WARBURG PINCUS SMALL CO GROWTH FUND INC, 485BPOS, 1997-06-30

WARBURG PINCUS SMALL CO GROWTH FUND INC
485BPOS, 1997-06-30

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

Securities Act File No. 333-15453
Investment Company Act File No. 811-07909

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.1 [x]

and/or

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

Amendment No. 3 [x]
(Check appropriate box or boxes)

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

466 Lexington Avenue
New York, New York 10017-3147
........................................................
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (212) 878-0600

Mr. Eugene P. Grace
Warburg, Pincus Small Company Growth Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
......................................
(Name and Address of Agent for Service)

Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677

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

[x] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[ ] on (date) pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

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

DECLARATION PURSUANT TO RULE 24f-2

Registrant has registered an indefinite number or amount of securities
under the Securities Act of 1933, as amended, pursuant to Section (a)(1) of Rule
24f-2 under the Investment Company Act of 1940, as amended.

-2-
<PAGE>

WARBURG, PINCUS SMALL COMPANY GROWTH FUND, INC.

FORM N-1A

CROSS REFERENCE SHEET
---------------------

Part A
Item No. Prospectus Heading
- -------- ------------------

1. Cover Page......................................... Cover Page

2. Synopsis........................................... The Fund's Expenses

3. Condensed Financial Information.................... Financial Highlights

4. General Description of
Registrant....................................... Cover Page; Investment
Objective and Policies;
Risk Factors and
Special Considerations
and Certain Investment
Strategies; Investment
Guidelines; General
Information

5. Management of the Fund............................. Management of the Fund

6. Capital Stock and Other
Securities....................................... General Information

7. Purchase of Securities Being
Offered.......................................... How to Purchase Shares;
Management of the Fund;
Net Asset Value

8. Redemption or Repurchase........................... How to Redeem and
Exchange Shares

9. Pending Legal Proceedings.......................... Not applicable

-3-
<PAGE>

Part B
Item No.
- --------

10. Cover Page........................................ Cover Page

11. Table of Contents................................. Contents

12. General Information and History................... Management of the Fund

13. Investment Objectives
and Policies.................................... Investment Objective;
Investment Policies

14. Management of the Registrant...................... Management of the Fund

15. Control Persons and Principal
Holders of Securities............................. Management of the Fund;
See Prospectus--
"Management of the
Fund"

16. Investment Advisory and
Other Services.................................... Management of the Fund;
See Prospectus--
"Management of the
Fund"

17. Brokerage Allocation
and Other Practices............................... Investment Policies --
Portfolio Transactions;
See Prospectus--
"Portfolio Transactions
and Turnover Rate"

18. Capital Stock and Other
Securities....................................... Management of the
Fund--Organization of
the Fund; See
Prospectus-"General
Information"

19. Purchase, Redemption and Pricing
of Securities Being Offered...................... Additional Purchase and
Redemption Information;
See Prospectus-"How to
Open an Account," "How
to Purchase Shares,"
"How to Redeem and
Exchange Shares," "Net
Asset Value"

-4-
<PAGE>

20. Tax Status........................................ Additional Information
Concerning Taxes; See
Prospectus--"Dividends,
Distributions and
Taxes"

21. Underwriters...................................... Investment Policies--
Portfolio Transactions;
See Prospectus--
"Management of the
Fund"

22. Calculation of Performance Data................... Determination of
Performance

23. Financial Statements.............................. Statement of Assets and
Liabilities; Report of
Coopers & Lybrand,
L.L.P., Independent
Accountants

Part C
- ------

Information required to be included in Part C is set forth after the appropriate
item, so numbered, in Part C to this Registration Statement.

-5-

<PAGE>

PROSPECTUS

June 30, 1997

WARBURG PINCUS
SMALL COMPANY GROWTH FUND

[Logo]

<PAGE>

PROSPECTUS June 30, 1997

Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. One fund is described in this Prospectus:

WARBURG PINCUS SMALL COMPANY GROWTH FUND seeks capital growth by investing in
equity securities of small-sized domestic companies.

NO LOAD CLASS OF COMMON SHARES
- --------------------------------------------------------------------------------
The Fund offers two classes of shares. A class of Common Shares that is 'no
load' is offered by this Prospectus (i) directly from the Fund's distributor,
Counsellors Securities Inc., and (ii) through various brokerage firms including
Charles Schwab & Company, Inc. Mutual Fund OneSource'tm' Program; Fidelity
Brokerage Services, Inc. FundsNetwork'tm' Program; Jack White & Company, Inc.;
and Waterhouse Securities, Inc.

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

The minimum initial investment in the Fund is $2,500 ($500 for an IRA or Uniform
Transfers to Minors Act account) and the minimum subsequent investment is $100.
Through the Automatic Monthly Investment Plan, subsequent investment minimums
may be as low as $50. See 'How to Purchase Shares.'

This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC'). The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is also available upon request and without
charge by calling Warburg Pincus Funds at (800) 927-2874. Information regarding
the status of shareholder accounts may also be obtained by calling the Fund at
the same number. The Statement of Additional Information, as amended or
supplemented from time to time, bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.

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

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

<PAGE>
THE FUND'S EXPENSES
- --------------------------------------------------------------------------------

Warburg Pincus Small Company Growth Fund (the 'Fund') currently offers two
separate classes of shares: Common Shares and Advisor Shares. For a description
of Advisor Shares see 'General Information.' Common Shares pay the Fund's
distributor a 12b-1 fee. See 'Management of the Fund -- Distributor.'

Total Fund Operating Expenses (after fee waivers)`D'....................... 1.40%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
1 year..................................................................... $14
3 years.................................................................... $44
</TABLE>

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

`D' Absent waiver of fees by the Fund's investment adviser and co-administrator,
Management Fees for the Fund would equal 1.00%, Other Expenses would equal
3.86%, and Total Fund Operating Expenses would equal 5.11%. Other Expenses
are based on annualized estimates of expenses for the fiscal year ending
October 31, 1997, net of any fee waivers or expense reimbursements. The
investment adviser and co-administrator are under no obligation to continue
these waivers.

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

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

<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A COMMON SHARE OUTSTANDING)

The following information for the period December 31, 1996 (commencement of
operations) through April 30, 1997 (unaudited) has been derived from the Fund's
semi-annual report dated April 30, 1997, copies of which may be obtained without
charge by calling Warburg Pincus Funds at (800) 927-2784.

<TABLE>
<CAPTION>
For the Period
December 31, 1996
(Commencement of
Operations) through
April 30, 1997
(unaudited)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 10.00
------
Income from Investment Operations
Net Investment Income............................................... .01
Net Gains (Losses) on Securities (both realized and unrealized)..... (1.07)
------
Total from Investment Operations.................................... (1.06)
------
NET ASSET VALUE, END OF PERIOD.......................................... $ 8.94
------
------
Total Return............................................................ (10.60)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........................................ $ 6,288
Ratios to Average Daily Net Assets:
Operating expenses.................................................. 1.40%*
Net investment income............................................... .30%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements............................................ 3.71%*
Portfolio Turnover Rate............................................. 57.24%`D'
Average Annual Commission Rate#......................................... $ .0586
</TABLE>

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

`D' Non-Annualized.

* Annualized.

# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

The Fund seeks capital growth. This objective is a fundamental policy and may
not be amended without first obtaining the approval of a majority of the
outstanding shares of the Fund. Any investment involves risk and, therefore,
there can be no assurance that the Fund will achieve its investment objective.
See 'Portfolio Investments' and 'Certain Investment Strategies' for descriptions
of certain types of investments the Fund may make.
The Fund is a diversified investment fund that pursues its investment
objective by investing in a portfolio of equity securities of small-sized
domestic companies (i.e., companies having stock market capitalizations of $1
billion or less at the time of initial purchase, 'small companies'). The Fund
intends to invest at least 80% of its total assets in common stocks or warrants
of small companies that present attractive opportunities for capital growth and,
under normal market conditions, will invest at least 65% of its total assets in
such securities. The Fund is not required to dispose of issuers whose market
capitalizations grow to exceed $1 billion after acquisition by the Fund. The
Fund will invest primarily in companies whose securities are traded on domestic
stock exchanges or in the over-the-counter market, but may invest up to 20% of
its assets in foreign securities. Small companies in which the Fund may invest
may still be in the developmental stage, may be older companies that appear to
be entering a new stage of growth progress owing to factors such as management
changes or development of new technology, products or markets or may be
companies providing products or services with a high unit volume growth rate.
The Fund's investments will be made on the basis of their equity characteristics
and securities ratings generally will not be a factor in the selection process.
The Fund may also invest in securities of emerging growth companies, which
can be either small- or medium-sized companies that have passed their start-up
phase and that show positive earnings and prospects of achieving significant
profit and gain in a relatively short period of time. Emerging growth companies
generally stand to benefit from new products or services, technological
developments or changes in management and other factors and include smaller
companies experiencing unusual developments affecting their market value.

PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------

DEBT SECURITIES. The Fund may invest up to 20% of its total assets in debt
securities (other than money market obligations) that are not convertible into
common stock for the purpose of seeking capital appreciation. The interest
income to be derived may be considered as one factor in selecting debt
securities for investment by Warburg, Pincus Counsellors, Inc. ('Warburg'), the
Fund's investment adviser. 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

<PAGE>
strategy is dependent upon Warburg's ability to accurately forecast changes in
interest rates. The market value of debt obligations may also be expected to
vary depending upon, among other factors, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions.

The Fund's holdings of debt securities will be considered investment grade at
the time of purchase, except that up to 5% of the Fund's assets may be below
investment grade. A security will be deemed to be investment grade if it is
rated within the four highest grades by Moody's Investor Services, Inc.
('Moody's') or Standard & Poor's Ratings Services ('S&P') or, if unrated, is
determined to be of comparable quality by Warburg. Bonds rated in the fourth
highest grade may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. The Fund's holdings of debt securities rated below investment grade
(commonly referred to as 'junk bonds') may be rated as low as C by Moody's or D
by S&P at the time of purchase or may be unrated securities considered to be of
equivalent quality. Securities that are rated C by Moody's are 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. 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 the Fund should continue to
hold the securities.

When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market instruments, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The 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) and medium-term (five years 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,
its agencies or instrumentalities; bank obligations (including certificates of
deposit, time deposits and bankers' acceptances of domestic or foreign banks,
domestic savings and loans and similar institutions) that are high quality
investments or, if unrated, deemed by Warburg to be high quality investments;
commercial paper rated no lower than A-2 by S&P or Prime-2 by Moody's or the
equivalent from another major rating service or, if unrated, of an issuer having
an outstanding, unsecured debt issue then rated within the three highest rating
categories; and repurchase agreements with respect to the foregoing.

<PAGE>

Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the 'Board'), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the Investment Company Act of 1940, as amended (the '1940 Act').

Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury, and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-

<PAGE>
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
the Fund, convertible securities may cease to be rated or a rating may be
reduced. Neither event will require sale of such securities, although Warburg
will consider such event in its determination of whether the Fund should
continue to hold the securities. The Fund does not currently intend during the
coming year to hold more than 5% of its net assets in convertible securities
rated below investment grade.

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

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

Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see 'Portfolio
Investments' beginning at page 4 and 'Certain Investment Strategies' beginning
at page 9.

SMALL CAPITALIZATION AND EMERGING GROWTH COMPANIES. Investing in securities
of small-sized and emerging growth companies may involve greater risks than
investing in larger, more established issuers since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market averages in general. Because
small-sized companies normally have fewer shares outstanding than larger
companies, it may be more difficult to buy or sell significant amounts of such
shares without an unfavorable impact on prevailing prices. Small-sized companies
may have limited product lines, markets or financial resources and may lack
management depth. In addition, small-sized companies are typically subject to a
greater degree of changes in earnings and business prospects than are larger,
more established companies. There is typically less publicly available
information concerning small-sized companies than for larger, more established
ones. Securities of issuers in 'special situations' also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in 'special situations'
include, but are not limited to, companies involved in an 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; litigation which, if resolved
favorably, would improve the value of the companies' securities; or a change in
corporate control. Although investing in securities of emerging growth companies
or 'special situations' offers potential for above-average returns if the
companies are successful, the risk exists that the companies will not succeed
and the prices of the companies' shares could

<PAGE>
significantly decline in value. Therefore, an investment in the Fund may involve
a greater degree of risk than an investment in other mutual funds that seek
capital growth by investing in better-known, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition, to an adequate trading market, the Board will
also consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board will carefully monitor any investments by the Fund in Rule 144A
Securities. The Board may adopt guidelines and delegate to Warburg the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board will retain ultimate responsibility for any determination
regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.

WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment but 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

<PAGE>
warrant on its expiration date, the warrant will generally expire without value.

PORTFOLIO TRANSACTIONS AND TURNOVER RATE
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The Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the Fund. The Fund will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies. It is not possible to
predict the Fund's portfolio turnover rate. However, it is anticipated that the
Fund's annual turnover rate should not exceed 100%. High portfolio turnover
rates (100% or more) may result in dealer mark ups or underwriting commissions
as well as other transaction costs, including correspondingly higher brokerage
commissions. In addition, short-term gains realized from portfolio turnover may
be taxable to shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in the
Statement of Additional Information.

All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.

CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery, (ii) lending portfolio securities and (iii) entering into
reverse repurchase agreements and dollar rolls. Detailed information concerning
the Fund's strategies and related risks is contained below and in the Statement
of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of foreign issuers located in any foreign country. There are certain
risks involved in investing in securities of companies and governments of
foreign nations which are in addition to the usual risks inherent in domestic
investments. These risks include those resulting from fluctuations in currency
exchange rates, revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions, reduced availability of public
information concerning issuers, the lack of uniform accounting, auditing and
financial reporting standards and other regulatory practices and requirements
that are often generally less rigorous than those applied in the United States.
Moreover, securities of many foreign companies

<PAGE>
may be less liquid and their prices more volatile than those of securities of
comparable U.S. companies. Certain foreign countries are known to experience
long delays between the trade and settlement dates of securities purchased or
sold. In addition, with respect to certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.

DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ('ADRs'), European Depositary Receipts ('EDRs') and
International Depositary Receipts ('IDRs'), instruments that evidence ownership
of underlying securities issued by a foreign corporation. ADRs, EDRs and IDRs
may not necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies.

OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE FUND'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities
exchanges, the Internal Revenue Code of 1986, as amended (the 'Code') and other
applicable regulatory authorities.

<PAGE>

Securities Options and Stock Index Options. The Fund may write covered call
and put options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as 'premiums')
for granting the rights evidenced by the options. The Fund may also utilize up
to 10% of its assets to purchase options on stocks and debt securities that are
traded on U.S. and foreign exchanges, as well as over-the-counter ('OTC')
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, the Fund
may also utilize up to 10% of its total assets to purchase exchange-listed and
OTC put and call options on stock indexes, and may also write such options. A
stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index.

The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures

<PAGE>
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. The Fund may engage in options, futures and currency
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options, futures contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. The Fund will engage in
hedging transactions only when deemed advisable by Warburg, and successful use
of hedging transactions will depend on Warburg's ability to correctly predict
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.

Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities, indexes and currencies; currency, interest rate and
stock index futures contracts and options on these futures contracts; and
forward currency contracts. The use of these strategies may require that the
Fund maintain cash or liquid securities in a segregated account with its
custodian or a designated sub-custodian to the extent the Fund's obligations
with respect to these strategies are not otherwise 'covered' through ownership
of the underlying security, financial instrument or currency 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

<PAGE>
result, there is a possibility that segregation of a large percentage of the
Fund's assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.

SHORT SELLING. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells borrowed 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 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.

Short Sales Against the Box. The Fund may, in addition to engaging in short
sales as described above, enter into a short sale of securities such that when
the short position is open the Fund owns an equal amount of the securities sold
short or owns preferred stocks or debt securities, convertible or exchangeable
without payment of further consideration, into an equal number of securities
sold short. This kind of short sale, which is referred to as one 'against the
box,' may be entered into by the Fund to, for example, lock in a sale price for
a security the Fund does not wish to sell immediately or to postpone a gain or
loss for federal income tax purposes. The Fund will deposit, in a segregated
account with its custodian or a qualified subcustodian, the securities sold
short or convertible or exchangeable preferred stocks or debt securities in
connection with short sales against the box. Not more than 10% of the Fund's net
assets (taken at current value) may be held as collateral for short sales
against the box at any one time. The extent

<PAGE>
to which the Fund may make short sales may be limited by Code requirements for
qualification as a regulated investment company. See 'Dividends, Distributions
and Taxes' for other tax considerations applicable to short sales.

INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------

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

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

INVESTMENT ADVISER. The Fund employs Warburg as investment adviser to the
Fund. Warburg, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Fund in accordance
with the Fund's investment objective and stated investment policies. Warburg
makes investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate of 1.00% of the Fund's average daily net assets. Warburg and
the Fund's co-administrators may voluntarily waive a portion of their fees from
time to time and temporarily limit the expenses to be paid by the Fund.

<PAGE>

which itself is controlled by Warburg, Pincus & Co. ('WP&Co.'), also a New York
general partnership. Lionel I. Pincus may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.

PORTFOLIO MANAGER. Stephen J. Lurito is the portfolio manager of the Fund.
Mr. Lurito has been a portfolio manager of the Fund since its inception and is
also a co-portfolio manager of Warburg Pincus Emerging Growth Fund and the Small
Company Growth Portfolios of Warburg Pincus Institutional Fund, Inc. and Warburg
Pincus Trust. He is a managing director of Warburg and has been with Warburg
since 1987, before which time he was a research analyst at Sanford C. Bernstein
& Company, Inc.

CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation the Fund pays PFPC a
fee calculated at an annual rate of .10% of the Fund's first $500 million in
average daily net assets, .075% of the next $1 billion in assets and .05% of
assets exceeding $1.5 billion, exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.

CUSTODIANS. PNC Bank, National Association ('PNC'), serves as custodian of
the Fund's U.S. assets, and Fiduciary Trust Company International ('Fiduciary')
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103. Fiduciary's principal business address
is Two World Trade Center, New York, New York 10048.

<PAGE>
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of the Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the '12b-1 Plan') adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the Common Shares, (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of the Fund and (iii)
sub-transfer agency services, subaccounting services or administrative services
related to the sale of the Common Shares, all as set forth in the 12b-1 Plan.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
expenses actually incurred by Counsellors Securities and the payments may exceed
distribution expenses actually incurred. The Board evaluates the appropriateness
of the 12b-1 Plan on a continuing basis and in doing so considers all relevant
factors, including expenses borne by Counsellors Securities and amounts received
under the 12b-1 Plan.

Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Funds. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. In some instances, these
incentives may be offered only to certain institutions whose representatives
provide services in connection with the sale or expected sale of Fund shares.

DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses the Fund's officers. A list of the Directors
and officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.

HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------

In order to invest in the Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone

<PAGE>
Warburg Pincus Funds at (800) 927-2874. An investor may also obtain an account
application by writing to:

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

Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.

RETIREMENT PLANS AND UTMA ACCOUNTS. For information (i) about investing in
the Fund through a tax-deferred retirement plan, such as an Individual
Retirement Account ('IRA') or a Simplified Employee Pension IRA ('SEP-IRA'), or
(ii) about opening a Uniform Transfers to Minors Act ('UTMA') account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874 or write to
Warburg Pincus Funds at the address set forth above. Investors should consult
their own tax advisers about the establishment of retirement plans and UTMA
accounts.

CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874.

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------

Common Shares of the Fund may be purchased either by mail or, with special
advance instructions, by wire. The minimum initial investment in the Fund is
$2,500 and the minimum subsequent investment is $100, except that subsequent
minimum investments can be as low as $50 under the Automatic Monthly Investment
Plan described below. For retirement plans and UTMA accounts, the minimum
initial investment is $500. The Fund reserves the right to change the initial
and subsequent investment minimum requirements at any time. In addition, the
Fund may, in its sole discretion, waive the initial and subsequent investment
minimum requirements with respect to investors who are employees of Warburg or
its affiliates or persons with whom Warburg has entered into an investment
advisory agreement. Existing investors will be given 15 days' notice by mail of
any increase in investment minimum requirements.

After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined below. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Fund
are not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to the Fund or Warburg Pincus Funds (in U.S.
currency) should be sent along with the completed account application to Warburg
Pincus Funds through its distributor, Counsellors Securities, at the address set
forth above. Checks payable to the investor and endorsed to the order of the
Fund or Warburg Pincus Funds will not be accepted as payment and will be
returned to the sender. If payment is

<PAGE>
received in proper form by the close of regular trading on the New York Stock
Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) on a day that the Fund
calculates its net asset value (a 'business day'), the purchase will be made at
the Fund's net asset value calculated at the end of that day. If payment is
received after the close of regular trading on the NYSE, the purchase will be
effected at the Fund's net asset value determined for the next business day
after payment has been received. Checks or money orders that are not in proper
form or that are not accompanied or preceded by a complete account application
will be returned to the sender. Shares purchased by check or money order are
entitled to receive dividends and distributions beginning on the day after
payment has been received. Checks or money orders in payment for shares of more
than one Warburg Pincus Fund should be made payable to Warburg Pincus Funds and
should be accompanied by a breakdown of amounts to be invested in each fund. If
a check used for purchase does not clear, the Fund will cancel the purchase and
the investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase Common Shares in the Fund by wiring
funds from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 927-2874. Federal funds may be wired to
Counsellors Securities using the following wire address:

State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Small Company Growth Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]

If a telephone order is received by the close of regular trading on the NYSE
and payment by wire is received on the same day in proper form in accordance
with instructions set forth above, the shares will be priced according to the
net asset value of the Fund on that day and are entitled to dividends and
distributions beginning on that day. If payment by wire is received in proper
form by the close of the NYSE without a prior telephone order, the purchase will
be priced according to the net asset value of the Fund on that day and is
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received after
the close of regular trading on the NYSE, the payment will be held uninvested
until the order is effected at the close of business on the next business day.
Payment for orders that are not accepted will be returned to the prospective
investor after prompt inquiry. If a telephone order

<PAGE>
is placed and payment by wire is not received on the same day, the Fund will
cancel the purchase and the investor may be liable for losses or fees incurred.

PURCHASES THROUGH INTERMEDIARIES. Common Shares of the Fund are available
through various brokerage firms, such as the Charles Schwab & Company, Inc.
Mutual Fund OneSource'tm' Program; Fidelity Brokerage Services, Inc.
FundsNetwork'tm' Program; Jack White & Company, Inc.; and Waterhouse Securities,
Inc. Generally, these programs do not require customers to pay a transaction fee
in connection with purchases or redemptions. The Fund is also available through
certain broker-dealers, financial institutions and other industry professionals
(including the programs described above, collectively, 'Service Organizations').
Certain features of the Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived by Service Organizations. Service Organizations may impose transaction or
administrative charges or other direct fees, which charges or fees would not be
imposed if Fund shares are purchased directly from the Fund. Therefore, a client
or customer should contact the Service Organization acting on his behalf
concerning the fees (if any) charged in connection with a purchase or redemption
of Fund shares and should read this Prospectus in light of the terms governing
his accounts with the Service Organization. Service Organizations will be
responsible for promptly transmitting client or customer purchase and redemption
orders to the Fund in accordance with their agreements with the Fund and with
clients or customers.

Service Organizations that have entered into agreements with the Fund or its
agent may enter confirmed purchase orders on behalf of clients and customers,
with payment to follow no later than the Fund's pricing on the following
business day. If payment is not received by such time, the Service Organization
could be held liable for resulting fees or losses.
For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
Organizations and certain recordkeeping organizations a fee of up to .35% (the
'Service Fee') of the average annual value of accounts with the Fund maintained
by such Service Organizations or recordkeepers. A portion of the Service Fee may
be borne by the Fund as a transfer agency fee. In addition, a Service
Organization or recordkeeper may directly or indirectly pay a portion of its
Service Fee to the Fund's custodian or transfer agent for costs related to
accounts of its clients or customers. The Service Fee payable to any one Service
Organization or recordkeeper is determined based upon a number of factors,
including the nature and quality of services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Service Organization or recordkeeper.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders
to authorize the Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly

<PAGE>

investing option, obtain a separate application or complete the 'Automatic
Investment Program' section of the account application and include a voided,
unsigned check from the bank account to be debited. Only an account maintained
at a domestic financial institution which is an automated clearing house member
may be used. Shareholders using this service must satisfy the initial investment
minimum for the Fund prior to or concurrent with the start of any Automatic
Investment Program. Please refer to an account application for further
information, or contact Warburg Pincus Funds at (800) 927-2874 for information
or to modify or terminate the program. Investors should allow a period of up to
30 days in order to implement an Automatic Investment Program. The failure to
provide complete information could result in further delays.

GENERAL. The Fund reserves the right to reject any specific purchase order.
The Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gains
distributions.

HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------

REDEMPTION OF SHARES. An investor in the Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).

Common Shares of the Fund may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for redemption should be sent to Warburg
Pincus Funds at the address indicated above under 'How to Open an Account.' An
investor should be sure that the redemption request identifies the Fund, the
number of shares to be redeemed and the investor's account number. In order to
change the bank account or address designated to receive the redemption
proceeds, the investor must send a written request (with signature guarantee of
all investors listed on the account when such a change is made in conjunction
with a redemption request) to Warburg Pincus Funds. Each mail redemption request
must be signed by the registered owner(s) (or his legal representative(s))
exactly as the shares are registered. If an investor has applied for the
telephone redemption feature on his account application, he may redeem his
shares by calling Warburg Pincus Funds at (800) 927-2874. An investor making a
telephone withdrawal should state (i) the name of the Fund, (ii) the account
number of the Fund, (iii) the name of the investor(s) appearing on the Fund's
records, (iv) the amount to be withdrawn and (v) the name of the person
requesting the redemption.

<PAGE>
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. The Fund
currently does not impose a service charge for effecting wire transfers but the
Fund reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although the Fund will
redeem shares purchased by check or through the Automatic Investment Program
before the funds or check clear, payments of the redemption proceeds will be
delayed for five days (for funds received through the Automatic Investment
Program) or 10 days (for check purchases) from the date of purchase. Investors
should consider purchasing shares using a certified or bank check or money order
if they anticipate an immediate need for redemption proceeds.
If a redemption order is received by the Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be mailed or wired to an investor on
the next business day following the date a redemption order is effected. If,
however, in the judgment of Warburg, immediate payment would adversely affect
the Fund, the Fund reserves the right to pay the redemption proceeds within
seven days after the redemption order is effected. Furthermore, the Fund may
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend or postpone the recordation of an exchange of shares) for
such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.

If, due to redemptions, the value of an investor's account drops to less than
$2,000 ($250 in the case of a retirement plan or UTMA account), the Fund
reserves the right to redeem the shares in that account at net asset value.
Prior to any redemption, the Fund will notify an investor in writing that this
account has a value of less than the minimum. The investor will then have 60
days to make an additional investment before a redemption will be processed by
the Fund.

TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary

<PAGE>
instructions are elected, an investor will be entitled to make exchanges by
telephone. Neither the Fund nor its agents will be liable for following
instructions communicated by telephone that it reasonably believes to be
genuine. Reasonable procedures will be employed on behalf of the Fund to confirm
that instructions communicated by telephone are genuine. Such procedures include
providing written confirmation of telephone transactions, tape recording
telephone instructions and requiring specific personal information prior to
acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. The Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of the Fund for
Common Shares of another Warburg Pincus Fund at their respective net asset
values. Exchanges may be effected by mail or by telephone in the manner
described under 'Redemption of Shares' above. If an exchange request is received
by Warburg Pincus Funds or its agent prior to 4:00 p.m. (Eastern time), the
exchange will be made at each fund's net asset value determined at the end of
that business day. Exchanges may be effected without a sales charge but must
satisfy the minimum dollar amount necessary for new purchases. Due to the costs
involved in effecting exchanges, the Fund reserves the right to refuse to honor
more than three exchange requests by a shareholder in any 30-day period. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders. Currently, exchanges may be made with the following
funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS TAX FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;

<PAGE>
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a portfolio
consisting of investment grade fixed-income securities of governmental and
corporate issuers denominated in various currencies, including U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term growth
of capital and income and a reasonable current return;

WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing principally in equity securities of domestic
companies;

WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking capital
appreciation by investing in undervalued companies and market sectors;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;

WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing primarily in equity securities of issuers in
their post-venture capital stage of development;

WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing primarily in equity securities of U.S.
and foreign issuers in their post-venture capital stage of development;

WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital apprecation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.

<PAGE>
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of the Fund for Common Shares in another Warburg Pincus Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Common Shares of the Fund at net asset
value. The election to receive dividends in cash may be made on the account
application or, subsequently, by writing to Warburg Pincus Funds at the address
set forth under 'How to Open an Account' or by calling Warburg Pincus Funds at
(800) 927-2874.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or

<PAGE>

loss on a sale or redemption of his Fund shares will be a long-term capital gain
or loss if he has held his shares for more than one year and will be a
short-term capital gain or loss if he has held his shares for one year or less.
However, any loss realized upon the sale or redemption of shares within six
months from the date of their purchase will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain during such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities, including short sales of
securities, will not result in unrelated business taxable income to a tax-exempt
investor. The Fund's dividends may qualify for the dividends received deduction
for corporations to the extent they are derived from dividends attributable to
certain types of stock issued by U.S. domestic corporations.

Certain provisions of the Code may require that a gain recognized by the Fund
upon the closing of a short sale be treated as a short-term capital gain, and
that a loss recognized by the Fund upon the closing of a short sale be treated
as a long-term capital loss, regardless of the amount of time that the Fund held
the securities used to close the short sale. The Fund's use of short sales may
also affect the holding periods of certain securities held by the Fund if such
securities are 'substantially identical' to securities used by the Fund to close
the short sale. The Fund's short selling activities will not result in unrelated
business taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.

NET ASSET VALUE
- --------------------------------------------------------------------------------

The Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Common Share of the Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the

<PAGE>
liabilities specifically allocated to Common Shares and then dividing the result
by the total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.

PERFORMANCE
- --------------------------------------------------------------------------------

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

<PAGE>
of Additional Information describes the method used to determine the total
return. Current total return figures may be obtained by calling Warburg Pincus
Funds at (800) 927-2874.

The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell 2000 Small Stock Index, the
T. Rowe Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes of common stocks; or (iii) other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The Fund
may include evaluations of the Fund published by nationally recognized ranking
services and financial publications such as Barron's, Business Week, Financial
Times, Forbes, Fortune, Inc., Institutional Investor, Investor's Business Daily,
Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and The Wall Street
Journal. Morningstar, Inc. rates funds in broad categories based on risk/reward
analyses over various time periods. In addition, the Fund may from time to time
compare the expense ratio of its Common Shares to that of investment companies
with similar objectives and policies, based on data generated by Lipper
Analytical Services, Inc. or similar investment services that monitor mutual
funds.

In reports or other communications to investors or in advertising, the Fund
may discuss relevant economic and market conditions affecting the Fund. In
addition, the Fund and its portfolio managers may render periodic updates of
Fund investment activity, which may include, among other things, discussion or
quantitative statistical or comparative anlalysis of portfolio composition and
significant portfolio holdings, including analyses of holdings by sector,
industry, country or geographic region, credit quality and other
characteristics. The Fund may also describe the general biography, work
experience and/or investment philosophy or style of the portfolio managers of
the Fund and may include quotations attributable to the portfolio managers
describing the Fund's investment objective, approaches taken in managing the
Fund's investments or the research methodology underlying stock selection. The
Fund may also discuss various measures of risk, including those based on
statistical or econometric analyses, the continuum of risk and return relating
to different investments and the potential impact of foreign stocks on a
portfolio otherwise composed of domestic securities.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

ORGANIZATION. The Fund was incorporated on October 31, 1996 under the laws of
the State of Maryland under the name 'Warburg, Pincus Small Company Growth Fund,
Inc.' The Fund's charter authorizes the Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and one billion shares are
designated Advisor Shares. Under the Fund's charter documents, the Board has the
power to classify or reclassify any unissued

<PAGE>
shares of the Fund into one or more additional classes by setting or changing in
any one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board may similarly classify or reclassify any class of its
shares into one or more series and, without shareholder approval, may increase
the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the
Advisor Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries. Shares of each class represent equal
pro rata interests in the Fund and accrue dividends and calculate net asset
value and performance quotations in the same manner. Because of the higher fees
paid by the Advisor Shares, the total return on such shares can be expected to
be lower than the total return on Common Shares. Investors may obtain
information concerning the Advisor Shares from their investment professional or
by calling Counsellors Securities at (800) 369-2728.

VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Fund may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund. Lionel I.
Pincus may be deemed to be a controlling person of the Fund because he may be
deemed to possess or share investment power over shares owned by clients of
Warburg.

SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). The Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund, as well as
certain statistical characteristics of the Fund, may be obtained by calling
Warburg Pincus Funds at (800) 927-2874.

<PAGE>

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

<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objective and Policies....................................... 4
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 7
Portfolio Transactions and Turnover Rate................................ 9
Certain Investment Strategies........................................... 9
Investment Guidelines................................................... 14
Management of the Fund.................................................. 14
How to Open an Account.................................................. 16
How to Purchase Shares.................................................. 17
How to Redeem and Exchange Shares....................................... 20
Dividends, Distributions and Taxes...................................... 24
Net Asset Value......................................................... 25
Performance............................................................. 26
General Information..................................................... 27
</TABLE>

[Logo]

P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPSCG-1-0697

STATEMENT OF DIFFERENCES
------------------------

The dagger symbol shall be expressed as ....................... `D'
The trademark symbol shall be expressed as..................... `tm'

<PAGE>

PROSPECTUS
Warburg Pincus Advisor Funds June 30, 1997

S
SMALL COMPANY
GROWTH FUND

[Logo]

<PAGE>

PROSPECTUS June 30, 1997

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

WARBURG PINCUS SMALL COMPANY GROWTH FUND seeks capital growth by investing in
equity securities of small-sized domestic companies.

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

NO MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'

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

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

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

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

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

<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................................................................... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees............................................................. .25%
12b-1 Fees.................................................................. .50%`D'
Other Expenses.............................................................. .90%
---
Total Fund Operating Expenses (after fee waivers)*.......................... 1.65%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual
return and (2) redemption at the end of each time period:
1 year...................................................................... $17
3 years..................................................................... $52
</TABLE>

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

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

* Absent waiver of fees by the Fund's investment adviser and co-administrator,
Management Fees for the Fund would equal 1.00%, Other Expenses would equal
4.11%, and Total Fund Operating Expenses would equal 5.36%. Other Expenses are
based on annualized estimates of expenses for the fiscal period ending October
31, 1997, net of any fee waivers or expense reimbursements. The investment
adviser and co-administrator are under no obligation to continue these
waivers.

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

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

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund seeks capital growth. The Fund's objective is a fundamental policy
and may not be amended without first obtaining the approval of a majority of the
outstanding shares of the Fund. Any investment involves risk and, therefore,
there can be no assurance that the Fund will achieve its investment objective.
See 'Portfolio Investments' and 'Certain Investment Strategies' for descriptions
of certain types of investments the Fund may make.
The Fund is a diversified investment fund that pursues its investment
objective by investing in a portfolio of equity securities of small-sized
domestic companies (i.e., companies having stock market capitalizations of $1
billion or less at the time of initial purchase, 'small companies'). The Fund
intends to invest at least 80% of its total assets in common stocks or warrants
of small companies that present attractive opportunities for capital growth and,
under normal market conditions, will invest at least 65% of its total assets in
such securities. The Fund is not required to dispose of issuers whose market
capitalizations grow to exceed $1 billion after acquisition by the Fund. The
Fund will invest primarily in companies whose securities are traded on domestic
stock exchanges or in the over-the-counter market, but may invest up to 20% of
its assets in foreign securities. Small companies in which the Fund may invest
may still be in the developmental stage, may be older companies that appear to
be entering a new stage of growth progress owing to factors such as management
changes or development of new technology, products or markets or may be
companies providing products or services with a high unit volume growth rate.
The Fund's investments will be made on the basis of their equity characteristics
and securities ratings generally will not be a factor in the selection process.
The Fund may also invest in securities of emerging growth companies, which
can be either small- or medium-sized companies that have passed their start-up
phase and that show positive earnings and prospects of achieving significant
profit and gain in a relatively short period of time. Emerging growth companies
generally stand to benefit from new products or services, technological
developments or changes in management and other factors and include smaller
companies experiencing unusual developments affecting their market value.

PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Fund may invest up to 20% of its total assets in debt
securities (other than money market obligations) that are not convertible into
common stock for the purpose of seeking capital appreciation. The interest
income to be derived may be considered as one factor in selecting debt
securities for investment by Warburg, Pincus Counsellors, Inc. ('Warburg'), the
Fund's investment adviser. 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

<PAGE>
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. The market value of debt obligations may also be expected to
vary depending upon, among other factors, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions.

The Fund's holdings of debt securities will be considered investment grade at
the time of purchase, except that up to 5% of the Fund's assets may be below
investment grade. A security will be deemed to be investment grade if it is
rated within the four highest grades by Moody's Investor Services, Inc.
('Moody's') or Standard & Poor's Ratings Services ('S&P') or, if unrated, is
determined to be of comparable quality by Warburg. Bonds rated in the fourth
highest grade may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. The Fund's holdings of debt securities rated below investment grade
(commonly referred to as 'junk bonds') may be rated as low as C by Moody's or D
by S&P at the time of purchase, or may be unrated securities considered to be of
equivalent quality. Securities that are rated C by Moody's comprise the lowest
rated class and can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Debt rated D by S&P is in default or is
expected to default upon maturity or payment date. Subsequent to its purchase by
the Fund, an issue of securities may cease to be rated or its rating may be
reduced. Neither event will require sale of such securities. Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities.

When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The 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) and medium-term (five years 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,
its agencies or instrumentalities; bank obligations (including certificates of
deposit, time deposits and bankers' acceptances of domestic or foreign banks,
domestic savings and loans and similar institutions) that are high quality
investments or, if unrated, deemed by Warburg to be high quality investments;
commercial paper rated no lower than A-2 by S&P or Prime-2 by Moody's or the
equivalent from another major rating service or, if unrated, of an issuer having
an outstanding, unsecured debt issue then rated within the three highest rating
categories; and repurchase agreements with respect to the foregoing.

<PAGE>

Repurchase Agreements. The Fund may enter into repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the 'Board'), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the Investment Company Act of 1940, as amended (the '1940 Act').

Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-

RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see 'Portfolio
Investments' beginning at page 3 and 'Certain Investment Strategies' beginning
at page 8.
SMALL CAPITALIZATION AND EMERGING GROWTH COMPANIES. Investing in securities
of small-sized and emerging growth companies may involve greater risks than
investing in larger, more established issuers since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market averages in general. Because
small-sized companies normally have fewer shares outstanding than larger
companies, it may be more difficult to buy or sell significant amounts of such
shares without an unfavorable impact on prevailing prices. Small-sized companies
may have limited product lines, markets or financial resources and may lack
management depth. In addition, small-sized companies are typically subject to a
greater degree of changes in earnings and business prospects than are larger,
more established companies. There is typically less publicly available
information concerning small-sized companies than for larger, more established
ones. Securities of issuers in 'special situations' also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in 'special situations'
include, but are not limited to, companies involved in an 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; litigation which, if resolved
favorably, would improve the value of the companies' securities; or a change in
corporate control. Although investing in securities of emerging growth companies
or 'special situations' offers potential for above-average returns if the
companies are successful, the risk exists that the companies will not succeed
and the prices of the companies' shares could

<PAGE>
significantly decline in value. Therefore, an investment in the Fund may involve
a greater degree of risk than an investment in other mutual funds that seek
capital growth by investing in better-known, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Fund's Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, the Board
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
Securities. The Board will carefully monitor any investments by the Fund in Rule
144A Securities. The Board may adopt guidelines and delegate to Warburg the
daily function of determining and monitoring the liquidity of Rule 144A
Securities, although the Board will retain ultimate responsibility for any
determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.

<PAGE>
warrant on its expiration date, the warrant will generally expire without value.

PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------

CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery, (ii) lending portfolio securities and (iii) entering into
reverse repurchase agreements and dollar rolls. Detailed information concerning
the Fund's strategies and related risks is contained below and in the Statement
of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of issuers located in any foreign country. There are certain risks
involved in investing in securities of companies and governments of foreign
nations which are in addition to the usual risks inherent in domestic
investments. These risks include those resulting from fluctuations in currency
exchange rates, revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions, reduced availability of public
information concerning issuers, the lack of uniform accounting, auditing and
financial reporting standards and other regulatory practices and requirements
that are often generally less rigorous than those

<PAGE>
applied in the United States. Moreover, securities of many foreign companies may
be less liquid and their prices more volatile than those of securities of
comparable U.S. companies. Certain foreign countries are known to experience
long delays between the trade and settlement dates of securities purchased or
sold. In addition, with respect to certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.

<PAGE>

Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing
in the currency exchange market, (ii) through entering into futures

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 sort 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.

<PAGE>

subcustodian, the securities sold short or convertible or exchangeable preferred
stocks or debt securities in connection with short sales against the box.
Not more than 10% of the Fund's net assets (taken at current value)
may be held as collateral for short sales against the box at any one time.
The extent to which the Fund may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable
to short sales.

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

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Fund employs Warburg as investment adviser to the
Fund. Warburg, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Funds in accordance
with the Fund's investment objective and stated investment policies. Warburg
makes investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate of 1.00% of the Fund's average daily net assets. Warburg and
the Fund's co-administrators may voluntarily waive a portion of their fees
from time to time and temporarily limit the expenses to be borne by the Fund.

<PAGE>

Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of May 31, 1997,
Warburg managed approximately $18.8 billion of assets, including approximately
$11 billion of investment company assets. Incorporated in 1970, Warburg is a
wholly owned subsidiary of Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a
New York general partnership, which itself is controlled by Warburg, Pincus &
Co. ('WP&Co.'), also a New York general partnership. Lionel I. Pincus may be
deemed to control both WP&Co. and Warburg. Warburg G.P. has no business other
than being a holding company of Warburg and its subsidiaries. Warburg's address
is 466 Lexington Avenue, New York, New York 10017-3147.

PORTFOLIO MANAGER. Stephen J. Lurito is the portfolio manager of the Fund.
Mr. Lurito has been a portfolio manager of the Fund since its inception and is
also a co-portfolio manager of Warburg, Pincus Emerging Growth Fund and the
Small Company Growth Portfolios of Warburg Pincus Institutional Fund, Inc. and
Warburg Pincus Trust. He is a managing director of Warburg and has been with
Warburg since 1987, before which time he was a research analyst at Sanford C.
Bernstein & Company, Inc.

CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of its average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation, the Fund pays PFPC a
fee calculated at an annual rate of .10% of the Fund's first $500 million in
average daily net assets, .075% of the next $1 billion in assets and .05% of
assets exceeding $1.5 billion, exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
Fund's U.S. assets, and Fiduciary Trust Company International ('Fiduciary')
serves as custodian of the Fund's non-U.S. assets. Like PFPC,

<PAGE>

PNC is a subsidiary of PNC Bank Corp. and its principal business address is
1600 Market Street, Philadelphia, Pennsylvania 19103. Fiduciary's
principal business address is Two World Trade Center, New York, New York 10048.

TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. It has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ('BFDS'), responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Advisor Shares to Counsellors Securities for distribution
services.

DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. References in this Prospectus to
shareholders or investors are generally to Institutions as the record holders of
the Advisor Shares.
Each Institution separately determines the rules applicable to its customers
investing in the Fund, including minimum initial and subsequent investment
requirements and the procedures to be followed to effect purchases, redemptions
and exchanges of Advisor Shares. There is no minimum amount

<PAGE>
of initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and sending
payment by wire. After telephoning (800) 369-2728 for instructions, an
Institution should then wire federal funds to Counsellors Securities using the
following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Small Company Growth Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application has
been received in proper form, and an account number has been established. If a
telephone order is received by the close of regular trading on the New York
Stock Exchange ('NYSE') (currently 4:00 p.m., Eastern time) and payment by wire
is received on the same day in proper form in accordance with instructions set
forth above, the shares will be priced according to the net asset value of the
Fund on that day and are entitled to dividends and distributions beginning on
that day. If payment by wire is received in proper form by the close of the NYSE
without a prior telephone order, the purchase will be priced according to the
net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations or
Institutions that have entered into agreements with the Fund or its agent may
enter confirmed purchase orders on behalf of customers, with payment to follow
no later than three business days following the day the order is effected. If
payment is not received by such time, the organization could be held liable for
resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.

<PAGE>
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived in these programs, and administrative charges may be imposed for the
services rendered. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his account with the organization.
GENERAL. The Fund reserves the right to reject any specific purchase order.
The Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gains
distributions.

HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor of the Fund may redeem (sell) shares on any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Requests for the redemption (or exchange) of Advisor Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of the request to the Fund or its agent.

Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 369-2728. An investor making a telephone withdrawal should state
(i) the name of the Fund, (ii) the account number of the Fund, (iii) the name of
the investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn
and (v) the name of the person requesting the redemption.

After receipt of the redemption request, the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received by the Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order

<PAGE>
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect the Fund, the
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, the Fund may suspend the right of
redemption or postpone the date of payment upon redemption (as well as suspend
or postpone the recordation of an exchange of shares) for such periods as are
permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund
for Advisor Shares of the other Warburg Pincus Advisor Funds at their respective
net asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds or its agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges may be effected without a sales charge. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
The exchange privilege is available to shareholders residing in any state in
which Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact Warburg
Pincus Advisor Funds at (800) 369-2728.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE
is not open will be computed as of the next business day. Unless an investor
instructs the Fund to pay dividends or distributions in cash, dividends and
distributions will automatically be reinvested in

<PAGE>
additional Advisor Shares of the Fund at net asset value. The election to
receive dividends in cash may be made on the account application or,
subsequently, by writing to Warburg Pincus Advisor Funds at the address
set forth under 'How to Redeem and Exchange Shares' or by calling Warburg Pincus
Advisor Funds at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.

Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long
investors have held Advisor Shares or whether received in cash or reinvested in
additional Advisor Shares. As a general rule, an investor's gain or loss on a
sale or redemption of its Fund shares will be a long-term capital gain or loss
if it has held its shares for more than one year and will be a short-term
capital gain or loss if it has held its shares for one year or less. However,
any loss realized upon the sale or redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain during
such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities will not result in
unrelated business taxable income to a tax-exempt investor. The Fund's dividends
may qualify for the dividends received deduction for corporations to the extent
they are derived from dividends attributable to certain types of stock issued by
U.S. domestic corporations.

<PAGE>
Fund to close the short sale. The Fund's short selling activities will not
result in unrelated business taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.

NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures will be valued similarly.
Debt obligations that mature in 60 days or less from the valuation date are
valued on the basis of amortized cost, unless the Board determines that using
this valuation method would not reflect the investments' value. Securities,
options and futures contracts for which market quotations are not readily
available and other assets will be valued at their fair value as determined in
good faith pursuant to consistently applied procedures established by the Board.
Further information regarding valuation policies is contained in the Statement
of Additional Information.

PERFORMANCE
- --------------------------------------------------------------------------------
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Advisor
Funds.' From time to time, the Fund may advertise the average annual total
return of Advisor Shares over various periods of time. These

<PAGE>
total return figures show the average percentage change in value of an
investment in the Advisor Shares from the beginning of the measuring period
to the end of the measuring period. The figures reflect changes in the
price of the Advisor Shares assuming that any income dividends and/or capital
gain distributions made by the Fund during the period were reinvested in Advisor
Shares. Total return will be shown for recent one-, five- and ten-year
periods, and may be shown for other periods as well (such as on a year-by-year,
quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 369-2728.

The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell 2000 Small Stock Index, the
T. Rowe Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes; or (iii) other appropriate indexes of investment securities or with
data developed by Warburg derived from such indexes. The Fund may also include
evaluations of the Fund published by nationally recognized ranking services and
financial publications such as Barron's, Business Week, Financial Times, Forbes,
Fortune, Inc., Institutional Investor, Investor's Business Daily, Money,
Morningstar, Inc., Mutual Fund Magazine, SmartMoney and The Wall Street Journal.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various time periods. In addition, the Fund may from time to time compare
the expense ratio of Advisor Shares to that of investment companies with similar

objectives and policies, based on data generated by Lipper Analytical Services,
Inc. or similar investment services that monitor mutual funds.

<PAGE>

In reports or other communications to investors or in advertising, the Fund
may discuss relevant economic and market conditions affecting the Fund. In
addition, the Fund and its portfolio managers may render updates of Fund
investment activity, which may include, among other things, discussion or
quantitative statistical or comparative analysis of portfolio composition and
significant portfolio holdings, including analyses of holdings by sector,
industry, country or geographic region, credit quality and other
characteristics. The Fund may also describe the general biography, work
experience and/or investment philosophy or style of the portfolio managers of
the Fund and may include quotations attributable to the portfolio managers
describing the Fund's investment objective, approaches taken in managing the
Fund's investments or the research methodology underlying stock selection. The
Fund may also discuss various measures of risk, including those based on
statistical or econometric analyses, the continuum of risk and return relating
to different investments and the potential impact of foreign stocks on a
portfolio otherwise composed of domestic securities.

GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fund was incorporated on October 31, 1996 under the laws of
the State of Maryland under the name 'Warburg, Pincus Small Company Growth Fund,
Inc.' The Fund's charter authorizes the Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and one billion shares are
designated Advisor Shares. Under the Fund's charter documents, the Board has the
power to classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 369-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the

<PAGE>
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any member of the Board may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of its account, as well as a statement of its account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling Warburg Pincus Advisor Funds at (800) 369-2728. Each Institution that is
the record owner of Advisor Shares on behalf of its customers will send a
statement to those customers periodically showing their indirect interest in
Advisor Shares, as well as providing other information about the Fund. See
'Shareholder Servicing.'

SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for their Customers. Distribution
services would be marketing or other services in connection with the promotion
and sale of Advisor Shares. Shareholder services that may be provided include
responding to Customer inquiries, providing information on Customer investments
and providing other shareholder liaison services. Administrative and accounting
services related to the sale of Advisor Shares may include (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the Fund's transfer agent, (ii) processing
dividend payments from the Fund on behalf of Customers and (iii) providing
sub-accounting related to the sale of Advisor Shares beneficially owned by
Customers or the information to the Fund necessary for sub-accounting.
The Board has approved a

<PAGE>

Distribution Plan (the 'Plan') pursuant to Rule 12b-1 under the 1940 Act
under which each participating Service Organization will be paid, out of the
assets of the Fund (either directly or by Counsellors Securities on behalf
of the Fund), a negotiated fee on an annual basis not to exceed .75% (up to
a .25% annual shareholder services fee and a .50% annual distribution
and/or administration services fee) of the value of the average daily net
assets of its Customers invested in Advisor Shares. The current 12b-1 fee
is .50% per annum. The Board evaluates the appropriateness of the Plan on a
continuing basis and in doing so considers all relevant factors.

To offset start-up costs and expenses associated with certain qualified
retirement plans making Advisor Shares available to plan participants,
Counsellors Securities may pay CIGNA Financial Advisors, Inc., a registered
broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.
Warburg, Counsellors Securities or their affiliates may, from time to time,
at their own expense, provide compensation to Service Organizations. To the
extent they do so, such compensation does not represent an additional expense to
the Fund or its shareholders. In addition, Warburg, Counsellors Securities or
their affiliates may, from time to time, at their own expense, pay certain Fund
transfer agent fees and expenses related to accounts of Customers. A Service
Organization may directly or indirectly use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of its Customers.

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

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Investment Objective and Policies....................................... 3
Portfolio Investments................................................... 3
Risk Factors and Special Considerations................................. 6
Portfolio Transactions and Turnover Rate................................ 8
Certain Investment Strategies........................................... 8
Investment Guidelines................................................... 13
Management of the Fund.................................................. 13
How to Purchase Shares.................................................. 15
How to Redeem and Exchange Shares....................................... 17
Dividends, Distributions and Taxes...................................... 18
Net Asset Value......................................................... 20
Performance............................................................. 20
General Information..................................................... 22
Shareholder Servicing................................................... 23
</TABLE>

[Logo]

P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728

COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADSCG-1-0697

STATEMENT OF DIFFERENCES
------------------------

The dagger symbol shall be expressed as ....................... `D'

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

June 30, 1997

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

WARBURG PINCUS SMALL COMPANY GROWTH FUND

P.O. Box 9030, Boston, Massachusetts 02205-9030

For information, call: (800)-WARBURG

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

Contents

Page
<TABLE>
<S> <C>

Investment Objective...........................................................1
Investment Policies............................................................2
Management of the Fund........................................................24
Additional Purchase and Redemption Information................................30
Exchange Privilege............................................................31
Additional Information Concerning Taxes.......................................32
Determination of Performance..................................................34
Independent Accountants and Counsel...........................................35
Miscellaneous.................................................................35
Appendix-- Description of Ratings...........................................A-1
Report of Coopers & Lybrand, L.L.P., Independent Accountants.................A-4
Financial Statement..........................................................A-5
- --------------------------------------------------------------------------------
</TABLE>

This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for the Common Shares of Warburg Pincus Small
Company Growth Fund (the "Fund") and with the Prospectus for the Advisor Shares
of the Fund, each dated June 30, 1997, as amended or supplemented from time to
time, and is incorporated by reference in its entirety into those Prospectuses.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the Fund's Prospectuses and information regarding
the Fund's current performance may be obtained by calling the Fund at (800)
927-2874. Information regarding the status of shareholder accounts may also be
obtained by calling the Fund at the same number or by writing to the Fund, P.O.
Box 9030, Boston, Massachusetts 02205-9030.

1
<PAGE>

INVESTMENT OBJECTIVE

The investment objective of the Fund is capital growth.

INVESTMENT POLICIES

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

Options, Futures and Currency Exchange Transactions
- ---------------------------------------------------

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

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

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

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

In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.

2
<PAGE>

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 the 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 the 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. The Fund may write (i) in-the-money call options when Warburg,
Pincus Counsellors, Inc., the Fund's investment adviser ("Warburg"), expects
that the price of the underlying security will remain flat or decline moderately
during the option period, (ii) at-the-money call options when Warburg expects
that the price of the underlying security will remain flat or advance moderately
during the option period and (iii) out-of-the-money call options when Warburg
expects that the premiums received from writing the call option plus the
appreciation in market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the underlying security
alone. In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price) may be used in the
same market environments that such call options are used in equivalent
transactions. To secure its obligation to deliver the underlying security when
it writes a call option, the 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 the Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which the 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 over-the-counter market. When the 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
the 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

3
<PAGE>

the original option. The 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 the Fund under an option it has written would be terminated by a
closing purchase transaction, but the Fund would not be deemed to own an option
as a result of the transaction. So long as the obligation of the 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 the Fund effects a closing
purchase transaction. The Fund can no longer effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.

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

Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or written,
or exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the Fund and other
clients of Warburg and certain of its affiliates may be considered to be such a
group. A securities exchange may order the liquidation of positions found to be
in violation of these limits and it may impose certain other sanctions. These
limits may restrict the number of options the Fund will be able to purchase on a
particular security.

Stock Index Options. The Fund may purchase and write exchange-listed
and OTC put and call options on stock indexes. A stock index measures the
movement of a certain

4
<PAGE>

group of stocks by assigning relative values to the common stocks included in
the index, fluctuating with changes in the market values of the stocks included
in the index. Some stock index options are based on a broad market index, such
as the NYSE Composite Index, or a narrower market index such as the Standard &
Poor's 100. Indexes may also be based on a particular industry or market
segment.

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

OTC Options. The Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the 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.

Listed options generally have a continuous liquid market while dealer
options have none. Consequently, the 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 the 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 the Fund will seek to enter into dealer
options only with dealers who will agree to and that are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. The inability to enter into a closing transaction
may result in material losses to the Fund. Until 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 the Fund's
ability to sell portfolio securities or, with respect to currency options,
currencies at a time when such sale

5
<PAGE>

might be advantageous. In the event of insolvency of the other party, the Fund
may be unable to liquidate a dealer option.

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

The Fund will not enter into futures contracts and related options for
which the aggregate initial margin and premiums (discussed below) required to
establish positions other than those considered to be "bona fide hedging" by the
CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The ability of the Fund to trade in futures contracts and options on
futures contracts may be limited by the requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable to a regulated investment
company.

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. Stock indexes are capitalization weighted indexes which reflect the
market value of the stock listed on the indexes. A stock 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 the Fund upon entering into a
futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or cash equivalents, such as U.S.
government securities or other liquid high-grade debt obligations, equal to
approximately 1% to 10% of the contract amount (this amount is subject to change
by the exchange on which the contract is traded, and brokers may charge a higher
amount). This amount is known as "initial margin" and is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. The broker will have access to 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 stock 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." The Fund
will also incur brokerage costs in connection with entering into futures
transactions.

6
<PAGE>

At any time prior to the expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's existing position in the contract. Positions in futures
contracts and options on futures contracts (described below) may be closed out
only on the exchange on which they were entered into (or through a linked
exchange). No secondary market for such contracts exists. Although the 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 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 the 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 the Fund's
performance.

Options on Futures Contracts. The 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 stock index futures contract,
as contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration date
of the option. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of an option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because the
value of the option is fixed at the point of 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 the Fund.

Currency Exchange Transactions. The value in U.S. dollars of the assets
of the Fund that are invested in foreign securities may be affected favorably or
unfavorably by

7
<PAGE>

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

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

At or before the maturity of a forward contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and fully or partially offset its contractual obligation to deliver the
currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the 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. The 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. The Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. The Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.

A decline in the U.S. dollar value of a foreign currency in which the
Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of securities it holds, the Fund may purchase currency put options.
If the

8
<PAGE>

value of the currency does decline, the Fund will have the right to sell the
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value of
a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the 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 the 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, the 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
the 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. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income to
offset expenses or increase return, the 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 the 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 the Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative

9
<PAGE>

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 the Fund's
net investment results if market movements are not as anticipated when the hedge
is established. Stock index futures transactions may be subject to additional
correlation risks. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by Warburg still may not result in a successful hedging
transaction.

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

Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectuses, the Fund will comply with guidelines
established by the Securities and Exchange Commission (the "SEC") with respect
to coverage of forward currency contracts; options written by the Fund on
securities and indexes; and currency, interest rate and index futures contracts
and options on these futures contracts. These guidelines may, in certain
instances, require segregation by the Fund of cash or certain liquid securities
that are acceptable as collateral to the appropriate regulatory authority.

For example, a call option written by the 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 the 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
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The 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 the 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

10
<PAGE>

price of the contract held. The 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
- ----------------------------------------------------

Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below, which
are not typically associated with investing in U.S. issuers.

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

Information. Many of the foreign securities held by the Fund will not
be registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information about
the securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies are
generally not subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies.

11
<PAGE>

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 Fund, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries.

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

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

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

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

Lending of Portfolio Securities. The Fund may lend portfolio securities
to brokers, dealers and other financial organizations that meet capital and
other credit

12
<PAGE>

requirements or other criteria established by the Fund's Board of Directors (the
"Board"). These loans, if and when made, may not exceed 20% of the Fund's total
assets taken at value. The Fund will not lend portfolio securities to affiliates
of Warburg 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, the 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, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. Although the
generation of income is not an investment objective of the Fund, income received
could be used to pay the Fund's expenses and would increase an investor's total
return. The 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 the
Fund's ability to recover the loaned securities or dispose of the collateral for
the loan.

When-Issued Securities and Delayed-Delivery Transactions. The Fund may
utilize up to 20% of its total assets to purchase securities on a "when-issued"
basis or purchase or sell securities for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price and yield).
When-issued transactions normally settle within 30-45 days. The Fund will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage, but may sell the securities before the
settlement date if Warburg deems it advantageous to do so. The payment
obligation and the interest rate that will be received on when-issued 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.

13
<PAGE>

When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case 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's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.

Securities of Smaller Companies. The Fund's investments 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 smaller companies may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile.

Short Sales. In a short sale, the 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. If the Fund engages
in a short sale, the collateral for the short position will be maintained by the
Fund's custodian or qualified sub-custodian. While the short sale is open, the
Fund will maintain in a segregated account an amount of securities equal in
value to the securities sold short.

While a short sale is made by selling a security the Fund does not own,
a short sale is "against the box" to the extent that the Fund contemporaneously
owns or has the right to obtain, at no added cost, securities identical to those
sold short. The Fund does not intend to engage in short sales against the box
for investment purposes. The Fund may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Fund (or a security convertible or
exchangeable for such security), or when the Fund wants to sell the security at
an attractive current price, but also wishes to defer recognition of gain or
loss for U.S. federal income tax purposes and for purposes of satisfying certain
tests applicable to regulated investment companies under the Code. 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 the Fund will endeavor to
offset these costs with the income from the investment of the cash proceeds of
short sales.

14
<PAGE>

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

Warrants. The Fund may purchase warrants issued by domestic and foreign
companies to purchase equity securities consisting of common and preferred
stock. The equity security underlying a warrant is authorized at the time the
warrant is issued or is issued together with the warrant.

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

Reverse Repurchase Agreements and Dollar Rolls. The Fund may enter into
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by 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 establish and maintain a
segregated account with an approved custodian containing cash or certain liquid
securities having a value not less than the repurchase price (including accrued
interest). The assets contained in the segregated account will be
marked-to-market daily and additional assets will be placed in such account on
any day in which the assets fall below the repurchase price (plus accrued
interest). 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
obligation to repurchase the securities, and the

15
<PAGE>

Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending such decision.

The 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 sales price and the forward
price for the future purchase, 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 place in a segregated account maintained with an approved
custodian cash or other liquid obligations having a value not less than the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that its value is maintained. Reverse repurchase agreements
and dollar rolls that are accounted for as financings are considered to be
borrowings under the 1940 Act.

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

<PAGE>

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

An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Fund's 15% 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).

Below Investment Grade Securities. The Fund may hold up to 5% of its
net assets in fixed income securities rated below investment grade and as low as
C by Moody's Investor Services, Inc. ("Moody's) or D by Standard & Poor's
Ratings Services ("S&P"), and in comparable unrated securities. While the market
values of medium- and lower-rated securities and unrated securities of
comparable quality tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities, the market values of certain of these
securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher-quality securities. In addition,
medium- and lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. Issuers of medium- and lower-rated
securities and unrated securities are often highly leveraged and may not have
more traditional methods of financing available to them so that their ability to
service their obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default by such issuers is significantly greater because medium- and lower-rated
securities and unrated securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.

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

Certain of these securities may be difficult to dispose of because
there may be a thin trading market. Because there is no established retail
secondary market for many of these securities, it is anticipated 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

17
<PAGE>

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 the ability to dispose of particular
issues when necessary to meet 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 to obtain accurate market quotations for purposes of valuation
and calculation of net asset value.

The market value of securities in medium- and lower-rated categories is
more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the Fund's
net asset value. Normally, medium- and lower-rated and comparable unrated
securities are not intended for short-term investment. Additional expenses may
be incurred, to the extent required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings of such securities.
Recent adverse publicity regarding lower-rated securities may have depressed the
prices for such securities to some extent. Whether investor perceptions will
continue to have a negative effect on the price of such securities is uncertain.

Borrowing. The Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Additional investments
(including roll-overs) will not be made when borrowings exceed 5% of the Fund's
net assets. Although the principal of such borrowings will be fixed, the Fund's
assets may change in value during the time the borrowing is outstanding. The
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.

Special Situation Companies. The Fund's investments involve
considerations that are not applicable to investing in securities of
established, larger-capitalization issuers, including reduced and less reliable
information about issuers and markets, less stringent accounting standards,
illiquidity of securities and markets, higher brokerage commissions and fees and
greater market risk in general.

The Fund may invest in the securities of "special situation companies"
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. The Fund believes, however, that
if Warburg analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, the Fund may achieve
capital growth. There can be no assurance, however, that a special situation
that exists at the time the Fund makes its investment will be consummated under
the terms and within the time period contemplated.

18
<PAGE>

Other Investment Limitations
---------------------------

The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares. Investment limitations 10 through 13 may be
changed by a vote of the Board at any time.

The 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; 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.

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

19
<PAGE>

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 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.

If a percentage restriction (other than the percentage limitation set
forth in No. 1 above) 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 the Fund's assets will not
constitute a violation of such restriction.

Portfolio Valuation
-------------------

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

Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
as of the time the valuation is made or, in the absence of sales, at the mean
between the bid and asked quotations. If there are no such quotations, the value
of the securities will be taken to be the highest bid quotation on the exchange
or market. Options and futures contracts will be valued similarly. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange

20
<PAGE>

determined to be the primary market for such security. Short-term obligations
with maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Board. Amortized cost involves
valuing a portfolio instrument at its initial cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. The
amortized cost method of valuation may also be used with respect to other debt
obligations with 60 days or less remaining to maturity. In determining the
market value of portfolio investments, the Fund may employ outside organizations
(a "Pricing Service") which may use a matrix, formula or other objective method
that takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of the Fund under the general supervision and
responsibility of the Board, which may replace a Pricing Service at any time.
Securities, options and futures contracts for which market quotations are not
available and other assets of the Fund will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. In addition, the Board or its delegates may value a security at
fair value if it determines that such security's value determined by the
methodology set forth above does not reflect its fair value.

Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the NYSE is open for trading). In addition, securities
trading in a particular country or countries may not take place on all business
days in New York. Furthermore, trading takes place in various foreign markets on
days which are not business days in New York and days on which the Fund's net
asset value is not calculated. As a result, calculation of the Fund's net asset
value may not take place contemporaneously with the determination of the prices
of certain portfolio securities used in such calculation. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and the close of regular trading on the NYSE will not be reflected in
the Fund's calculation of net asset value unless the Board or its delegates
deems that the particular event would materially affect net asset value, in
which case an adjustment may be made. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the prevailing rate as quoted by a Pricing Service. If such quotations are
not available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.

Portfolio Transactions
----------------------

Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the 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

21
<PAGE>

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 the 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) to the 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 the
Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services; and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Warburg in carrying out its responsibilities. Research received from
brokers or dealers is supplemental to Warburg's own research program. The fees
to Warburg under its advisory agreement with the Fund are not reduced by reason
of its receiving any brokerage and research services.

22
<PAGE>

For the period from December 31, 1996 (commencement of operations) to
April 30, 1997, the Fund paid $11,606 in commissions to broker-dealers for
execution of portfolio transactions.

Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to price
and available investments allocated as to amount, in a manner which Warburg
believes to be equitable to each client, including the Fund. In some instances,
this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold for the Fund. To the extent
permitted by law, securities to be sold or purchased for the Fund may be
aggregated with those to be sold or purchased for such other investment clients
in order to obtain best execution.

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

In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies. In
addition, the 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 the Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Fund will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.

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

23
<PAGE>

Portfolio Turnover
------------------

The 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. The 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 the 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. The Fund's investment in special
situation companies could result in high portfolio turnover. To the extent that
its portfolio is traded for the short-term, the 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 the Fund may be higher than
mutual funds having a similar objective that do not invest in special situation
companies.

MANAGEMENT OF THE FUND

Officers and Board of Directors

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

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

Donald J. Donahue (72) Director
27 Signal Rd. Chairman of Magma Copper from December
Stamford, Connecticut 06902 1987 until December 1995; Chairman and
Director of NAC Holdings from September
1990 - June 1993; Director of Pioneer
Companies, Inc. (chlor-alkali chemicals)
and predecessor companies since 1990 and
Vice Chairman since December 1995.

24
<PAGE>

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

John L. Furth* (66) Director
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970;
Chairman of the Board and officer of other
investment companies advised by Warburg.

Thomas A. Melfe (65) Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure
New York, New York 10112 Newton & Irvine; Chairman of the Board of
Municipal Fund for New York Investors, Inc.

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

Alexander B. Trowbridge (67) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990-
November 1996; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual
Life Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), Harris Corp. (electronics and
communications equipment), The Gillette Co.
(personal care products) and Sun Company Inc.
(petroleum refining and marketing).

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

25
<PAGE>

Eugene L. Podsiadlo (40) President
466 Lexington Avenue Managing Director of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1991; Vice President of
Citibank, N.A. from 1987-1991; President of
Counsellors Securities and officer of other
investment companies advised by Warburg.

Stephen Distler (43) Vice President
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated with Warburg
since 1984; Treasurer of Counsellors
Securities; Vice President, Treasurer and
Chief Accounting Officer or Vice President
and Chief Financial Officer of other
investment companies advised by Warburg.

Eugene P. Grace (45) Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April 1994;
New York, New York 10017-3147 Attorney-at-law from September
1989-April 1994; life insurance agent, New
York Life Insurance Company from 1993-1994;
General Counsel and Secretary, Home Unity
Savings Bank from 1991-1992; Vice President
and Chief Compliance Officer and Assistant
Secretary of Counsellors Securities; Vice
President and Secretary of other investment
companies advised by Warburg.

Howard Conroy (43) Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992;
New York, New York 10017-3147 Associated with Martin Geller, C.P.A. from
1990-1992; Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until
1990; Vice President, Treasurer and Chief
Financial Officer of other investment
companies advised by Warburg

26
<PAGE>

Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial
Management, Inc. from September 1994 to
October 1996; Associated with BEA Associates
from April 1993 to September 1994; Associated
with Ernst & Young LLP from 1990 to 1993.
Treasurer and Chief Accounting Officer of
other investment companies advised by
Warburg.

Janna Manes, Esq. (29) Assistant Secretary
466 Lexington Avenue Associated with Warburg since 1996;
New York, New York 10017-3147 Associated with the law firm of Willkie
Farr & Gallagher from 1993-1996; Assistant
Secretary of other investment companies
advised by Warburg.

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

27
<PAGE>

Directors' Compensation
-----------------------

<TABLE>

Total Total Compensation from
Compensation from all Investment Companies
Name of Director the Fund Managed by Warburg+*
---------------- ----------------- ------------------------
<S> <C> <C>

John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $44,500
Donald J. Donahue $1,500 $44,500
Jack W. Fritz $1,500 $44,500
Thomas A. Melfe $1,500 $44,500
Alexander B. Trowbridge $1,500 $44,500
</TABLE>

+ Amounts shown are estimates of future payments to be made in the
fiscal year ending October 31, 1997 pursuant to existing arrangements.

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

** Mr. Furth and Mr. Reichman are considered to be interested persons
of the Fund and Warburg, as defined under Section 2(a)(19) of the 1940
Act, and, accordingly, receive no compensation from the Fund or any
other investment company managed by Warburg.

As of June 16, 1997, the Directors and officers of the Fund as a group
owned less than 1% of the outstanding shares of the Fund.

Portfolio Manager
-----------------

Mr. Stephen J. Lurito, portfolio manager of the Fund, is also
co-portfolio manager of Warburg Pincus Emerging Growth Fund and the Small
Company Growth Portfolio of Warburg Pincus Trust. Mr. Lurito, who is also the
research coordinator and a portfolio manager for micro-cap equity and
post-venture products, has been with Warburg since 1987. Prior to that he was a
research analyst at Sanford C. Bernstein & Company, Inc. Mr. Lurito earned a
B.A. degree from the University of Virginia and an M.B.A. from The Wharton
School, University of Pennsylvania.

Investment Adviser and Co-Administrators
----------------------------------------

Warburg serves as investment adviser to the Fund, Counsellors Funds
Service, Inc. ("Counsellors Service") serves as a co-administrator to the Fund
and PFPC serves as a co-administrator to the Fund pursuant to separate written
agreements (the "Advisory Agreement," the "Counsellors Service Co-Administration
Agreement" and the "PFPC Co-

28
<PAGE>

Administration Agreement," respectively). The services provided by, and the fees
payable by the Fund to, Warburg under the Advisory Agreement, Counsellors
Service under the Counsellors Service Co-Administration Agreement and PFPC under
the PFPC Co-Administration Agreement are described in the Prospectuses. Each
class of shares of the Fund bears its proportionate share of fees payable to
Warburg, Counsellors Service and PFPC in the proportion that its assets bear to
the aggregate assets of the Fund at the time of calculation.

For the period from December 31, 1996 (commencement of operations) to
April 30, 1997, investment advisory fees earned by Warburg and co-administration
fees earned by PFPC and Counsellors Service, waivers and net fees were as
follows:

<TABLE>
Gross Advisory Fee Waiver Net Advisory Fee
------------------ ------ ----------------
<S> <C> <C> <C>

- --------------------------------------------------------------------------------
Warburg $25,296 ($25,296) -0-
reimbursement
($65,948)
- --------------------------------------------------------------------------------

Gross Co- Waiver Net Co-
Administration Fees Administration Fees
------------------- ------ -------------------
PFPC $2,530 ($2,530) -0-
- --------------------------------------------------------------------------------

Counsellors $2,530 -0- $2,530
- --------------------------------------------------------------------------------
</TABLE>

Custodians and Transfer Agent
-----------------------------

PNC Bank, National Association ("PNC") and Fiduciary Trust Company
International ("Fiduciary") serve as custodians of the Fund's U.S. and foreign
assets, respectively, pursuant to separate custodian agreements (the "Custodian
Agreements"). Under the Custodian Agreements, PNC and Fiduciary, 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,
Fiduciary is authorized to select one or more foreign banking institutions and
foreign securities depositories to serve as sub-custodian on behalf of the Fund.
PNC is an indirect, wholly owned subsidiary of PNC Bank Corp., and its principal
business address is 1600 Market Street, Philadelphia, Pennsylvania 19103. The
principal business address of Fiduciary is Two World Trade Center, New York, New
York 10048.

29
<PAGE>

State Street Bank and Trust Company ("State Street") acts as the
shareholder servicing, transfer and dividend disbursing agent of the 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. ("BFDS"), a 50% owned
subsidiary, responsibility for most shareholder servicing functions. State
Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.

Organization of the Fund
------------------------

The Fund's charter authorizes the Board to issue three billion full and
fractional shares of common stock, $.001 par value per share ("Common Stock"),
of which one billion shares are designated "Common Shares" and one billion
shares are designated "Advisor Shares." Only Common Shares and Advisor Shares
have been issued by the Fund.

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

Distribution and Shareholder Servicing
--------------------------------------

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

30
<PAGE>

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

Pursuant to the 12b-1 Plan, Counsellors Securities provides the Board
with periodic reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made. For the period from December 31, 1996
(commencement of operations) to April 30, 1997, the Fund paid $6,324 pursuant to
the 12b-1 Plan, all of which was spent on advertising and marketing
communications.

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

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

General. The Distribution Plan and the 12b-1 Plan will continue in
effect for so long as their continuance is specifically approved at least
annually by the Board, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plan or the 12b-1 Plan, as the
case may be ("Independent Directors"). Any material amendment of the
Distribution Plan or the 12b-1 Plan would require the approval of the Board in
the manner described above. The Distribution Plan or the 12b-1 Plan may not be
amended to increase materially the amount to

31
<PAGE>

be spent thereunder without shareholder approval of the Advisor Shares or the
Common Shares, as the case may be. Neither the Distribution Plan nor the 12b-1
Plan may be terminated at any time, without penalty, by vote of a majority of
the Independent Directors or by a vote of a majority of the outstanding voting
securities of the Advisor Shares or the Common Shares, as the case may be.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

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

Under the 1940 Act, the 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. (The Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)

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

32
<PAGE>

EXCHANGE PRIVILEGE

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

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

Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same day,
at a price as described above, in shares of the relevant class of the fund being
acquired. Warburg reserves the right to reject more than three exchange requests
by a shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders.

ADDITIONAL INFORMATION CONCERNING TAXES

The discussion set out below of tax considerations generally affecting
the Fund and its shareholders is intended to be only a summary and is not
intended as a substitute for careful tax planning by prospective shareholders.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.

The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, the Fund will pay no federal income taxes on its taxable net
investment income (that is, taxable income other than net realized capital
gains) and its net realized capital gains that are distributed to shareholders.
To qualify under Subchapter M, the Fund must, among other things: (i) distribute
to its shareholders the sum of at least 90% of its taxable net investment income
(for this purpose consisting of taxable net investment income and net realized
short-term capital gains) plus at least 90% of its net tax exempt interest
income; (ii) derive at least 90% of its gross income from dividends, interest,
payments with respect to loans of securities, gains from the sale or other
disposition of securities or foreign currencies, or other income (including, but
not limited to, gains from options, futures, and forward contracts) derived with
respect to the Fund's business of investing in such securities or currencies;
(iii) derive less than 30% of its annual gross income from the sale or other
disposition of securities, options, futures, forward contracts or certain other
assets held for less than three months; and (iv) diversify its holdings so that,
at the end of each fiscal quarter of the Fund (a) at least 50% of the market
value of the

33
<PAGE>

Fund's assets is represented by cash, U.S. Government Securities and other
securities, with those other securities limited, with respect to any one issuer,
to an amount no greater in value than 5% of the Fund's total assets and to not
more than 10% of the outstanding voting securities of the issuer, and (b) not
more than 25% of the market value of the Fund's assets is invested in the
securities of any one issuer (other than U.S. Government Securities or
securities of other regulated investment companies) or of two or more issuers
that the Fund controls and that are determined to be in the same or similar
trades or businesses or related trades or businesses. In meeting these
requirements, the Fund may be restricted in the selling of securities held by
the Fund for less than three months and in the utilization of certain of the
investment techniques described above and in the Fund's Prospectuses. As a
regulated investment company, the Fund will be subject to a 4% non-deductible
excise tax measured with respect to certain undistributed amounts of ordinary
income and capital gain required to be but not distributed under a prescribed
formula. The formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of the Fund's taxable ordinary income
for the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 during such
year, together with any undistributed, untaxed amounts of ordinary income and
capital gains from the previous calendar year. The Fund expects to pay the
dividends and make the distributions necessary to avoid the application of this
excise tax.

The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options, futures contracts
and forward 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 recognized by the Fund (i.e., may affect whether gains or
losses are ordinary or capital), accelerate recognition of income to the Fund,
defer Fund losses and cause the Fund to be subject to hyperinflationary currency
rules. These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (i) will require the Fund
to mark-to-market certain types of its positions (i.e., treat them as if they
were closed out) and (ii) 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. The Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and records
when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment so that (a) neither the Fund nor its shareholders
will be treated as receiving a materially greater amount of capital gains or
distributions than actually realized or received, (b) the Fund will be able to
use substantially all of its losses for the fiscal years in which the losses
actually occur and (c) the Fund will continue to qualify as a regulated
investment company.

Upon the sale or exchange of shares, a shareholder will realize a
taxable gain or loss depending upon the amount realized and the basis in the
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, as described in the
Prospectuses, will be long-term or short-term depending upon the shareholder's
holding period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvestment of dividends and capital gains
distributions in the Fund, within a period of 61

34
<PAGE>

days 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.

A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as receiving
a distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount. Investors considering buying shares
just prior to a dividend or capital gain distribution should be aware that,
although the price of shares purchased at that time may reflect the amount of
the forthcoming distribution, those who purchase just prior to a distribution
will receive a distribution that will nevertheless be taxable to them.

Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the Fund for the prior
calendar year. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
federal income tax status of certain dividends and distributions that were paid
(or that are treated as having been paid) by the Fund to its shareholders during
the preceding year.

If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is not
subject to "backup withholding," the shareholder may be subject to a 31% "backup
withholding" tax with respect to (i) taxable dividends and distributions and
(ii) the proceeds of any sales or repurchases of shares of the Fund. An
individual's taxpayer identification number is his social security number.
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability. Dividends and distributions also may be subject to state and local
taxes depending on each shareholder's particular situation.

DETERMINATION OF PERFORMANCE

From time to time, the 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 Fund's aggregate return with respect to its
Common Shares for the period from December 31, 1996 (commencement of operations)
to April 30, 1997 was (10.60%). 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 are reinvested
during the period.

- ---------------------
* As used here, "n" is an exponent.

35
<PAGE>

The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar-year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be.

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

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. The Fund may also discuss its beta, or volatility
relative to the market, and make reference to its relative performance in
various market cycles in the United States.

INDEPENDENT ACCOUNTANTS AND COUNSEL

Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Fund. The statement of assets and liabilities of
the Fund, as of December 12, 1996, that appears in this Statement of Additional
Information has been audited by Coopers & Lybrand, whose report thereon appears
elsewhere herein and has been included 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 the Fund as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.

36
<PAGE>

FINANCIAL STATEMENTS

The Fund's financial statements, consisting of an audited statement of
assets and liabilities as of December 12, 1996 follow the Report of Independent
Accountants. The Fund's Semi-Annual Report dated April 30, 1997 (unaudited) is
incorporated herein by reference.

MISCELLANEOUS

As of May 31, 1997, the name, address and percentage of ownership of
each person that owns of record 5% or more of the Fund's outstanding shares were
as follows:

<TABLE>

Common Shares
-------------
<S> <C>

Warburg Pincus Counsellors, Inc. 14.23%
466 Lexington Avenue (10th Floor)
New York, NY 10017-3140

The American Numismatic Society 7.02%
155th Street Broadway
New York, NY 10032

Bidwell & Co. 5.93%
209 S.W. Oak Street
Portland, OR 97204-2791
</TABLE>

The Fund believes these entities are not the beneficial owners of shares held of
record by them. As of June 12, 1997, Mr. Lionel I. Pincus, Chairman of the Board
and Chief Executive Officer of Warburg, may be deemed to have beneficially owned
56.4% of the Common and Advisor Shares outstanding, 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.

37
<PAGE>

APPENDIX
DESCRIPTION OF RATINGS

Commercial Paper Ratings
------------------------

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

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

Corporate Bond Ratings
----------------------

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

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.

A-1

<PAGE>

BB, B and CCC - Debt rated BB and B is 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.

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.

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

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.

A-2
<PAGE>

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

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

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

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and 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-3
<PAGE>
<PAGE>1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
of Warburg, Pincus Small Company Growth Fund, Inc.

We have audited the accompanying Statement of Assets and Liabilities of
Warburg, Pincus Small Company Growth Fund, Inc. (the "Fund") as of December
12, 1996. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Small Company
Growth Fund, Inc. as of December 12, 1996 in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 16, 1996

<PAGE>1

WARBURG, PINCUS SMALL COMPANY GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of December 12, 1996

Assets:

Cash $100,000

Deferred Organizational Costs 19,072

Deferred Offering Costs 117,105
-------
Total Assets 236,177

Liabilities:

Accrued Organizational Costs 19,072

Accrued Offering Costs 117,105
-------
Total Liabilities 136,177
-------

Net Assets 100,000
=======

Net Asset Value, Redemption and Offering Price Per
Share (three billion shares authorized, consisting of 1
billion Common Shares and 1 billion Advisor Shares -
$.001 per share designated) applicable to $10.00
10,000 Common Shares. ======

</TABLE>

The accompanying notes are an integral part of this financial statement.

<PAGE>1

WARBURG, PINCUS SMALL COMPANY GROWTH FUND, INC.
Notes to Financial Statement
December 12, 1996

1. Organization:

Warburg, Pincus Small Company Growth Fund, Inc. (the "Fund") was
incorporated on October 31, 1996 under the laws of the State of
Maryland. The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The
Fund's charter authorizes its Board of Directors to issue three
billion full and fractional shares of capital stock, $.001 par value per
share, of which one billion shares are designated Common Shares and one
billion shares are designated Advisor Shares. Common Shares bear fees of .25%
of average daily net asset value pursuant to a 12b-1 distribution plan.
Advisor Shares bear fees not to exceed .75% of average daily net asset
value pursuant to a 12b-1 distribution plan. The assets of each class
are segregated, and a shareholder's interest is limited to the class in
which shares are held. The Fund has not commenced operations except
those related to organizational matters and the sale of 10,000 Common
Shares (the "Initial Shares") to Warburg, Pincus Counsellors,
Inc., the Fund's investment adviser (the "Adviser"), on December 12, 1996.

2. Organizational Costs, Offering Costs and Transactions with Affiliates:

Organizational costs have been capitalized by the Fund and are being amortized
over sixty months commencing with operations. In the event any of the Initial
Shares of the Fund are redeemed by any holder thereof during the period that
the Fund is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof by the Fund will be reduced by unamortized
organizational costs in the same ratio as the number of Initial Shares
being redeemed bears to the number of Initial Shares outstanding at the time
of redemption. Offering costs, including initial registration costs, have been
deferred and will be charged to expense during the fund's first year of
operation.

Certain officers and a director of the Fund are also officers and a director
of the Adviser. These officers and director are paid no fees by the Fund for
serving as an officer or director of the Fund.

<PAGE>

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits
---------------------------------

(a) Financial Statements

(1) Financial Statements included in Part A:

(a) Financial Highlights for the period December 31, 1996
(commencement of operations) to April 30, 1997
(unaudited).

(2) Financial Statements included in Part B:

(a) Financial Information for the period December 31, 1996
(commencement of operations) to April 30, 1997
(unaudited), incorporated by reference to the Fund's
Semi-Annual Report dated April 30, 1997 (unaudited):

(i) Statement of Net Assets.
(ii) Maturity Schedule of Portfolio.
(iii) Statement of Operations.
(iv) Statement of Changes in Net Assets.
(v) Notes to Financial Statements.

(b) Financial Information as of December 12, 1996:

(i) Statement of Assets and Liabilities.
(ii) Notes to Financial Statement.
(iii) Report of Coopers & Lybrand L.L.P., Independent
Accountants.

(b) Exhibits:

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

1 Articles of Incorporation.*

2 By-Laws*

- ------------------
* Incorporated by reference to the corresponding exhibit in the Fund's
Registration Statement on Form N-1A filed on November 4, 1996 (Securities
Act No. 333-15453).

** Incorporated by reference to the Registrant's Pre-Effective Amendment
No. 1 to its Registration Statement on Form N-1A filed with the Securities
and Exchange Commission on December 16, 1996 (Securities Act File No.
333-15453).

-6-
<PAGE>

3 Not applicable.

4 Registrant's Forms of Stock Certificates.**

5 Investment Advisory Agreement.**

6 Distribution Agreement.**

7 Not applicable.

8(a) Custodian Agreement with PNC Bank, National Association.**
(b) Custodian Agreement with Fiduciary Trust International.**

9(a) Transfer Agency and Service Agreement.**

(b) Co-Administration Agreement with Counsellors Funds
Service, Inc.**
(c) Co-Administration Agreement with PFPC Inc.**

10(a) Opinion of Willkie Farr & Gallagher, counsel to the Fund.**
(b) Consent of Willkie Farr & Gallagher, counsel to the Fund.
(c) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund.**

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

12 Not applicable.

13 Purchase Agreement.**

14 Not applicable.

15(a) Shareholder Servicing and Distribution Plan.**
(b) Distribution Plan.**

16 Schedule for Computation of Total Return Performance
Quotation

17 Financial Data Schedule

-7-
<PAGE>

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

From time to time, Warburg, Pincus Counsellors, 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 four 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; and Warburg, Pincus Investments International (Bermuda), Ltd., a
Bermuda corporation.

Item 26. Number of Holders of Securities
-------------------------------

Number of Record Holders
Title of Class as of May 31, 1997
-------------- ------------------

Common Stock par value
$.001 per share -- Common Shares 188

Common Stock par value
$.001 per share -- Advisor Shares - 0 -

Item 27. Indemnification
---------------

Registrant, officers and directors of Warburg, of Counsellors
Securities Inc. ("Counsellors Securities") and of Registrant are covered by
insurance policies indemnifying them for liability incurred in connection with
the operation of Registrant. Discussion of this coverage is incorporated by
reference to Item 27 of Part C of Registrant's Registration Statement, filed on
December 30, 1996.

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

Warburg, a wholly owned subsidiary of Warburg, Pincus, Counsellors GP,
acts as investment adviser to the Registrant. Warburg renders investment advice
to a wide variety of individual and institutional clients. The list required by
this Item 28 of officers and directors of Warburg, together with information as
to their other business, profession, vocation or employment of a substantial
nature during the past two years, is

-8-
<PAGE>

incorporated by reference to Schedules A and D of Form ADV filed by Warburg (SEC
File No. 801-07321).

Item 29. Principal Underwriter
---------------------

(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for The RBB Fund, Inc.,
Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation Fund; Warburg
Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus
Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Global
Fixed Income Fund; Warburg Pincus Global Post-Venture Capital Fund; Warburg
Pincus Growth & Income Fund, Inc.; Warburg Pincus Health Sciences Fund, Inc.;
Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg, Pincus Small Company Growth Fund; Warburg
Pincus Small Company Value Fund; Warburg Pincus Strategic Value Fund; Warburg
Pincus Tax Free Fund; Warburg Pincus Trust; and Warburg Pincus Trust II.

(b) For information relating to each director, officer or partner
of Counsellors Securities, reference is made to Form BD (SEC File No. 8-32482)
filed by Counsellors Securities under the Securities Exchange Act of 1934.

Item 30. Location of Accounts and Records
--------------------------------

(1) Warburg, Pincus Small Company Growth Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and minute books)

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

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

(4) Counsellors Funds Service, Inc.

-9-
<PAGE>

466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as Co-administrator)

(5) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as shareholder servicing
agent, transfer agent and dividend disbursing agent)

(6) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent and
dividend disbursing agent)

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

(8) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)

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

Item 31. Management Services
-------------------

Not applicable.

Item 32. Undertakings.
-------------

(a) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the latest annual report to shareholders
for the Fund, upon request and without charge.

(b) Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a director or
directors of Registrant when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares. Registrant undertakes further, in
connection with the meeting, to comply with the provisions of Section 16(c)

-10-
<PAGE>

of the 1940 Act relating to communications with the shareholders of certain
common-law trusts.

-11-
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended, 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 27th day of June, 1997.

WARBURG, PINCUS SMALL COMPANY GROWTH
FUND, INC.

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

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

Signature Title Date
- --------- ----- ----

/s/John L. Furth Chairman of the June 27, 1997
- ----------------------------
John L. Furth Board of Directors

/s/Eugene L. Podsiadlo President June 27, 1997
Eugene L. Podsiadlo

/s/Howard Conroy Vice President and June 27, 1997
- ----------------------------
Howard Conroy Chief Financial
Officer

/s/Daniel S. Madden Treasurer and June 27, 1997
- ----------------------------
Daniel S. Madden Chief Accounting
Officer

/s/Richard N. Cooper Director June 27, 1997
- ----------------------------
Richard N. Cooper

/s/Donald J. Donahue Director June 27, 1997
- ----------------------------
Donald J. Donahue

/s/Jack W. Fritz Director June 27, 1997
- ----------------------------
Jack W. Fritz

/s/Thomas A. Melfe Director June 27, 1997
- ----------------------------
Thomas A. Melfe

/s/Arnold M. Reichman Director June 27, 1997
- ----------------------------
Arnold M. Reichman

/s/Alexander B. Trowbridge Director June 27, 1997
- ----------------------------
Alexander B. Trowbridge

-12-
<PAGE>

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

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

10(b) Consent of Willkie Farr & Gallagher, Counsel to the Fund

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

16 Schedule for Computation of Total Return Performance Quotations.

17 Financial Data Schedule

CONSENT OF COUNSEL

Warburg, Pincus Small Company Growth Fund, Inc.

We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 1 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 2-15453, Investment
Company Act File No. 811-07909) of Warburg, Pincus Small Company Growth Fund,
Inc. (the "Fund") under the caption "Auditors and Counsel" and to the Fund's
filing a copy of this Consent as an exhibit to the Amendment.

/S/Willkie Farr & Gallagher
-------------------------------
Willkie Farr & Gallagher

New York, New York
June 27, 1997

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion of our report dated December 16, 1996 on our audit
of the Statement of Assets and Liabilities of Warburg, Pincus Small Company
Growth Fund, Inc. as of December 12, 1996 with respect to this Post-Effective
Amendment No. 1 to the Registration Statement (No. 333-15453) under the
Securities Act of 1933 on Form N-1A. We also consent to the reference to our
Firm under the heading "Independent Accountants and Counsel" in the Statement of
Additional Information.

/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 24, 1997

<PAGE>

Schedule 16 Calculations

WARBURG PINCUS SMALL COMPANY GROWTH FUND
For the period inception to April 30, 1997

Common Shares

Aggregate Total Return with waivers:
((8,940 - 10,000)/10,000) = -10.60

Aggregate Total Return without waivers:
((8,510 - 10,000)/10,000) = -14.90%

<ARTICLE> 6
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<NAME> WARBURG PINCUS SMALL COMPANY GROWTH FUND
<SERIES>
<NUMBER> 001
<NAME> COMMON SHARES

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 6724910
<INVESTMENTS-AT-VALUE> 6029125
<RECEIVABLES> 177659
<ASSETS-OTHER> 118544
<OTHER-ITEMS-ASSETS> 25587
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<PER-SHARE-NAV-END> 8.94
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>