW TO REACH US

SHAREHOLDER SERVICE CENTER
Toll free: 800 -WARBURG
(800 -927-2874)
Fax: 212-370-9833

MAIL
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030

OVERNIGHT/COURIER SERVICE
Boston Financial
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, MA 02171

INTERNET WEB SITE
www.warburg.com
2

BUYING SHARES
<PAGE> 68

<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY CHECK
- - Complete the New Account Application. - Make your check payable to Warburg
For IRAs use the Universal IRA Pincus Funds.
Application. - Write the account number and the fund
- - Make your check payable to Warburg name on your check.
Pincus Funds. - Mail to Warburg Pincus Funds.
- - Mail to Warburg Pincus Funds. - Minimum amount is $100.
BY EXCHANGE
- - Call our Shareholder Service Center to - Call our Shareholder Service Center to
request an exchange. Be sure to read request an exchange.
the current prospectus for the new - Minimum amount is $250.
fund. Also please observe the minimum If you do not have telephone privileges,
initial investment. mail or fax a signed letter of
If you do not have telephone privileges, instruction.
mail or fax a signed letter of
instruction.
BY WIRE

- - Complete and sign the New Account - Call our Shareholder Service Center by
Application. 4 p.m. ET to inform us of the incoming
- - Call our Shareholder Service Center and wire. Please be sure to specify your
fax the signed New Account Application name, the account number and the fund
by 4 p.m. ET. name on your wire advice.
- - Shareholder Services will telephone you - Wire the money for receipt that day.
with your account number. Please be - Minimum amount is $500.
sure to specify your name, the account
number and the fund name on your wire
advice.
- - Wire your initial investment for
receipt that day.
- - Mail the original, signed application
to Warburg Pincus Funds.
This method is not available for IRAs.
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER

- - Cannot be used to open an account. - Call our Shareholder Service Center to
request an ACH transfer from your bank.
- Your purchase will be effective at the
next NAV calculated after we receive your
order in proper form.
- Minimum amount is $50.
Requires ACH on Demand privileges.
</TABLE>

800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
3
<PAGE> 69

<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
<S> <C>
BY MAIL

Write us a letter of instruction that - Accounts of any type.
includes: - Sales of any amount.
- - your name(s) and signature(s) For IRAs please use the IRA Distribution
- - the fund name and account number Request Form.
- - the dollar amount you want to sell
- - how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling
Shares
in Writing").
Mail the materials to Warburg Pincus
Funds.
If only a letter of instruction is
required, you can fax it to the
Shareholder Service Center.
BY EXCHANGE
- - Call our Shareholder Service Center to - Accounts with telephone privileges.
request an exchange. Be sure to read If you do not have telephone privileges,
the current prospectus for the new fund. mail or fax a letter of instruction to
Also please observe the minimum initial exchange shares.
investment.
BY PHONE

Call our Shareholder Service Center to - Non-IRA accounts with telephone
request a redemption. You can receive the privileges.
proceeds as:
- - a check mailed to the address of record
- - an ACH transfer to your bank ($50
minimum)
- - a wire to your bank ($500 minimum)
See "By Wire or ACH Transfer" for
details.
BY WIRE OR ACH TRANSFER
- - Complete the "Wire Instructions" or - Non-IRA accounts with wire-redemption
"ACH on Demand" section of your New or ACH on Demand privileges.
Account Application. - Requests by phone or mail.
- - For federal-funds wires, proceeds will
be wired on the next business day. For
ACH transfers, proceeds will be
delivered within two business days.
</TABLE>

()* For the Central & Eastern Europe Fund only: A short-term trading fee of 1.0%
of the amount redeemed will be deducted from the redemption proceeds if you sell
shares of the fund after holding them less than six months. This fee, which is
currently being waived, does not apply to shares acquired through reinvestment
of distributions. For purposes of computing the short-term trading fee, any
shares bought through reinvestment of distributions will be redeemed first
without charging the fees, followed by the shares held longest.

SELLING SHARES(*)
<PAGE> 70

SELLING SHARES IN WRITING

Some circumstances require a written sell order, along with a signature
guarantee. These include:

- accounts whose address of record has been changed within the past 30 days

- redemption in certain large amounts (other than by exchange)

- requests to send the proceeds to a different payee or address

- shares represented by certificates, which must be returned with your sell
order

A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.

RECENTLY PURCHASED SHARES

LOW-BALANCE ACCOUNTS

If your account balance falls below the minimum required to keep it open due
to redemptions or exchanges, the fund may ask you to increase your balance. If
it is still below the minimum after 60 days, the fund may close your account and
mail you the proceeds.

MINIMUM TO KEEP AN ACCOUNT OPEN

<TABLE>
<S> <C>
Cash Reserve Fund: $ 750
New York Tax Exempt Fund: $ 750
Balanced Fund: $ 500
Growth & Income Fund: $ 500
WorldPerks Funds: $ 750
All other funds: $2,000
IRAs: $ 250
Transfers/Gifts to
Minors: $ 250
</TABLE>

800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
5
<PAGE> 71

AUTOMATIC SERVICES

Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Shareholder Service Center.

AUTOMATIC MONTHLY INVESTMENT PLAN

For making automatic investments ($50 minimum) from a designated bank
account.

AUTOMATIC WITHDRAWAL PLAN

For making automatic monthly, quarterly, semiannual or annual withdrawals of
$250 or more.

DISTRIBUTION SWEEP

For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
RETIREMENT PLANS

Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:

- Traditional IRAs

- Roth IRAs

- Roth Conversion IRAs

- Spousal IRAs

- Rollover IRAs

- SEP IRAs

To transfer your IRA to Warburg Pincus, use the IRA Transfer/Direct Rollover
Form. If you are opening a new IRA, you will also need to complete the Universal
IRA Application. Please consult your tax professional concerning your IRA
eligibility and tax situation.

TRANSFERS/GIFTS TO MINORS

ACCOUNT CHANGES

Call our Shareholder Service Center to update your account records whenever
you change your address. Shareholder Services can also help you change your
account information or privileges.

SHAREHOLDER SERVICES
<PAGE> 72

TRANSACTION DETAILS

You are entitled to capital-gain and earned dividend distributions as soon as
your purchase order is executed. For the Intermediate Maturity Government, New
York Intermediate Municipal and Fixed Income Funds and the Money Market Funds,
you begin to earn dividend distributions the business day after your purchase
order is executed. However, if we receive your purchase order and payment to
purchase shares of a Money Market Fund before 12 p.m. (noon), you begin to earn
dividend distributions on that day.
Your purchase order will be canceled and you may be liable for losses or fees
incurred by the fund if:

- your investment check or ACH transfer does not clear

- you place a telephone order by 4 p.m. ET and we do not receive your wire that
day
If you wire money without first calling Shareholder Services to place an
order, and your wire arrives after the close of regular trading on the NYSE,
then your order will not be executed until the end of the next business day. In
the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS

A fund reserves the right to:

- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading

- change or discontinue its exchange privilege after 30 days' notice to current
investors, or temporarily suspend this privilege during unusual market
conditions

- change its minimum investment amounts after 15 days' notice to current
investors of any increases

- charge a wire-redemption fee

- make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations

- suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940 (such as during periods other than weekends or holidays
when the NYSE is closed or trading on the NYSE is restricted, or any other
time that the SEC permits)

- modify or waive its minimum investment requirements for employees and clients
of its adviser, sub-adviser, distributor and their affiliates and, for the
Long-Short Funds, investments through certain financial-services firms
($10,000 minimum) and through retirement plan programs (no minimum)

- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)

800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET

OTHER POLICIES
<PAGE> 73

[WARBURG PINCUS FUNDS LOGO]

P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) B www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPCOM-31-1298A
<PAGE> 74

STATEMENT OF ADDITIONAL INFORMATION

February 16, 1999

WARBURG PINCUS BALANCED FUND

WARBURG PINCUS GROWTH & INCOME FUND

WARBURG PINCUS CAPITAL APPRECIATION FUND

WARBURG PINCUS HEALTH SCIENCES FUND

This combined Statement of Additional Information provides information about
Warburg Pincus Balanced Fund (the "Balanced Fund"), Warburg Pincus Growth &
Income Fund (the "Growth & Income Fund"), Warburg Pincus Capital Appreciation
Fund (the "Capital Appreciation Fund") and Warburg Pincus Health Sciences Fund
(the "Health Sciences Fund," and collectively with the Balanced Fund, the Growth
& Income Fund and the Capital Appreciation Fund, the "Funds") that supplements
information contained in the combined Prospectus for the Common Shares of the
Funds and the Prospectuses for the Advisor Shares of the Funds, each dated
February 16, 1999.

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectuses. Copies of the Prospectuses and the Annual
Report can be obtained by writing or telephoning:

Common Shares Advisor Shares
Warburg Pincus Funds Warburg Pincus Advisor Funds
P.O. Box 9030 P.O. Box 4906
Boston, Massachusetts 02205-9030 Grand Central Station
800-WARBURG New York, NY 10163
Attn: Institutional Services
800-222-8977
<PAGE> 75
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT OBJECTIVES AND POLICIES........................................ 1
Options, Futures and Currency Exchange Transactions........... 1
Securities Options...................................... 1
Securities Index Options................................ 4
OTC Options............................................. 5
Futures Activities...................................... 5
Currency Exchange Transactions.......................... 7
Hedging Generally....................................... 9
Asset Coverage for Forward Contracts, Options,
Futures and Options on Futures....................... 10
U.S. Government Securities.................................... 11
Money Market Obligations...................................... 12
Convertible Securities........................................ 13
Structured Securities......................................... 12
Debt Securities............................................... 13
Below Investment Grade Securities............................. 16
Zero Coupon Securities........................................ 18
Securities of Other Investment Companies...................... 15
Lending of Portfolio Securities............................... 15
Foreign Investments........................................... 16
Short Sales "Against the Box"................................. 18
Warrants...................................................... 19
Non-Publicly Traded and Illiquid Securities................... 19
Borrowing..................................................... 21
Reverse Repurchase Agreements................................. 21
When-Issued Securities and Delayed-Delivery Transactions...... 22
REITs......................................................... 26
Emerging Growth and Small Companies; Unseasoned Issuers....... 26
Special Situation Companies................................... 26
Strategy Available to the Balanced Fund............................. 25
Municipal Obligations......................................... 25
Strategy Available to the Balanced Fund and the Health
Sciences Fund.................................................... 27
Dollar Rolls.................................................. 27
Strategies Available to the Health Sciences Fund.................... 28
Securities of Health Sciences Companies....................... 28
Short Sales (excluding Short Sales "Against the Box")......... 29
INVESTMENT RESTRICTIONS................................................... 30
All Funds........................................................... 30
Balanced and Growth & Income Funds.................................. 30
</TABLE>

<PAGE> 76
<TABLE> Page
<S> <C>
Capital Appreciation Fund........................................... 32
Health Sciences Fund................................................ 34
PORTFOLIO VALUATION....................................................... 36
PORTFOLIO TRANSACTIONS.................................................... 36
PORTFOLIO TURNOVER........................................................ 40
MANAGEMENT OF THE FUNDS................................................... 40
Officers and Board of Directors/Trustees............................ 40
Directors/Trustees' Total Compensation.............................. 44
Portfolio Managers of the Funds..................................... 44
Balanced Fund................................................. 44
Growth & Income Fund.......................................... 45
Capital Appreciation Fund..................................... 45
Health Sciences Fund.......................................... 45
Investment Adviser and Co-Administrators............................ 46
Custodians and Transfer Agent....................................... 47
Organization of the Funds........................................... 47
Capital Appreciation Fund..................................... 47
Balanced Fund, Growth & Income Fund and Health Sciences
Fund....................................................... 48
All Funds..................................................... 48
ORGANIZATION OF THE FUNDS.....................Error! Bookmark not defined.
Distribution and Shareholder Servicing.............................. 49
Common Shares................................................. 49
All Funds, Advisor Shares..................................... 50
General....................................................... 51
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................ 51
Automatic Cash Withdrawal Plan...................................... 51
EXCHANGE PRIVILEGE........................................................ 52
ADDITIONAL INFORMATION CONCERNING TAXES................................... 52
The Funds and Their Investments..................................... 53
Passive Foreign Investment Companies................................ 55
Dividends and Distributions......................................... 56
Sales of Shares..................................................... 56
Foreign Taxes....................................................... 57
Backup Withholding.................................................. 57
Notices............................................................. 57
Special Tax Matters Relating to the Balanced Fund................... 58
Other Taxation...................................................... 58
DETERMINATION OF PERFORMANCE.............................................. 58
INDEPENDENT ACCOUNTANTS AND COUNSEL....................................... 61
FINANCIAL STATEMENTS...................................................... 62
APPENDIX - DESCRIPTION OF RATINGS......................................... A-1
</TABLE>

(ii)
<PAGE> 77
INVESTMENT OBJECTIVES AND POLICIES

The following information supplements the discussion of each Fund's
investment objective and policies in the Prospectuses. There are no assurances
that the Funds will achieve their 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.

The investment objective of the Capital Appreciation Fund is
long-term capital appreciation.

The investment objective of the Health Sciences Fund is capital
appreciation.

Unless otherwise indicated, all of the Funds are permitted to engage
in the following investment strategies. The Funds are not obligated to pursue
any of the following strategies and do not represent that these techniques are
available now or will be available at any time in the future.

Options, Futures and Currency Exchange Transactions

Securities Options. Each Fund may purchase options and write (sell)
covered or collateralized options on securities, securities indices and, to the
extent the Fund is authorized to invest in foreign securities, currencies for
both hedging purposes and to increase total return on up to 25% of the total
value of portfolio assets. These options may be traded on an exchange or
over-the-counter (OTC).

Each 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 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
<PAGE> 78
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.

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). A Fund that
writes call options 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 decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.

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, a 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 the 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. Each Fund may write (i) in-the-money call
options when Warburg Pincus Asset Management, Inc., each Fund's investment
adviser

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<PAGE> 79
("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, each 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
OTC 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 (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 cannot 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

3
<PAGE> 80
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 OTC market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers participating in
OTC transactions would fail to meet their obligations to the Fund. Each Fund,
however, intends to purchase OTC 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 and would continue to be at market risk on the security.

Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that the
Funds 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 a Fund will be
able to purchase on a particular security.

Securities Index Options. Each 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

4
<PAGE> 81
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. Each 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 the Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.

Exchange-traded options generally have a continuous liquid market
while OTC or dealer options do not. Consequently, a Fund will generally be able
to realize the value of a dealer option it has purchased only by exercising it
or reselling it to the dealer who issued it. Similarly, when a Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the option. Although each 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 a Fund. Until
the 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 or, with respect to currency options, currencies at a time when such
sale might be advantageous.

Futures Activities. Each Fund may enter into futures contracts and
options on futures contracts on securities, securities indices and, to the
extent that a Fund may invest in foreign securities, currencies for bona fide
hedging and speculative purposes. These futures contracts are standardized
contracts for the future delivery of a non-U.S. currency, an interest rate
sensitive security or, in the case of index futures contracts or certain other
futures contracts, a cash settlement with reference to a specified multiplier
times the change in the 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.

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 currency values, interest rates

5
<PAGE> 82
and/or market conditions and increasing return. Aggregate initial margin and
premiums (discussed below) required to establish positions other than those
considered to be "bona fide hedging" by the CFTC will not exceed 5% of the
Fund's net asset value after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into. 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.

Each 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 represented in the
indexes. A securities 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 liquid securities acceptable to
the broker, equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to a 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 currency, 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 each
Fund intends 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

6
<PAGE> 83
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 the
Fund to substantial losses. In such event, and in the event of adverse price
movements, the 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 the 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. Each Fund may purchase and write put
and call options on foreign currency, interest rate and stock 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 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 a
futures contract 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 a variety of factors not applicable to investment in
U.S. securities, 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.

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<PAGE> 84
Risks associated with currency forward contracts and purchasing currency options
are similar to those described herein 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. The Capital
Appreciation and Health Sciences Funds will only engage in currency exchange
transactions for hedging purposes.

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 enter into an offsetting
transaction. 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. Each 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. Each 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 a 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. No Fund may
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 non-dollar denominated securities it holds, a Fund may purchase
foreign currency put options. If the value of the foreign currency does decline,
the Fund will have the right to sell the currency for a fixed amount in dollars
and will thereby offset, in

8
<PAGE> 85
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 the Fund against a price
decline if the issuer's creditworthiness deteriorates.

Hedging Generally. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, each Fund may enter into these
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 contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.

In hedging transactions based on an index, whether a Fund will
realize a gain or loss 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, the 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

9
<PAGE> 86
the 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 the
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.

Each 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 currency, interest
rate 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.

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 a Fund may be unable to close out
a position without incurring substantial losses, if at all. The Funds are also
subject to the risk of a default by a counterparty to an off-exchange
transaction.

Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. Each Fund will comply with guidelines established by the Securities
and Exchange Commission (the "SEC") and other applicable regulatory bodies with
respect to coverage of forward currency contracts, options written by the Fund
on securities and indexes; and currency, interest rate and security index
futures contracts and options on these futures contracts. These guidelines may,
in certain instances, require segregation by the Fund of cash or liquid
securities 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 a Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.

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For example, a call option written by a Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by a Fund on an index
may require the Fund to own portfolio securities that correlate with the index
or to segregate assets (as described above) equal to the excess of the index
value over the exercise price on a current basis. A put option written by a Fund
may require the Fund to segregate assets (as described above) equal to the
exercise price. A Fund could purchase a put option if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Fund. If a Fund holds a futures or forward contract, the Fund could purchase a
put option on the same futures or forward 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. 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 ("U.S. Government Securities"). Included among direct
obligations of the United States are Treasury Bills, Treasury Notes and Treasury
Bonds, which differ in terms of their interest rates, maturities and dates of
issuance. 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 ("GNMA"));
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 ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") bonds).

Other U.S. Government Securities the Funds may invest in include
securities issued or guaranteed by the Federal Housing Administration, Farmers
Home Loan Administration, Export-Import Bank of the United States, Small
Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association.
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.

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<PAGE> 88
Money Market Obligations. Each Fund is authorized to invest, under
normal market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five year
or less remaining to maturity) money market obligations and for temporary
defensive purposes may invest in these securities without limit. These
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, domestic savings and loans and similar institutions) that
are high quality investments; commercial paper rated no lower than A-2 by
Standard & Poor's Ratings Services ("S&P") or Prime-2 by Moody's Investors
Service, Inc. ("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.

Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to a Fund and appropriate considering the factors of return and
liquidity, each 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 management fees and other expenses with respect to assets so
invested.

Repurchase Agreements. The Funds may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement, a
Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors/Trustees (the "Board"), monitors the creditworthiness
of those bank and non-bank dealers with which each 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").

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

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<PAGE> 89

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. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. 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.

Structured Securities. The Funds may purchase any type of
publicly traded or privately negotiated fixed income security, including
mortgage-backed securities; structured notes, bonds or debentures; and
assignments of and participations in loans.

Mortgage-Backed Securities. A Fund may invest in
mortgage-backed securities, such as those issued by the Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC") or certain foreign 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. The government or the
issuing agency typically guarantees the payment of interest and principal of
these securities. However, 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.

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<PAGE> 90

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 in a stable interest
rate environment, a common industry practice in the U.S. has been to assume that
prepayments will result in a 12-year average life, although it may vary
depending on numerous factors. 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-related 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 the 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 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.

[/R]

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Asset-backed securities present certain risks that are not
presented by other securities in which the Fund may invest. Automobile
receivables generally are secured by automobiles. Most issuers of automobile
receivables permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not 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. In addition, there is no assurance that the
security interest in the collateral can be realized.

Structured Notes, Bonds or Debentures. Typically, the value of
the principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
may result in the loss of a Fund's entire investment. The value of structured
securities may move in the same or the opposite direction as the value of the
Reference, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In addition,
the change in interest rate or the value of the security at maturity may be a
multiple of the change in the value of the Reference so that the security may be
more or less volatile than the Reference, depending on the multiple.
Consequently, structured securities may entail a greater degree of market risk
and volatility than other types of debt obligations.

Assignments and Participations. Each Fund may invest in
assignments of and participations in loans issued by banks and other financial
institutions.

When a Fund purchases assignments from lending financial
institutions, the Fund will acquire direct rights against the borrower on the
loan. However, since assignments are generally arranged through private
negotiations between potential assignees and potential assignors, the rights and
obligations acquired by a Fund as the purchaser of an assignment may differ
from, and be more limited than, those held by the assigning lender.

Participations in loans will typically result in a Fund having
a contractual relationship with the lending financial institution, not the
borrower. A Fund would have the right to receive payments of principal, interest
and any fees to which it is entitled only from the lender of the payments from
the borrower. In connection with purchasing a participation, a Fund generally
will have no right to enforce compliance by the borrower with the terms of the
loan agreement relating to the loan, nor any rights of set-off against the
borrower, and the Fund may not benefit directly from any collateral supporting
the loan in which it has purchased a participation. As a result, a Fund
purchasing a participation will assume the credit risk of both the borrower and
the lender selling the participation. In the event of the insolvency of the
lender selling the participation, the Fund may be treated as a general creditor
of the lender and may not benefit from any set-off between the lender and the
borrower.

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<PAGE> 92

A Fund may have difficulty disposing of assignments and
participations because there is no liquid market for such securities. The lack
of a liquid secondary market will have an adverse impact on the value of such
securities and on a Fund's ability to dispose of particular assignments or
participations 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 borrower. The lack of a liquid market for assignments and participations
also may make it more difficult for a Fund to assign a value to these securities
for purposes of valuing the Fund's portfolio and calculating its net asset
value.

A Fund may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a foreign government (a
"Borrower") and one or more financial institutions ("Lenders"). The majority of
the Fund's investments in Loans are expected to be in the form of participations
in Loans ("Participations") and assignments of portions of Loans from third
parties ("Assignments"). Participations typically will result in the Fund having
a contractual relationship only with the Lender, not with the Borrower. A Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the Borrower. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the Borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the Borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund will assume the credit risk
of both the Borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, the Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the Borrower. The Fund will acquire Participations only
if the Lender interpositioned between the Fund and the Borrower is determined by
Warburg to be creditworthy.

When a Fund purchases Assignments from Lenders, the Fund will
acquire direct rights against the Borrower on the Loan. However, since
Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Fund as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.

There are risks involved in investing in Participations and
Assignments. A Fund may have difficulty disposing of them because there is no
liquid market for such securities. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on the Fund's ability
to dispose of particular Participations or Assignments 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 Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for a
Fund to assign a value to these securities for purposes of valuing the Fund's
portfolio and calculating its net asset value.

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<PAGE> 93

Debt Securities. Each Fund may invest in debt securities (in
the case of the Growth & Income Fund, Capital Appreciation Fund and the Health
Sciences Fund, with respect to up to 20% of the Fund's total assets). Debt
obligations of corporations in which the Funds may invest include corporate
bonds, debentures and notes. Debt Securities convertible into common stock and
certain preferred stocks may have risks similar to those described below. 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. Because the market value of debt
obligations can be expected to vary inversely to changes in prevailing interest
rates, investing in debt obligations may provide an opportunity for capital
appreciation when interest rates are expected to decline. The success of such a
strategy is dependent upon Warburg's ability to accurately forecast changes in
interest rates. Subsequent to its purchase by a Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. 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. Any percentage limitation on a
Fund's ability to invest in debt securities will not be applicable during
periods when the Fund pursues a temporary defensive strategy as discussed below.

When Warburg believes that a defensive posture is warranted,
each Fund may invest temporarily without limit in investment grade debt
obligations and in domestic and foreign money market obligations, including
repurchase agreements.

Below Investment Grade Securities. Each of the Balanced Fund and
the Growth & Income Fund may invest up to 10% of its net assets,
the Capital Appreciation Fund may invest up to 5% of its total assets and the
Health Sciences Fund may invest up to 20% of its total assets in 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 or S&P or, if unrated, is determined to be a 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

<PAGE> 94
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.

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.

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

The market value of securities in medium- and lower-rated categories
is also more volatile than that of higher quality securities. Factors adversely
impacting the market

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<PAGE> 95
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, in addition to relying on
ratings assigned by Moody's or S&P, 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. 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. 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. At times, adverse publicity regarding
lower-rated securities has depressed the prices for such securities to some
extent.

Zero Coupon Securities. Each 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 Funds
anticipate that they will not normally hold zero coupon securities to maturity.
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.
Federal tax law requires that a holder of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year,
even though the holder receives no interest payment on the security during the
year. Such accrued discount will be includible in determining the amount of
dividends the Fund must pay each year and, in order to generate cash necessary
to pay such dividends, the Fund may liquidate portfolio securities at a time
when it would not otherwise have done so.

Securities of Other Investment Companies. Each Fund may invest in
securities of other investment companies to the extent permitted under 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. Each 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"). These loans, if and when made, may not
exceed 33-1/3% of the Fund's total assets taken at value (including the loan
collateral). No Fund will lend portfolio securities to its investment adviser,
any sub-investment adviser or their 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

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<PAGE> 96
of interest paid by the borrower when U.S. Government Securities are used as
collateral. Each Fund will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Fund must receive at least 100% cash
collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the Fund must be able to terminate the loan at any time; (iv)
the Fund must receive reasonable interest on the loan, as well as any dividends,
interest or other distributions on the loaned securities and any increase in
market value; (v) the Fund may pay only reasonable custodian fees in connection
with the loan; and (vi) voting rights on the loaned securities may pass to the
borrower, provided, however, that if a material event adversely affecting the
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, Growth & Income, Capital
Appreciation and Health Sciences Funds may invest up to 15%, 20%, 20% and 35% of
total assets, respectively, in the securities of foreign issuers. Investors
should recognize that investing in foreign companies involves certain risks,
including those discussed below, which are in addition to those associated with
investing in U.S. issuers. 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. The Funds 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.

Depositary Receipts. The assets of each 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 issued outside the United States. EDRs (CDRs)
and IDRs (GDRs) are typically issued by non-U.S. banks and trust companies and
evidence ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in U.S. securities markets, and EDRs (CDRs)
and IDRs (GDRs) in bearer form are designed for use in European and non-U.S.
securities markets, respectively.

Foreign Currency Exchange. Since the Funds may be investing in
securities denominated in currencies of non-U.S. countries, and since the Funds
may temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Funds 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 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. Unless otherwise contracted, 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. 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

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<PAGE> 97

the exchange rates of their currencies. The Funds may use hedging techniques
with the objective of protecting against loss through the fluctuation of the
value of foreign currencies against the U.S. dollar, particularly the forward
market in foreign exchange, currency options and currency futures.

Euro Conversion. The planned introduction of a single European
currency, the euro, on January 1, 1999 for participating European nations in the
Economic and Monetary Union presents unique risks and uncertainties for
investors in those countries, including (i) whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; (ii) the creation of suitable clearing and settlement payment
schemes for the euro; (iii) the legal treatment of outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; (iv) the fluctuation of the euro relative to non-euro currencies
during the transition period from January 1, 1999 to December 31, 2000 and
beyond; and (v) whether the interest rate, tax and labor regimes of the European
countries participating in the euro will converge over time. Further, the
conversion of the currencies of other Economic and Monetary Union countries,
such as the United Kingdom, and the admission of other countries, including
Central and Eastern European countries, to the Economic and Monetary Union could
adversely affect the euro. These or other factors may cause market disruptions
before or after the introduction of the euro and could adversely affect the
value of foreign securities and currencies held by the Funds.

Information. Many of the foreign securities held by a Fund will not
be registered with, nor will the issuers thereof be subject to reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally subject to financial reporting standards,
practices and requirements that are either not uniform or less rigorous than
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 the Funds, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries.

Foreign Markets. 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 which may
result in increased exposure to market and foreign exchange fluctuations and
increased illiquidity.

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
Funds, such as the cost of converting foreign currency into U.S. dollars, the
payment of fixed brokerage commissions on foreign exchanges, custodial costs,
valuation costs and communication costs, may be higher than those

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<PAGE> 98
costs incurred by other investment companies not investing in foreign
securities. In addition, foreign securities may be subject to foreign government
taxes that would reduce the net yield on such securities.

Foreign Debt Securities. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those
countries. 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.

The foreign government securities in which each of the Funds may
invest generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.

Privatizations. Each Fund may invest in privatizations (i.e.
foreign government programs of selling interests in government-owned or
controlled enterprises). The ability of U.S. entities, such as the Funds, to
participate in privatizations may be limited by local law, or the terms for
participation may be less advantageous than for local investors. There can be no
assurance that privatization programs will be available or successful.

Brady Bonds. The Fund may invest in so-called "Brady Bonds,"
which have been issued by Costa Rica, Mexico, Uruguay and Venezuela and which
may be issued by other Latin American countries. Brady Bonds are issued as part
of a debt restructuring in which the bonds are issued in exchange for cash and
certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers. In light of the
history of commercial bank loan defaults by Latin American public and private
entities, investments in Brady Bonds may be viewed as speculative.

Short Sales "Against the Box." In a short sale, a Fund (other than
the Capital Appreciation Fund) sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. A Fund may engage in a short sale if at
the time of the short sale the Fund owns or has the right to obtain without
additional cost an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." It 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. If a Fund engages in a short sale, the
collateral for the short position will be segregated in an account with the
Fund's custodian or qualified sub-custodian. In the case of the Balanced, Growth
& Income and Health Sciences Funds, no 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.

A Fund may 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

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<PAGE> 99
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. Each Fund may invest up to 15% (10% in the case of the
Capital Appreciation Fund) of its net assets in warrants. Each Fund may purchase
warrants issued by domestic and foreign companies to purchase newly created
equity securities consisting of common and preferred stock. 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. 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. 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. 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.

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<PAGE> 100
Non-Publicly Traded and Illiquid Securities. Each Fund may invest up
to 15% of its net assets (10% of total assets in the case of the Capital
Appreciation Fund) 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. 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. 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 without borrowing. 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.

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<PAGE> 101
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to a 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).

Investing in Rule 144A securities could have the effect of
increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers are unavailable or uninterested in purchasing such
securities from the Funds. 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
liquidity determinations.

Borrowing. Each Fund may borrow up to 30% of its total assets (10%
of total assets in the case of the Capital Appreciation Fund) 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
total 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. Each Fund may enter into reverse
repurchase agreements with member banks of the Federal Reserve System and
certain non-bank dealers. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Fund
enters into a reverse repurchase agreement, it will segregate 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 segregated
assets will be marked-to-market daily and additional assets will be segregated
on any day in which the assets fall below the repurchase price (plus accrued
interest). The 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 the Fund's

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<PAGE> 102
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. Reverse repurchase agreements that are accounted for as financings are
considered to be borrowings under the 1940 Act.

When-Issued Securities and Delayed-Delivery Transactions. Each Fund
may utilize up to 20% of its total 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). 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 Fund will enter into a when-issued transaction for the purpose
of acquiring portfolio securities and not for the purpose of leverage, but may
sell the securities before the settlement date if Warburg deems it advantageous
to do so. The payment obligation and the interest rate that will be received on
when-issued and delayed-delivery securities are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. When-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.

When a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities 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, the 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 the 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
the 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 the Fund incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.

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<PAGE> 103

REITs. Each 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

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borrowers, self-liquidation, the possibilities of failing to qualify for the
exemptions from the 1940 Act. REITs are also subject to interest rate risks.

Small Capitalization and Emerging Growth Companies; Unseasoned
Issuers. Investments in small- and medium- sized and emerging growth companies,
as well as companies with continuous operations of less than three years
("unseasoned issuers") 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
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of small- and medium-sized and emerging growth companies and
unseasoned issuers may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile.

"Special Situation" Companies. "Special situation companies" are
involved in an actual or prospective acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets; a tender or exchange offer; a breakup or workout of
a holding company; or litigation which, if resolved favorably, would improve the
value of the company's stock. If the actual or prospective situation does not
materialize as anticipated, the market price of the securities of a "special
situation company" may decline significantly. Warburg believes, however, that if
it analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, the Fund may achieve
maximum capital appreciation. There can be no assurance, however, that a special
situation that exists at the time of an investment will be consummated under the
terms and within the time period contemplated.

Strategy Available to the Balanced Fund

Municipal Obligations. The Balanced Fund may invest up to 15% of its
total assets in obligations that are 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") 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. The interest on
Municipal Obligations, in the opinion of bond counsel or counsel to the issuer,
as the case may be, is exempt from regular federal income tax. The two principal
types of Municipal Obligations, in terms of the source of payment of debt
service on the bonds, are general obligation bonds and revenue securities, and
the Fund may hold both in any proportion. General obligation bonds are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source
but not from the general taxing power.

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 and S&P represent their opinions as to the quality of
Municipal Obligations. It should be emphasized, however, that the ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields,
while Municipal Obligations of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by the
Balanced Fund, an issue of Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. Warburg will consider such an event in determining whether the Balanced
Fund should continue to hold the obligation. See the Appendix attached hereto
for further information concerning the rating of Moody's and S&P and their
significance.

Municipal Obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, the laws, if any, which may be
enacted by Congress or state legislatures

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<PAGE> 105
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.

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 ("VRDNs") issued by industrial development
authorities and other governmental entities. VRDNs are tax exempt Municipal
Obligations that provide for a periodic adjustment in the interest rate paid on
the notes. The interest rates are adjustable at intervals ranging from daily to
up to every six months at a 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 date. The
adjustments are typically based upon the prime rate of a bank or some other
appropriate interest rate adjustment index.

While there may be no active secondary market with respect to a
particular VRDN 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 VRDN 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.

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<PAGE> 106
VRDNs are frequently not rated by credit rating agencies, but
unrated notes purchased by the Fund will have been determined by Warburg to be
of comparable quality at the time of the purchase to rated instruments
purchasable by the Fund. Warburg monitors the continuing creditworthiness of
issuers of such notes to determine whether the Fund should continue to hold such
notes.

Strategy Available to the Capital Appreciation Fund and the Health Sciences
Fund

Dollar Rolls. A Fund also may enter into "dollar rolls," in which
the Fund sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund would forego principal and interest paid on such securities.
The Fund would be compensated by the difference between the current sale price
and the forward price for the future purchase,

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<PAGE> 107

as well as by the interest earned on the cash proceeds of the initial sale. At
the time the Fund enters into a dollar roll transaction, it will segregate with
an approved custodian cash or liquid securities having a value not less than the
repurchase price (including accrued interest) and will subsequently monitor the
segregated assets to ensure that its value is maintained.

Strategies Available to the Health Sciences Fund

Securities of Health Sciences Companies. The Fund's investment
objective is capital appreciation. The Fund is a diversified management
investment company. The Fund intends to invest at least 80% of its total assets
in equity securities of health sciences companies, and under normal market
conditions will invest at least 65% of its assets in equity and debt securities
of health sciences companies. Equity securities are common stocks, preferred
stocks, warrants and securities convertible into or exchangeable for common
stocks. Health sciences companies are companies that are principally engaged in
the research, development, production or distribution of products or services
related to health care, medicine or the life sciences (collectively termed
"health sciences"). A company is considered to be "principally engaged" in
health sciences when at least 50% of its assets are committed to, or at least
50% of its revenues or operating profits are derived from, the activities
described in the previous sentence. A company will also be considered
"principally engaged" in health sciences if, in the judgment of Warburg, the
company has the potential for capital appreciation primarily as a result of
particular products, technology, patents or other market advantages in a health
sciences business and (a) the company holds itself out to the public as being
primarily engaged in a health sciences business, and (b) a substantial
percentage of the company's expenses are related to a health sciences business
and these expenses exceed revenues from non-health sciences businesses.

Warburg believes that health sciences companies can be divided into
four major categories: (1) Buyers, notably HMOs; (2) Providers, including
doctors and group practices, and also services, including hospitals and nursing
homes; (3) Suppliers, including pharmaceuticals, equipment and devices; and (4)
Innovators, including biotechnology, gene therapy and drug delivery systems.
Warburg believes that active management of the Fund's portfolio among these
categories provides more diversification than a focus on any one category. The
Fund may invest in a variety of businesses in these categories, which may
include:

Alternative Site Health Care Delivery
Biotechnology
Dental Products
Diagnostic and Therapeutic Laboratory Supplies and Equipment
Environmental Products and Services
Health Care Information Systems

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<PAGE> 108
Health Care, Life Sciences, Pharmaceutical and Dental Products
Distribution

Health Care REITs
Hospital Management
Hospital Supply and Medical Device Technology
Long-Term Care, Sub-Acute Care, Rehabilitation Services and Home
Health Care
Managed Care: HMOs
Managed Care: Specialty Cost Containment
Medical, Diagnostic and Biochemical Research and Development
Nutrition and Food
Personal Care and Cosmetics
Pharmaceuticals (including Generics)
Physician Practice Management
Retail Drug and Other Health Stores
Vendors to Health Sciences Companies

The Fund intends to concentrate its investments in health sciences
companies in three industries: services, pharmaceuticals and medical devices.
The Fund will, under normal market conditions, invest at least 25% of its total
assets in the aggregate in these three industries. This policy may expose the
Fund to greater risk than a health sciences fund that invests more broadly among
industries.

Because the Fund will focus its investments in securities of
companies that are principally engaged in the health sciences, the value of its
shares will be especially affected by factors relating to the health sciences,
resulting in greater volatility in share price than may be the case with funds
that invest in a wider range of industries.

Companies engaged in biotechnology, drugs and medical devices are
affected by, among other things, limited patent duration, intense competition,
obsolescence brought about by rapid technological change and regulatory
requirements. In addition, many health sciences companies are smaller and less
seasoned, suffer from inexperienced management, offer limited product lines (or
may not yet offer products), and may have persistent losses or erratic revenue
patterns. Securities of these smaller companies may have more limited
marketability and, thus, may be more volatile. Because small companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for the Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. There is also typically less publicly
available information concerning smaller companies than for larger, more
established ones.

Other health sciences companies, including pharmaceutical companies,
companies undertaking research and development, and operators of health care
facilities and their suppliers are subject to government regulation, product or
service approval and, with respect to medical devices, the receipt of necessary
reimbursement codes, which could have a significant effect on the price and
availability of such products and services,

32
<PAGE> 109
and may adversely affect the revenues of these companies. These companies are
also susceptible to product liability claims and competition from manufacturers
and distributors of generic products. Companies engaged in the ownership or
management of health care facilities receive a substantial portion of their
revenues from federal and state governments through Medicare and Medicaid
payments. These sources of revenue are subject to extensive regulation and
government appropriations to fund these expenditures are under intense scrutiny.
Numerous federal and state legislative initiatives are being considered that
seek to control health care costs and, consequently, could affect the
profitability and stock prices of companies engaged in the health sciences.

Health sciences companies are generally subject to greater
governmental regulation than other industries at both the state and federal
levels. Changes in governmental policies may have a material effect on the
demand for or costs of certain products and services. A health sciences company
must receive government approval before introducing new drugs and medical
devices or procedures. This process may delay the introduction of these products
and services to the marketplace, resulting in increased development costs,
delayed cost-recovery and loss of competitive advantage to the extent that rival
companies have developed competing products or procedures, adversely affecting
the company's revenues and profitability. Expansion of facilities by health care
providers is subject to "determinations of need" by the appropriate government
authorities. This process not only increases the time and cost involved in these
expansions, but also makes expansion plans uncertain, limiting the revenue and
profitability growth potential of health care facilities operators, and
negatively affecting the price of their securities.

Certain health sciences companies depend on the exclusive rights or
patents for the products they develop and distribute. Patents have a limited
duration and, upon expiration, other companies may market substantially similar
"generic" products which have cost less to develop and may cause the original
developer of the product to lose market share and/or reduce the price charged
for the product, resulting in lower profits for the original developer.

Because the products and services of health sciences companies
affect the health and well-being of many individuals, these companies are
especially susceptible to product liability lawsuits. The share price of a
health sciences company can drop dramatically not only as a reaction to an
adverse judicial ruling, but also from the adverse publicity accompanying
threatened litigation.

Short Sales (excluding Short Sales "Against the Box"). The Fund may
from time to time sell securities short. A short sale is a transaction in which
the Fund sells securities it does not own in anticipation of a decline in the
market price of the securities. The current market value of the securities sold
short (excluding short sales "against the box") will not exceed 10% of the
Fund's assets.

To deliver the securities to the buyer, the Fund must arrange
through a broker to borrow the securities and, in so doing, the Fund becomes
obligated to replace

33
<PAGE> 110
the securities borrowed at their market price at the time of replacement,
whatever that price may be. The Fund will make a profit or incur a loss as a
result of a short sale depending on whether the price of the securities
decreases or increases between the date of the short sale and the date on which
the Fund purchases the security to replace the borrowed securities that have
been sold. The amount of any loss would be increased (and any gain decreased) by
any premium or interest the Fund is required to pay in connection with a short
sale.

The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short and (ii) any cash or
liquid securities deposited as collateral with the broker in connection with the
short sale (not including the proceeds of the short sale). Until it replaces the
borrowed securities, the Fund will maintain the segregated account daily at a
level so that (a) the amount deposited in the account plus the amount deposited
with the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short and (b) the amount deposited
in the account plus the amount deposited with the broker (not including the
proceeds from the short sale) will not be less than the market value of the
securities at the time they were sold short.

INVESTMENT RESTRICTIONS

All Funds. Certain investment limitations of each Fund may not be
changed without the affirmative vote of the holders of a majority of the Fund's
outstanding shares ("Fundamental Restrictions"). 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 the 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. 2
of the Capital Appreciation Fund and No. 1 of each of the Balanced, Growth &
Income and Health Sciences Funds) 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.

Balanced and Growth & Income Funds. The investment limitations numbered
1 through 11 are Fundamental Restrictions. Investment limitations numbered 12
though 15 may be changed by a vote of the Board at any time.

The Balanced and Growth & Income Funds 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

34
<PAGE> 111
the Fund. For purposes of this restriction, the entry into options, futures
contracts and options on futures contracts shall not constitute borrowing.

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

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

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

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

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

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.

35
<PAGE> 112
11. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.

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

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

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

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

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

Capital Appreciation Fund. The investment limitations numbered 1
through 11 are Fundamental Restrictions. Investment limitations 12 through 14
may be changed by a vote of the Board at any time.

The Capital Appreciation Fund may not:

1. 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, 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.

2. Borrow money or issue senior securities except that the Fund may (a)
borrow from banks for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 10% of the value of the Fund's total assets
at the time of such borrowing and (b) enter into futures contracts; or mortgage,
pledge or hypothecate any assets except in connection with any bank borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the Fund's total assets at the time of such borrowing. Whenever
borrowings described in (a) exceed

36
<PAGE> 113
5% of the value of the Fund's total assets, the Fund will not make any
additional investments (including roll-overs). For purposes of this restriction,
(a) the deposit of assets in escrow in connection with the purchase of
securities on a when-issued or delayed-delivery basis and (b) collateral
arrangements with respect to initial or variation margin for futures contracts
will not be deemed to be pledges of the Fund's assets.

3. 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.

4. Make loans, except that the Fund may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.

5. Underwrite any issue of securities except to the extent that the
investment in restricted securities and the purchase of fixed-income securities
directly from the issuer thereof in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.

6. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
fixed-income securities secured by real estate, mortgages or interests therein,
(b) securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs and (c) futures contracts and related
options.

7. Make short sales of securities or maintain a short position.

8. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may (a) purchase put and call options
on securities, (b) write covered call options on securities, (c) purchase and
write put and call options on stock indices and (d) enter into options on
futures contracts.

9. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange or as otherwise permitted under the 1940 Act.

10. Purchase more than 10% of the voting securities of any one issuer,
more than 10% of the securities of any class of any one issuer or more than 10%
of the outstanding debt securities of any one issuer; provided that this
limitation shall not apply to investments in U.S. Government Securities.

11. 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

37
<PAGE> 114
connection with futures contracts or related options will not be deemed to be a
purchase of securities on margin.

12. Invest more than 10% of the value of the Fund's total 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, (a) repurchase agreements with maturities
greater than seven days and (b) time deposits maturing in more than seven
calendar days shall be considered illiquid securities.

13. 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 10%
of the value of the Fund's net assets.

14. Invest in oil, gas or mineral leases.

Health Sciences Fund. The investment limitations numbered 1 through 9
are Fundamental Restrictions. Investment limitations 10 through 13 may be
changed by a vote of the Board at any time.

The Health Sciences 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, dollar roll
transactions that are accounted for as financings 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. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.

2. 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 except that the Fund will invest at least 25% of its total assets in
the health services, pharmaceuticals and medical devices industries; provided
that there shall be no limit on the purchase of U.S. Government Securities.

3. 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, 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.

38
<PAGE> 115
4. Make loans, except that the Fund may purchase or hold fixed-income
securities, including loan participations, assignments and structured
securities, lend portfolio securities and enter into repurchase agreements.

5. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in accordance
with the Fund's investment objective, policies and limitations may be deemed to
be underwriting.

6. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.

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 currencies, options,
futures contracts or related options 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, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
purchase and sell currencies on a forward commitment or delayed-delivery basis
and enter into stand-by commitments.

9. Issue any senior security except as permitted in the Fund's
investment limitations.

10. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.

11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.

12. 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.

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

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<PAGE> 116
PORTFOLIO VALUATION

The following is a description of the procedures used by the Funds in
valuing their 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 highest bid and the lowest asked quotations. If there are no such
quotations, the value of the securities will be taken to be the most recent bid
quotation on the exchange or market. Options contracts will be valued similarly.
Futures contracts will be valued at the most recent settlement price at the time
of valuation. 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. In determining the market value of portfolio investments, each
Fund may employ outside organizations (each, 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 each Fund under
the general supervision and responsibility of the Board, which may replace a
Pricing Service at any time. 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. Securities, options, futures contracts and other assets
for which market quotations are not available and certain other assets of each
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 New York Stock Exchange, Inc. (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 a Fund's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. 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 as of 12:00
noon (Eastern time). 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 each Fund's investment program to achieve its investment
objective. Purchases

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<PAGE> 117
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. No brokerage commissions are typically paid on
purchases and sales of U.S. Government Securities.

Warburg will select specific portfolio investments and effect
transactions for each 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 brokers and dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934, as amended) 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 the Fund and its
other clients and, conversely, research or other services obtained by the
placement of business of other clients may be useful to Warburg in carrying out
its obligations to a 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

41
<PAGE> 118
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 fiscal year ended October 31, 1998, $91,213, $1,565,859,
$2,521,643, and $94,901 of total brokerage commissions for the Balanced Fund,
Growth & Income Fund, Capital Appreciation Fund and Health Sciences Fund,
respectively, was paid to brokers and dealers who provided such research and
other services. Research received from brokers or dealers is supplemental to
Warburg's own research program.

The following table details amounts paid by each Fund in commissions to
broker-dealers for execution of portfolio transactions during the indicated
fiscal years or periods.

<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------ ---------------------------
FUND YEAR/PERIOD ENDED COMMISSIONS
- ---------------------------------------- ------------------------------ ---------------------------
<S> <C> <C>
Balanced Fund August 31, 1996 $ 61,926
August 31, 1997 $ 87,403
October 31, 1997 $ 14,333
October 31, 1998 $ 91,213
- ---------------------------------------------------------------------------------------------------------
Growth & Income Fund August 31, 1996 $ 2,898,813
August 31, 1997 $ 3,350,811
October 31, 1997 $ 279,210
October 31, 1998 $ 1,565,859
- ---------------------------------------------------------------------------------------------------------
Capital Appreciation Fund October 31, 1996 $ 1,510,431
October 31, 1997 $ 3,338,918
October 31, 1998 $ 2,521,643
- ---------------------------------------------------------------------------------------------------------
Health Sciences Fund October 31, 1997 $ 66,762
October 31, 1998 $ 94,901
- ---------------------------------------------------------------------------------------------------------
</TABLE>

The increase in commission payments by the Capital Appreciation Fund in
the 1996 and 1997 fiscal years was attributable to the increased size of the
Fund and increased equity investments.

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<PAGE> 119

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 a
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to price
and available investments allocated as to amount, in a manner which Warburg
believes to be equitable to each client, including the Funds. 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, securities may be aggregated with those to be sold or
purchased for a 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., located at 466 Lexington Avenue, New York, New York
10017, each Fund's distributor and a wholly-owned subsidiary of Warburg
("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. No portfolio transactions have been executed through
Counsellors Securities since the commencement of the Funds' operations.

In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies. In
addition, a Fund will not give preference to any institutions with whom the Fund
enters into distribution or shareholder servicing agreements concerning the
provision of distribution services or support services.

Transactions for a Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, a Fund will deal directly with the dealers who make a
market in the securities involved, except in those

43
<PAGE> 120
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.

Each 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. A 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

Each Fund does 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. Each Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.

Certain practices that may be employed by a Fund could result in high
portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, a Fund will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held. Consequently, the
annual portfolio turnover rate of a Fund may be higher than mutual funds having
similar objectives that do not utilize these strategies.

It is not possible to predict the Funds' portfolio turnover rates. High
portfolio turnover rates (100% or more) may result in higher brokerage
commissions, dealer mark-ups or underwriting commissions as well as other
transaction costs. In addition, gains realized from portfolio turnover may be
taxable to shareholders. The Balanced Fund's portfolio turnover policy is the
same for both the common stock and non-common stock portions of its portfolio.

44
<PAGE> 121
MANAGEMENT OF THE FUNDS

Officers and Board of Directors/Trustees

Except in the case of the Capital Appreciation Fund, the business and
affairs of the Funds are managed by the Board of Directors in accordance with
the laws of the State of Maryland. The business and affairs of the Capital
Appreciation Fund are managed by a Board of Trustees in accordance with the laws
of the Commonwealth of Massachusetts. Each Board elects officers who are
responsible for the day-to-day operations of the Fund and who execute policies
authorized by the Board. Under each Fund's Charter, the Board may classify or
reclassify any unissued shares of each 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 each Fund.

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

Richard N. Cooper* (64) Director/Trustee Professor at
Harvard University Harvard University; National
1737 Cambridge Street Intelligence Council from June
Cambridge, MA 02138 1995 until January 1997;
Director or Trustee of
CircuitCity Stores, Inc.
(retail electronics and
appliances) and Phoenix Home
Life Mutual Insurance Company;
Director/Trustee of other
investment companies in the
Warburg Pincus family of
funds.

Jack W. Fritz (71) Director/Trustee Private
2425 North Fish Creek Road investor; Consultant and
P.O. Box 483 Director of Fritz
Wilson, Wyoming 83014 Broadcasting, Inc. and Fritz
Communications (developers and
operators of radio stations);
Director of Advo, Inc. (direct
mail advertising);
Director/Trustee of other
investment companies in the
Warburg Pincus family of
funds.

John L. Furth* (68) Chairman of the Board Chief
466 Lexington Avenue 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 in the
Warburg Pincus family of
funds.

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

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

45
<PAGE> 122

<TABLE>
<S> <C>
Jeffrey E. Garten (52) Director/Trustee Dean of Yale
Box 208200 School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor
in the Practice of
International Trade and
Finance; Undersecretary of
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 in
the Warburg Pincus family of
funds.

Thomas A. Melfe (67) Director/Trustee Partner in
1251 Avenue of the Americas the law firm of Piper &
29th Floor Marbury, L.L.P.; Partner in
New York, New York 10020-1104 the law firm of Donovan
Leisure Newton & Irvine from
April 1984 to April 1998;
Chairman of the Board,
Municipal Fund for New York
Investors, Inc.;
Director/Trustee of other
investment companies in the
Warburg Pincus family of
funds.

Arnold M. Reichman* (50) Director/Trustee Managing
466 Lexington Avenue Director; Chief Operating
New York, New York 10017-3147 Officer and Assistant
Secretary of Warburg;
Associated with Warburg since
1984; Officer of Counsellors
Securities; Director/Trustee
of other investment companies
in the Warburg Pincus family
of funds.

Alexander B. Trowbridge (69) Director/Trustee President of
1317 F Street, N.W., 5th Floor 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), WMX
Technologies, Inc. (solid and
hazardous waste collection and
disposal), The Rouse Company
(real estate development),
Harris Corp. (electronics and
communications equipment), The
Gillette Co. (personal care
products) and Sun Company Inc.
(petroleum refining and
marketing); Director/Trustee
of other investment companies
in the Warburg Pincus family
of funds.

Eugene L. Podsiadlo (42) President
466 Lexington Avenue Managing Director of Warburg;
</TABLE>

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

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

<PAGE> 123

<TABLE>
<S> <C>
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 in the
Warburg Pincus family of
funds.

Steven B. Plump (40) Executive Vice President
466 Lexington Avenue Senior Vice President of
New York, New York 10017-3147 Warburg; Associated with
Warburg since 1995; Associated
with Chemical Investment
Services and its affiliates
from 1993 until 1995. Officer
of Counsellors Securities and
other investment companies in
the Warburg Pincus family of
funds.

Stephen Distler (45) Vice President Managing
466 Lexington Avenue Director of Warburg,
New York, New York 10017-3147 Associated with Warburg since
1984; Officer of Counsellors
Securities and of other
investment companies in the
Warburg Pincus family of
funds.

Janna Manes (31) Vice President and Secretary
466 Lexington Avenue Vice President of Warburg;
New York, New York 10017-3147 Associated 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.

Howard Conroy, CPA (45) Vice President and Chief
466 Lexington Avenue Financial Officer Vice
New York, New York 10017-3147 President of Warburg;
Associated with Warburg since
1992; Officer of other
investment companies in the
Warburg Pincus family of
funds.

Daniel S. Madden, CPA (33) Treasurer and Chief Accounting
466 Lexington Avenue Officer Vice President of
New York, New York 10017-3147 Warburg; Associated 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 in the
Warburg Pincus family of
funds.

Stuart J. Cohen (30) Assistant Secretary Vice
466 Lexington Avenue President of Warburg;
New York, New York 10017-3147 Associated with Warburg since
1997; Associated with the law
firm of Gordon Altman Butowsky
Weitzen Shalov &
</TABLE>

<PAGE> 124

<TABLE>
<S> <C>
Wein from 1995 to 1997;
Officer of other investment
companies in the Warburg
Pincus family of funds.
</TABLE>

No employee of Warburg, PFPC Inc., the Funds'
co-administrator ("PFPC"), or any of their affiliates receives any compensation
from the Funds for acting as an officer or director/trustee of a Fund. Each
Director who is not a director, trustee, officer or employee of Warburg, PFPC or
any of their affiliates receives the following annual and per-meeting fees:

<TABLE>
<CAPTION>
- ---------------------------------------- ----------------------- ------------------------ ------------------------
FEE FOR EACH AUDIT
FEE FOR EACH MEETING COMMITTEE MEETING
FUND ANNUAL FEE ATTENDED ATTENDED
- ---------------------------------------- ----------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Balanced Fund $ 500 $250 $400 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
Growth & Income Fund $ 500 $250 $400 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
Capital Appreciation Fund $ 1,000 $250 $400 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
Health Sciences Fund $ 500 $250 $400 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
</TABLE>

* Alexander B. Trowbridge received $500 per fund serving as chairman of the
Audit Committee.

Each Director is reimbursed for expenses incurred in
connection with attendance at Board meetings.

Directors/Trustees' Total Compensation
(for the fiscal year ended October 31, 1998)

<TABLE>
<CAPTION>
- -------------------------- ------------- ------------- ------------- ------------- -------------
ALL
INVESTMENT
GROWTH & CAPITAL HEALTH COMPANIES
NAME OF DIRECTOR/TRUSTEE BALANCED INCOME APPRECIATION SCIENCES IN WARBURG
FUND FUND FUND FUND PINCUS FUND
COMPLEX*
- -------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>

John L. Furth** None None None None None
- -------------------------- ------------- ------------- ------------- ------------- -------------

Arnold M. Reichman** None None None None None
- -------------------------- ------------- ------------- ------------- ------------- -------------

Richard N. Cooper $1,900 $1,900 $2,400 $1,900 $56,600
- -------------------------- ------------- ------------- ------------- ------------- -------------

Donald J. Donahue*** $ 475 $ 475 $ 600 $ 475 $13,525
- -------------------------- ------------- ------------- ------------- ------------- -------------

Jack W. Fritz $2,150 $2,150 $2,650 $2,150 $63,100
- -------------------------- ------------- ------------- ------------- ------------- -------------

Jeffrey E. Garten $1,675 $1,675 $2,050 $1,675 $49,325
- -------------------------- ------------- ------------- ------------- ------------- -------------

Thomas A. Melfe $2,150 $2,150 $2,650 $2,150 $60,700
- -------------------------- ------------- ------------- ------------- ------------- -------------

Alexander B. Trowbridge $2,250 $2,250 $2,750 $2,250 $64,000
- -------------------------- ------------- ------------- ------------- ------------- -------------
</TABLE>

<PAGE> 125

* Each Director/Trustee serves as a Director or Trustee of 39 investment
companies in the Warburg Pincus family of funds, except for Mr. Melfe, who
also serves as a Director/Trustee of 22 investment companies in the Warburg
Pincus family of funds.

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

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

As of January 31, 1999 Directors or officers of the Funds as a group owned less
than 1% of the outstanding shares of each Fund.

Portfolio Managers of the Funds

Balanced Fund. Brian S. Posner, Scott T. Lewis, M. Anthony E.
van Daalen and Charles C. Van Vleet serve as Co-Portfolio Managers of the
Balanced Fund and also manage other Warburg Pincus Funds. Mr. Posner is a
Managing Director of Warburg. Prior to joining Warburg in 1996, 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 a Managing Director of Warburg. Prior to joining
Warburg in 1986, 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 a M.B.A. and a B.S. degree from New York University.

Mr. van Daalen is a Senior Vice President of Warburg. Prior to
joining Warburg in 1992, Mr. van Daalen was an assistant vice president,
portfolio manager at Citibank in the Private Banking Group from 1985 to 1991.
Prior to that Mr. van Daalen was a retail banking manager at The Connecticut
Bank and Trust Co. from 1983 to 1985 and an analyst at Goldstein/Krall Market
Research from 1982 to 1983. Mr. van Daalen received a B.A. degree from Wesleyan
University and a M.B.A. degree from New York University.

Mr. Van Vleet is a Vice President of Warburg. Prior to joining
Warburg in May 1998, Mr. Van Vleet was a senior vice president and senior global
strategist at Putnam Investment Management from 1994 to 1998. Prior to that Mr.
Van Vleet served as vice president and senior portfolio manager at Alliance
Capital Managment. Mr. Van Vleet received a B.A. degree from the University of
California, Berkeley.

Growth & Income Fund. Mr. Posner (described above) is also the
Portfolio Manager of the Growth & Income Fund.

Capital Appreciation Fund. Ms. Susan L. Black, Portfolio
Manager of the Capital Appreciation Fund, is also Co-Portfolio Manager of the
Health Sciences Fund. Ms. Black is a Managing Director of Warburg. Ms. Black
joined Warburg in 1985. From 1979

<PAGE> 126

until 1985 Ms. Black was a partner at Century Capital Associates. From 1977
until 1978 Ms. Black was a vice president of research at Donaldson, Lufkin &
Jenrette. From 1973 until 1977 and from 1978 until 1979 Ms. Black was a vice
president of research at Drexel Burnham Lambert. From 1961 until 1973, Ms. Black
was employed by Argus Research, first as a securities analyst, then as director
of research. Ms. Black received a B.A. degree from Mount Holyoke College.

Health Sciences Fund. Ms. Susan L. Black (described above) is
also Co-Portfolio Manager of the Health Sciences Fund.

Ms. Patricia F. Widner, Co-Portfolio Manager of the Health
Sciences Fund, is a Managing Director of Warburg, which she joined in 1991. From
1985 to 1991, she was a vice president and securities analyst, investing in the
securities of venture capital and small capitalization healthcare companies, for
Citibank Investment Management, which changed its name in 1988 to Chancellor
Capital Management. From 1984 to 1985, Ms. Widner served as a marketing director
at Whittaker Health Services, a start-up HMO which later was sold to The
Travelers Group. In 1984, Ms. Widner was employed by Merrill Lynch as an
investment banker specializing in not-for-profit hospitals. Between 1979 and
1982, she was a practicing dietitian and a sales representative for Abbott
Laboratories. Ms. Widner received a B.S. from Marymount College, an M.B.A. from
The Wharton School, University of Pennsylvania and completed the Registered
Dietitian program at Peter Bent Brigham Hospital in Boston, Massachusetts.

<PAGE> 127

Investment Adviser and Co-Administrators

Warburg, located at 466 Lexington Avenue, New York, New York
10017-3147, 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). For the services provided by Warburg under the Advisory
Agreements, the Balanced Fund, Growth & Income Fund, Capital Appreciation Fund
and Health Sciences Fund each pay Warburg a fee calculated at an annual rate of
.90%, .75%, .70% and 1.00%, respectively, of the Fund's average daily net
assets. For the services provided by Counsellors Service under the Counsellors
Service Co-Administration Agreement, each Fund pays Counsellors Service a fee
calculated at an annual rate of .10% of the Fund's average daily net assets. For
the services provided by PFPC under the PFPC Co-Administration Agreement, the
Balanced Fund and Growth & Income Fund each pay PFPC a fee calculated at an
annual rate of .15% of the Fund's first $500 million in average daily net
assets, .10% of the next $1 billion in average daily net assets and .05% of
average daily net assets exceeding $1.5 billion, and the Capital Appreciation
Fund and Health Sciences Fund each pay PFPC a fee calculated at an annual rate
of .10% of the Fund's first $500 million in average daily net assets, .075% of
the next $1 billion in average daily net assets and .05% of average daily net
assets exceeding $1.5 billion, exclusive of out-of-pocket expenses. 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.

For the following fiscal years or period ended October 31 during which
a Fund had investment operations, investment advisory fees earned by Warburg,
waivers and net advisory fees for each Fund were as follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR/ PERIOD GROSS NET
FUND ENDED ADVISORY FEE WAIVER ADVISORY FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Fund August 31, 1996 $ 170,672 $ 145,632 $ 25,040
August 31, 1997 $ 319,264 $ 140,469 $ 178,795
October 31, 1997 $ 60,121 $ 35,238 $ 24,883
October 31, 1998 $ 350,839 $ 180,006 $ 170,833
- ---------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund August 31, 1996 $ 7,914,238 0 $ 7,914,238
August 31, 1997 $ 4,637,851 0 $ 4,637,851
October 31, 1997 $ 901,812 0 $ 901,812
October 31, 1998 $ 6,112,330 0 $ 6,112,330
- ---------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund October 31, 1996 $ 2,323,788 0 $ 2,323,788
October 31, 1997 $ 3,847,872 0 $ 3,847,872
October 31, 1998 $ 4,861,495 0 $ 4,861,495
- ---------------------------------------------------------------------------------------------------------------------------
Health Sciences Fund October 31, 1997 $ 124,333 $ 124,333 0
October 31, 1998 $ 432,399 $ 120,371 $ 312,028
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

For the fiscal year ended October 31, 1998, Warburg also reimbursed
expenses for the Balanced Fund and the Health Sciences Fund in the amounts of
$2,644 and $5,157, respectively.

PFPC and Counsellors Service earned the following amounts in
co-administration fees.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FUND YEAR PFPC COUNSELLORS SERVICE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund August 31, 1996 $ 28,445 $ 18,949
($23,732 waived)
August 31, 1997 $ 53,211 $ 35,474
October 31, 1997 $ 10,020 $ 6,680
October 31, 1998 $ 73,474 $ 38,982
($58,473 waived)
- ---------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund August 31, 1996 $ 1,645,362 $ 992,718
August 31, 1997 $ 927,570 $ 555,880
October 31, 1997 $ 180,362 $ 109,797
October 31, 1998 $ 1,069,787 $ 849,366
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund October 31, 1996 $ 332,684 $ 332,684
October 31, 1997 $ 535,580 $ 549,696
October 31, 1998 $ 649,064 $ 694,499
- ---------------------------------------------------------------------------------------------------------------------------------
Health Sciences Fund October 31, 1997 $ 12,433* $ 12,433
October 31, 1998 $ 45,297 $ 43,240
($37,985 waived)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*Fully Waived

51
<PAGE> 128

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

52
<PAGE> 129
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 1600 Market Street, Philadelphia,
Pennsylvania 19103. The principal business address of State Street is 225
Franklin Street, Boston, Massachusetts 02110.

State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of each Fund pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of the Fund,
(ii) addresses and mails all communications by the Fund to record owners of Fund
shares, including reports to shareholders, dividend and distribution notices and
proxy material for its meetings of shareholders, (iii) maintains shareholder
accounts and, if requested, sub-accounts and (iv) makes periodic reports to the
Board concerning the transfer agent's operations with respect to the Fund. State
Street has delegated to Boston Financial Data Services, Inc., an affiliate of
State Street ("BFDS"), responsibility for most shareholder servicing functions.
BFDS's principal business address is 2 Heritage Drive, North Quincy,
Massachusetts 02171.

Organization of the Funds

Capital Appreciation Fund. The Fund's Agreement and Declaration of
Trust (the "Trust Agreement") authorizes the Board to issue an unlimited number
of full and fractional shares of common stock, $.001 par value per share, of
which an unlimited number are designated "Common Shares" and an unlimited number
are designated "Advisor Shares."

Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Capital
Appreciation Fund. However, the Trust Agreement disclaims shareholder liability
for acts or obligations of the Fund and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations, a
possibility that Warburg believes is remote and immaterial. Upon payment of any
liability incurred by the Fund, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Fund. The Trustees
intend to conduct the operations of the Fund in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities of the
Fund.

Balanced Fund, Growth & Income Fund and Health Sciences Fund. Each
Fund's charter authorizes the Board to issue three billion full and fractional
shares of common stock, $.001 par value per share, of which one billion shares
are designated "Common Shares" and two billion shares are designated "Advisor
Shares" in the case of the Balanced and Growth & Income Funds and one billion
shares are designated "Common Shares" and one billion shares are designated
"Advisor Shares" in the case of the Health Sciences Fund.

53
<PAGE> 130
All Funds. All shareholders of a 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/Trustees can elect all Directors/Trustees. Shares
are transferable but have no preemptive, conversion or subscription rights.

Investors in a Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Shareholders of a Fund will
vote in the aggregate except where otherwise required by law and except that
each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the 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 and Income Fund because he may be deemed to possess or share investment
power over shares owned by clients of Warburg.

The Funds are open-end management investment companies within the
meaning of the 1940 Act. The Balanced and Growth & Income Funds were
incorporated on January 29, 1996, under the laws of the State of Maryland. The
Capital Appreciation Fund was organized on January 20, 1987 under the laws of
The Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." The Health Sciences Fund was incorporated on
October 31, 1996 under the laws of the State of Maryland. Each of the Funds is
diversified. Each Fund (except the Health Sciences Fund) offers two classes of
shares, Common Shares and Advisor Shares. Unless otherwise indicated, references
to a "Fund" apply to each class of shares of that Fund.

The Balanced Fund and the Growth & Income Funds were incorporated under
the names Warburg, Pincus Balanced Fund, Inc. and Warburg, Pincus Growth &
Income Fund, Inc., respectively. On May 3, 1996, each of the Balanced and Growth
& Income Funds acquired all of the assets and liabilities of the investment
portfolio of the RBB Fund with a similar name. On February 26, 1992, the Capital
Appreciation Fund amended its Agreement and Declaration of Trust to change its
name from "Counsellors Capital Appreciation Fund" to "Warburg, Pincus Capital
Appreciation Fund." The Health Sciences Fund was incorporated under the name
"Warburg, Pincus Health Sciences Fund, Inc."

54
<PAGE> 131
Distribution and Shareholder Servicing

Common Shares. The Balanced Fund and the Health Sciences Fund have each
entered into a Shareholder Servicing and Distribution Plan (the "Common Shares
12b-1 Plan"), pursuant to Rule 12b-1 under the 1940 Act, pursuant to which the
Fund pays 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 Common
Shares 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 Common Shares 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 Common Shares 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

<PAGE> 132

related travel and entertainment expenses; (e) costs of printing and
distributing prospectuses, statements of additional information and reports of
the Fund to prospective shareholders of the Fund; and (f) costs involved in
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Fund may, from time to time, deem advisable.

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

For the period or year ended October 31, 1998, the Balanced Fund and
the Health Sciences Fund Common Shares paid the following amounts pursuant to
the Common Shares 12b-1 Plan, all of which was spent on advertising, marketing
communications and public relations.

- ------------------------------------------------ ---------------------
FUND PAYMENT
- ------------------------------------------------ ---------------------
<S> <C>
Balanced Fund $ 97,024
- ------------------------------------------------ ---------------------
Health Sciences Fund $ 108,100
- ------------------------------------------------ ---------------------
</TABLE>

Certain financial-services firms may receive service fees from
Counsellors Securities, Warburg or their affiliates for providing recordkeeping
or other services in connection with investments in the Funds.
Financial-services firms may also be reimbursed for marketing costs. The service
fee may be up to 0.40% per year of the value of fund accounts maintained by the
firm. The Funds may reimburse part of the service fee at rates they would
normally pay to the transfer agent for providing the services.

All Funds, Advisor Shares. The Balanced, Growth & Income, Capital
Appreciation and the Health Sciences Fund (which currently does not offer
Advisor Shares) 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/or
accounting services for their clients or customers (or participants in the case
of retirement plans) ("Customers") who are beneficial owners of Advisor Shares.
Agreements will be governed by a distribution plan (the "Advisor Share 12b-1
Plan") pursuant to Rule 12b-1 under the 1940 Act, pursuant to which the Fund
pays in consideration for services, a fee calculated at an annual rate of .50%
of the average daily net assets of the Advisor Shares of the Fund. The Advisor
Share 12b-1 Plan requires the Board, at least quarterly, to receive and review
written reports of amounts expended under the Advisor Share 12b-1 Plan and the
purposes for which such expenditures were made. The Funds' Advisor Shares paid
Institutions the following fees for the years or periods ended October 31, 1998,
all of which were paid to Institutions:

<PAGE> 133

- ------------------------------------------------ ---------------------
FUND PAYMENT
- ------------------------------------------------ ---------------------
<S> <C>
Balanced Fund $ 863
- ------------------------------------------------ ---------------------
Growth & Income Fund $ 502,703
- ------------------------------------------------ ---------------------
Capital Appreciation Fund $ 166,239
- ------------------------------------------------ ---------------------
</TABLE>

In addition to the 12b-1 fees payable by a Fund, Warburg or Counsellors
Securities may pay Institutions a fee of up to .10% (the "Service Fee") of the
average annual value of accounts with the Fund maintained by such Institutions
for services provided or expenses incurred by the Institutions that are not
covered by an Agreement under the Fund's Advisor Share 12b-1 Plan. A portion of
the Service Fee paid may be reimbursed by the Fund. The Service Fee payable to
any particular Institution 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
Institution.

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 each 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 each Fund's distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.

General. The Advisor Share 12b-1 Plans and the Common Shares 12b-1
Plans will continue in effect for so long as its continuance is specifically
approved at least annually by each Fund's 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 Advisor Shares 12b-1 Plans
or the Common Shares 12b-1 Plans, as the case may be ("Independent Directors").
Any material amendment of the Advisor Shares 12b-1 Plans or the Common Shares
12b-1 Plans would require the approval of the Board in the same manner. Neither
the Advisor Shares 12b-1 Plans nor the Common Shares 12b-1 Plans may be amended
to increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. Each Advisor Share 12b-1 Plan and the
Common Shares 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.

<PAGE> 134

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The offering price of each Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund.

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 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. Each Fund 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 the relevant Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in a Fund.

EXCHANGE PRIVILEGE

An exchange privilege with certain other funds advised by Warburg is
available to investors in each Fund. A Common Shareholder 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. An Advisor
Shareholder may exchange

58
<PAGE> 135
Advisor Shares of a Fund for Advisor Shares of another Warburg Pincus fund at
their respective net asset values. 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.

The exchange privilege is available to shareholders residing in any
state in which the 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 shares of a
Fund for 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.

Each 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 a 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. Each Fund reserves the right to terminate or modify the
exchange privilege 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

Each Fund intends to continue to qualify to be treated as a regulated
investment company each taxable year under the Code. To so qualify, a 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

59
<PAGE> 136

that, at the end of each quarter of the Fund's taxable year, (i) at least 50% of
the market value of the Fund's assets is represented by cash, securities of
other regulated investment companies, United States Government Securities and
other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's assets and not greater
than 10% of the outstanding voting securities of such issuer and (ii) not more
than 25% of the value of its assets is invested in the securities (other than
U.S. 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. Each 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 company, 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. 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.

If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to shareholders to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.

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, the 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,

60
<PAGE> 137
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 a Fund upon filing appropriate returns or claims for refund with the
Internal Revenue Service (the "IRS"). Even if a Fund makes such an election, it
is possible that it may incur an excise tax as a result of not having
distributed net capital gains.

The Code imposes a 4% nondeductible excise tax on each 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 a 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 or fails to meet the distribution requirement,
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,
the 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.

61
<PAGE> 138
Each 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 each
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 engages in short sales against the box or acquires any foreign
currency, forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent disqualification of the
Fund as a regulated investment company.

Passive Foreign Investment Companies

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

Alternatively, a Fund may make a mark-to-market election that will
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, the 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. The Fund may have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid imposition of the 4% excise
tax. The Fund will make the appropriate tax elections if possible, and take any
additional steps that are necessary to mitigate the effect of these rules.

62
<PAGE> 139
Dividends and Distributions

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

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

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<PAGE> 140
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 a 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 a Fund will be eligible to elect to "pass
through" to the Fund's shareholders the amount of foreign income and similar
taxes paid by the Fund. In the absence of such an election, the foreign taxes
paid by a Fund will reduce its investment company taxable income, and
distributions of investment company taxable income received by the Fund from
non-US sources will be treated as United States source income.

Backup Withholding

Each 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 each 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 a 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 the
Fund to its shareholders during the preceding taxable year.

Special Tax Matters Relating to Zero Coupon Securities

Investment by a 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

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<PAGE> 141
its shareholders substantially equal to all the income received from, or imputed
with respect to, its investments during the year, including its zero coupon
securities. These dividends will ordinarily constitute taxable income to
shareholders of the Fund.

Other Taxation

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

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

DETERMINATION OF PERFORMANCE

From time to time, a Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. The net asset value of Common Shares is listed
in The Wall Street Journal each business day under the heading "Warburg Pincus
Funds." Current total return figures may be obtained by calling Warburg Pincus
Funds at (800) 927-2874.

With respect to a Funds' Common and Advisor Shares, the Funds' average
annual total returns for the indicated periods ended October 31, 1998 were as
follows (performance figures calculated without waiver by a Fund's service
provider(s), if any, are noted in italics):

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<PAGE> 142

TOTAL RETURN

COMMON SHARES

<TABLE>
<CAPTION>
Period from the
commencement
One-Year Five-Year Ten-Year of operations
-------- --------- -------- -------------
<S> <C> <C> <C> <C>
Balanced Fund
(10/6/88) 5.33% 4.63% 13.02% 12.83% 12.79% 11.29% N/A
- ------------------------------
Growth & Income Fund
(10/6/88) 9.11% 12.19% 13.80% N/A
- ------------------------------
Capital Appreciation Fund
(8/17/87) 12.75% 22.56% 18.35% 13.87% N/A
- ------------------------------
Health Sciences Fund
(12/31/96) 25.25% 24.82% N/A N/A 26.10% 25.55%
</TABLE>

ADVISOR SHARES*

<TABLE>
<CAPTION>
Period from the
commencement
One-Year Five-Year Ten-Year of operations
-------- --------- -------- -------------
<S> <C> <C> <C> <C>
Balanced Fund
(7/31/95) 4.93% 3.63% N/A N/A 12.86% 10.45%
- ------------------------------
Growth & Income Fund
(5/15/95) 8.70% N/A 11.23% N/A
- ------------------------------
Capital Appreciation Fund
(8/17/87) 12.23% 17.81% N/A 15.98%
</TABLE>

These total return figures show the average percentage change in value
of an investment in a Fund from the beginning of the measurement period to the
end of the measurement period. The figures reflect changes in the price of the
Fund's shares assuming that any income dividends and/or capital gain
distributions made by the Fund during the period were reinvested in 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).

These figures are 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

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are reinvested during the period. Investors should note that this performance
may not be representative of a Fund's total return over longer market cycles.

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. A Fund may also advertise aggregate total return figures for
various periods, representing the cumulative change in value of an investment in
the relevant Fund 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).

A 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. A 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.

A 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, 1998 was 2.08% (1.70% without limitation) and for the
Advisor Shares was 1.84% (1.00% without waiver).

The yield for the Common Shares of the Growth & Income Fund for the
thirty-day period ended October 31, 1998 was .88% and for the Advisor Shares
was .62%.

The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of a Fund's portfolio and
operating expenses allocable to it. As described above, total return is based on
historical earnings and is

67
<PAGE> 144
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.

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) in the case of the Balanced and
Growth & Income Funds, with the S&P 500 Index; in the case of the Capital
Appreciation Fund, with appropriate indexes prepared by Frank Russell Company
relating to securities represented in the Fund, the S&P Midcap 400 Index and the
S&P Index; and in the case of the Health Sciences Fund, various unmanaged
indexes, developed and maintained by S&P, relating to the securities of health
sciences companies; 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, SmartMoney,
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 any 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
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 industry benchmarks. Each Fund may also discuss measures of
risk, the continuum of risk and return relating to different investments and the

68
<PAGE> 145
potential impact of foreign stocks on a portfolio otherwise composed of domestic
securities.

INDEPENDENT ACCOUNTANTS AND COUNSEL

PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund. The financial statements that are incorporated by
reference into this Statement of Additional Information have been audited by PwC
and have been incorporated by reference herein 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 and Counsellors Securities.

MISCELLANEOUS

As of January 31, 1999, the name, address and percentage of
ownership of each person that owns of record 5% or more of each Fund's
outstanding shares were as follows:

BALANCED FUND

<TABLE>
<CAPTION>
Common Shares Advisor Shares
<S> <C> <C>
Charles Schwab & Co. Inc. * 47.48%
Special Custody Account for the
Exclusive Benefit of Customers
Attn Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122

National Financial Services Corp. * 14.56%
FBO Customers
PO Box 3908
Church Street Station
New York, NY 10008-3908

Carn & Co. * 6.32%
FBO Whiting Swenson Employees Savings Plan A/C
# 022194-01
Attn: Mutual Funds - Star
PO Box 96211
Washington, DC 20090-6211

OLCOBA Co 60.31%
PO Box 1000
Minneapolis, MN 55480-1000

Albert J. Lagerman * 20.78%
Gene W. Reisinger TTEES
Family Practice Center PC
401k Trust
307 E. Chestnut St.
Mifflinburg, PA 17844-9678

Bradley M. Lines * 18.18%
Tina K. Pankiewicz TTEES
Axxess Tech Inc. 401k Retire Plan
U/A DTD 10/01/96
9185 South Farmer Ave
Tempe, AZ 85284-2943
</TABLE>

69
<PAGE> 146

GROWTH & INCOME FUND

<TABLE>
<CAPTION>
Common Shares Advisor Shares
<S> <C> <C>
Charles Schwab & Co. Inc. * 26.92%
Special Custody Account for the
Exclusive Benefit of Customers
Attn Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122

National Financial Services Corp. * 26.66%
FBO Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908

Connecticut General Life Ins. Co. * 98.95%
On Behalf of its Separate Account
55S c/o Melissa Spencer M110
Cigna Corp.
PO Box 2975
Hartford, CT 06104-2975
</TABLE>

CAPITAL APPRECIATION FUND

<TABLE>
<CAPTION>
Common Shares Advisor Shares
<S> <C> <C>
Charles Schwab & Co. Inc. * 9.17%
Special Custody Account for the
Exclusive Benefit of Customers
Attn Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122

Bank One Securities * 6.78%
FBO The One Investment Solution
733 Greenrest Dr.
Westerville, OH 43081-4903
</TABLE>

<PAGE> 147

<TABLE>
<CAPTION>
Common Shares Advisor Shares
<S> <C> <C>
Connecticut General Life Ins. Co. * 94.48%
On Behalf of its Separate Account
55S c/o Melissa Spencer M110
Cigna Corp.
PO Box 2975
Hartford, CT 06104-2975
</TABLE>

HEALTH SCIENCES FUND

<TABLE>
<CAPTION>
Common Shares Advisor Shares
<S> <C> <C>
Charles Schwab & Co. Inc. * 24.42%
Special Custody Account for the
Exclusive Benefit of Customers
Attn Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122

National Financial Services Corp. * 14.68%
FBO Customers
PO Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

* Each Fund believes these entities are not the beneficial
owners of shares held of record by them.

Mr. Lionel I. Pincus, Chief Executive Officer of Warburg, may
be deemed to have beneficially owned .70%, 36.2%, 8.04% and 19.86% of the Common
Shares outstanding of each of the Balanced, Growth & Income, Capital
Appreciation and Health Sciences Funds, respectively, including shares owned by
clients for which Warburg has investment discretion and by companies that
Warburg may be deemed to control. Mr. Pincus disclaims ownership of these shares
and does not intend to exercise voting rights with respect to these shares.

FINANCIAL STATEMENTS

Each Fund's audited annual report dated October 31, 1998, 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 its annual report upon request by calling the Warburg Pincus
Funds at 800-927-2874.

<PAGE> 148
APPENDIX

DESCRIPTION OF RATINGS

Commercial Paper Ratings

Commercial paper rated A-1 by Standard and 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 Service, 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> 149
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 and CCC - 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, it faces 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
has 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> 150
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> 151
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 comprise 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
<PAGE> 152
PART C

OTHER INFORMATION

Item 23. Exhibits

Exhibit No. Description of Exhibit
- ----------- ----------------------

a Articles of Incorporation.(1)

b(1) By-Laws.(1)

b(2) Amendment to By-Laws.(2)

c Forms of Share Certificates.(3)

d Form of Investment Advisory Agreement.(4)

e Form of Distribution Agreement.(4)

f Not applicable.

g(1) Form of Custodian Agreement with PNC Bank, National
Association.(3)

(2) Custodian Agreement with State Street Bank and
Trust Company.(5)

- --------

1 Incorporated by reference to Registrant's Registration Statement on Form
N-1A, filed on January 30, 1996 (Securities Act File No. 333-00527).

2 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Post-
Effective Amendment No. 8 to the Registration Statement on Form N-1A of
Warburg, Pincus Global Fixed Income Fund, Inc., filed on February 17,
1998 (Securities Act file No. 33-36066).

3 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Pre-
Effective Amendment No. 2 to the Registration Statement on Form N-1A of
Warburg, Pincus Post-Venture Capital Fund, Inc., filed on September 22,
1998 (Securities Act File No. 33-61225).

4 Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A, filed March 1, 1996
(Securities Act File No. 333-00527).

5 Incorporated by reference; material provisions of this exhibit
substantially similar to the corresponding exhibit in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of Warburg,
Pincus Japan Growth Fund Inc., filed on December 18, 1995 (Securities Act
File No. 33-63655).

C-1
<PAGE> 153
h(1) Form of Transfer Agency Agreement. (3)

(2) Form of Co-Administration Agreement with
Counsellors Funds Service, Inc. (3)

(3) Form of Co-Administration Agreement with PFPC Inc.
(3)

(4) Forms of Services Agreements. (3)

i(1) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund.

(2) Opinion and Consent of Venable, Baetjer and Howard,
LLP, Maryland counsel to the Fund.(4)

j Consent of PricewaterhouseCoopers LLP, Independent
Accountants.

k Not Applicable.

l Purchase Agreement.(4)

m(1) Form of Distribution Plan.(6)

n(1) Financial Data Schedule for Common Shares.

(2) Financial Data Schedule for Advisor Shares.

o Rule 18f-3 Plan.(7)

Item 24. Persons Controlled by or Under Common Control with Registrant

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

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

6 Incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, filed on December 30,
1996 (Securities Act File No. 33-00527).

7 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Post-
Effective Amendment No. 15 to the Registration Statement On Form N-1A of
Warburg, Pincus New York Intermediate Municipal Fund filed on December
15, 1998 (Securities Act file No. 33-11075).

C-2
<PAGE> 154
Bermuda corporation; Warburg Pincus Asset Management (International), Inc., a
Delaware corporation; Warburg Pincus Asset Management (Japan), Inc., a Japanese
corporation and Warburg Pincus Asset Management (Dublin) Limited, an Irish
corporation.

Item 25. Indemnification

Registrant, officers and directors of Warburg, of Counsellors
Securities Inc. ("Counsellors Securities") and of Registrant are covered by
insurance policies indemnifying them for liability incurred in connection with
the operation of Registrant. Discussion of this coverage is incorporated by
reference to Item 27 of Part C of the Registration Statement on Form N-1A of
Warburg, Pincus Small Company Value Fund, Inc. (Securities Act No. 33-63653;
Investment Company Act No. 811-07375), filed on October 25, 1995.

Item 26. Business and Other Connections of Investment Adviser

Warburg is a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P., acts as investment adviser to Registrant. Warburg renders
investment advice to a wide variety of individual and institutional clients. The
list required by this Item 26 of officers and directors of Warburg, together
with information as to their other business, profession, vocation or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).

Item 27. Principal Underwriter

(a) Counsellors Securities will act as distributor for
Registrant, as well as for Warburg Pincus Balanced Fund; Warburg Pincus Capital
Appreciation Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Central &
Eastern Europe Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus
Emerging Markets Fund; Warburg Pincus Emerging Markets II Fund; Warburg Pincus
European Equity Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Global
Fixed Income Fund; Warburg Pincus Global Post-Venture Capital Fund; Warburg
Pincus Global Telecommunications Fund; Warburg Pincus Health Sciences Fund;
Warburg Pincus High Yield Fund; Warburg Pincus Institutional Fund; Warburg
Pincus Intermediate Maturity Government Fund; Warburg Pincus International
Equity Fund; Warburg Pincus International Growth Fund; Warburg Pincus
International Small Company Fund; Warburg Pincus Japan Growth Fund; Warburg
Pincus Japan Small Company Fund; Warburg Pincus Long-Short Equity Fund; Warburg
Pincus Long-Short Market Neutral Fund; Warburg Pincus Major Foreign Markets
Fund; Warburg Pincus Municipal Bond Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg Pincus

C-3
<PAGE> 155
Select Economic Value Equity Fund; Warburg Pincus Small Company Growth Fund;
Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Global Fixed
Income Fund; Warburg Pincus Strategic Value Fund; Warburg Pincus Trust; Warburg
Pincus Trust II; Warburg Pincus U.S. Core Equity Fund; Warburg Pincus U.S. Core
Fixed Income Fund; Warburg Pincus WorldPerks Money Market Fund and Warburg
Pincus WorldPerks Tax Free Money Market Fund;.

(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654) filed
by Counsellors Securities under the Securities Exchange Act of 1934.

Item 28. Location of Accounts and Records

(1) Warburg, Pincus Growth & Income Fund, Inc.
466 Lexington Avenue New York,
New York 10017-3147
(Registrant's Articles of Incorporation, By-laws and
minute books)

(2) Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment
adviser)

(3) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
co-administrator)

(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
co-administrator)

(5) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)

(6) PNC Bank, National Association
Mutual Fund Custody Services
200 Stevens Drive
Suite 440
Lester, Pennsylvania 19113
(records relating to its functions as custodian)

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

C-4
<PAGE> 156
(records relating to its functions as custodian, shareholder
servicing agent, transfer agent and dividend disbursing agent)

Item 29. Management Services

Not applicable.

Item 30. Undertakings

Not applicable.

C-5
<PAGE> 157
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act and has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York, on the 16th day of February, 1999.

WARBURG, PINCUS GROWTH & INCOME FUND, INC.

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

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

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----

<S> <C> <C>
/s/ John L. Furth Chairman of the February 16, 1999
- --------------------------- Board of Directors
John L. Furth

/s/ Eugene L. Podsiadlo President February 16, 1999
- ---------------------------
Eugene L. Podsiadlo

/s/ Howard Conroy Vice President February 16, 1999
- --------------------------- and Chief
Howard Conroy Financial Officer

/s/ Daniel S. Madden Treasurer and February 16, 1999
- --------------------------- Chief Accounting
Daniel S. Madden Officer

/s/ Richard N. Cooper Director February 16, 1999
- ---------------------------
Richard N. Cooper

/s/ Jack W. Fritz Director February 16, 1999
- ---------------------------
Jack W. Fritz

/s/ Jeffrey E. Garten Director February 16, 1999
- ---------------------------
Jeffrey E. Garten
</TABLE>

<PAGE> 158

<TABLE>
<S> <C> <C>
/s/ Thomas A. Melfe Director February 16, 1999
- ---------------------------
Thomas A. Melfe

/s/ Arnold M. Reichman Director February 16, 1999
- ---------------------------
Arnold M. Reichman

/s/ Alexander B. Trowbridge Director February 16, 1999
- ---------------------------
Alexander B. Trowbridge
</TABLE>

<PAGE> 159

INDEX TO EXHIBITS
-----------------

<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
i Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund.

j Consent of PricewaterhouseCoopers LLP,
Independent Accountants.

n(1) Financial Data Schedule for Common Shares.

(2) Financial Data Schedule for Advisor Shares.
</TABLE>

<PAGE> 1

February 16, 1999

Warburg, Pincus Growth & Income Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147

Re: Post-Effective Amendment No. 7 to Registration Statement
(Securities Act File No. 333-00527; Investment Company Act
File No. 811-07515) (the "Registration Statement")

Ladies and Gentlemen:

You have requested us, as counsel to Warburg, Pincus Growth & Income Fund, Inc.
(the "Fund"), a corporation organized under the laws of the State of Maryland,
to furnish you with this opinion in connection with the Fund's filing of
Post-Effective Amendment No. 7 to its Registration Statement on Form N-1A (the
"Amendment").

We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented (the "Articles"), the Fund's By-Laws, as amended (the "By-Laws"),
and the Amendment. We have also examined such other records, documents, papers,
statutes and authorities as we have deemed necessary to form a basis for the
opinion hereinafter expressed.

In our examination of material, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.

Based upon the foregoing, we are of the opinion that the shares of common stock
of the Fund, par value $.001 per share (the "Shares"), when duly sold, issued
and paid for in accordance with the laws of applicable jurisdictions and the
terms of the Articles, the By-Laws and the Prospectuses and Statement of
Additional Information ("SAI") included as part of the Amendment, and assuming
that at the time of sale such Shares will be sold at a sales price in each case
in excess of the par value, will be valid, legally issued, fully paid and
non-assessable.

<PAGE> 2

Warburg, Pincus Growth & Income Fund
February 16, 1999
Page 2

We hereby consent to the filing of this opinion as an exhibit to the Amendment,
to the reference to our name under the heading "Independent Accountants and
Counsel" in the SAI included as part of the Amendment, and to the filing of this
opinion as an exhibit to any application made by or on behalf of the Fund or any
distributor or dealer in connection with the registration or qualification of
the Fund or the Shares under the securities laws of any state or other
jurisdiction.

We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.

Very truly yours,

/s/Willkie Farr & Gallagher

<PAGE> 1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 7 to the Registration Statement under the Securities Act of 1933
on Form N-1A (File No. 333-00527) of our report dated December 11, 1998 of our
audit of the financial statements and financial highlights of Warburg, Pincus
Growth & Income Fund, Inc., which report is included in the Annual Report to
Shareholders for the year ended October 31, 1998. We also consent to the
reference to our Firm under the heading "Independent Accountants and Counsel" in
the Statement of Additional Information.

/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP

February 16, 1999
2400 Eleven Penn Center
Philadelphia, Pennsylvania

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