WARBURG PINCUS STRATEGIC VALUE FUND INC, 497, 1997-01-03

WARBURG PINCUS STRATEGIC VALUE FUND INC
497, 1997-01-03

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Rule 497(c)
Securities Act No. 333-16193
Investment Company Act No. 811-07929
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PROSPECTUS
December 31, 1996

WARBURG PINCUS
STRATEGIC VALUE FUND

[Logo]

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PROSPECTUS December 31, 1996

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 STRATEGIC VALUE FUND seeks capital appreciation. The
Fund will pursue its investment objective by investing in companies and market
sectors that are considered to be relatively undervalued.

NO LOAD CLASS OF COMMON SHARES
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Warburg Pincus Strategic Value Fund offers two classes of shares, one of which,
the Common Shares, 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. The Advisor Shares of the Fund
are offered by a separate prospectus.

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

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') and is available for
reference, along with other related materials, on the SEC Internet Web site
(http://www.sec.gov). The Statement of Additional Information is also available
to investors without charge by calling Warburg Pincus Funds at (800) 927-2874.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Funds at the same number. 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 INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE FUND'S EXPENSES
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Warburg Pincus Strategic Value 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 Funds -- Distributor.'

<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................................................................ .49%
12b-1 Fees..................................................................... .25%
Other Expenses................................................................. .71%
---
Total Fund Operating Expenses*................................................. 1.45%
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......................................................................... $ 15
3 years........................................................................ $ 46
</TABLE>

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* Absent the waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees would equal 1.00%, Other Expenses would
equal .81% and Total Fund Operating Expenses would equal 2.06%. Other Expenses
for the Fund 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 the Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.

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INVESTMENT OBJECTIVE AND POLICIES
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The Fund seeks capital appreciation. The Fund will pursue its
investment objective by investing in companies and market sectors that Warburg,
Pincus Counsellors, Inc., the Fund's investment adviser ('Warburg'), considers
to be relatively undervalued. The Fund's investment 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 management investment company that pursues
its objective by investing, under normal market conditions, at least 65%
of its total assets in equity securities, including common stock, preferred
stock, warrants and securities convertible into or exchangeable for common
stock. Warburg will seek to identify and invest in companies which, in its
opinion, are (i) undervalued or (ii) which may themselves not be undervalued
but which are in sectors which are undervalued as a whole. In implementing its
investment strategy, the Fund may take positions that are different from or
inconsistent with those taken by other mutual funds.
Warburg will determine whether a company or a market sector is undervalued
based on a variety of measures, including price/earnings ratio, price/book
ratio, price/cash flow ratio, earnings growth, debt/capital ratio and absolute
and relative price history in relation to its peer group and to the market.
Other relevant factors, including a company's asset value, franchise value and
quality of management, will also be considered.
The Fund may hold securities of companies of any size, including
securities of companies with market capitalizations of less than $500
million, and may invest without limit in the securities of issuers which have
been in continuous operation for less than three years. The Fund may hold
from time to time various foreign currencies pending investment in
foreign securities or conversion into U.S. dollars, but does not currently
intend to invest more than 20% of its assets in securities of foreign issuers.
The Fund may also purchase without limit dollar-denominated American Depository
Receipts ('ADRs'). ADRs are issued by domestic banks and evidence ownership of
underlying foreign securities.

PORTFOLIO INVESTMENTS
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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 be
expected to vary depending upon, among other factors, interest rates, the
ability of the issuer to repay principal and interest, any change in investment
rating and general economic conditions. The Fund's debt securities holdings may
be rated below investment grade and as low as C by Moody's Investors Service,
Inc. ('Moody's') or D by Standard & Poor's Ratings Group ('S&P') and the Fund
may also invest in unrated issues that are believed by Warburg to be of
comparable quality. Securities in these rating categories are in payment default
or have extremely poor prospects of attaining any investment standing.

There are certain risk factors associated with lower-rated securities.
Securities rated in the fourth highest grade have speculative characteristics,
and securities rated B have speculative elements and a greater vulnerability to
default than higher-rated securities. Investors should be aware that ratings are
relative and subjective and are not absolute standards of quality. Subsequent to
its purchase by a Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities by the Fund, although Warburg
will consider such event in its determination of whether the Fund should
continue to hold the securities.
Lower-rated and comparable unrated securities (commonly referred to as 'junk
bonds'), which the Fund may hold (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organization, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium- and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
The market value of securities in lower-rated categories is more volatile
than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market, which may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of calculating the Fund's net asset
value.
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

<PAGE>
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.
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 while 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 OBLIGATIONS. The obligations issued or guaranteed by the U.S.
government in which the Fund may invest include: direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and

<PAGE>
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-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.
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 newly created 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.
TEMPORARY DEFENSIVE MEASURES. When Warburg believes that a defensive posture
is warranted, the Fund may invest temporarily without limit in U.S.
dollar-denominated money market obligations, including repurchase agreements.

RISK FACTORS AND SPECIAL CONSIDERATIONS
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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, including with
respect to foreign securities and lower-rated securities, see 'Portfolio
Investments' beginning at page 3 and 'Certain Investment Strategies' beginning
at page 8.
EMERGING GROWTH AND SMALL COMPANIES; UNSEASONED ISSUERS. The Fund may invest
in securities of emerging growth and small- and medium-sized companies, as well
as companies with continuous operations of less than three years ('unseasoned
issuers'), which may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market in general. Because small- and
medium-sized companies and unseasoned issuers normally have fewer shares
outstanding than larger companies, it may be more difficult for the Fund to buy
or sell significant amounts of such shares without an unfavorable impact on
prevailing prices. Small-sized companies and unseasoned issuers may have limited
product lines, markets or financial resources and may lack management depth. In
addition, small-and medium-sized companies and unseasoned issuers are typically
subject to a greater degree of changes in earnings and business prospects than
are

<PAGE>
larger, more established companies. There is typically less publicly available
information concerning these companies than for larger, more established ones.
Although investing in securities of emerging growth companies 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
significantly decline in value. Therefore, an investment in the Fund may involve
a greater degree of risk than an investment in other mutual funds which invest
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 '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 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>
investment return available from concentration in that sector justifies any
additional risk associated with concentration in that sector. When the Fund
concentrates its investments in a market sector, financial, economic, business
and other developments affecting issuers in that sector will have a greater
effect on the Fund than if it had not concentrated its assets in that sector.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging
increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.

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 150%. High portfolio turnover
rates (100% or more) may result in dealer markups or underwriting commissions as
well as other transaction costs, including correspondingly higher brokerage
commissions. In addition, short-term gains realized from portfolio turnover may
be taxable to shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in the
Fund's 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
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Although there is no current intention of doing so during the coming year,
the Fund is authorized to engage in the following investment strategies: (i)
lending portfolio securities, (ii) entering into forward currency transactions
and (iii) entering into reverse repurchase agreements and dollar rolls.

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Detailed information concerning the Fund's strategies and related risks is
contained below and in the Fund's Statement of Additional Information.
FOREIGN SECURITIES. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in U.S. investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
OPTIONS AND FUTURES TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options and
futures contracts. These strategies, commonly referred to as 'derivatives,' may
be used (i) for the purpose of hedging against a decline in value of a Fund's
current or anticipated portfolio holdings or (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

<PAGE>
commodities exchanges and the NASD and by the Internal Revenue Code of 1986, as
amended (the 'Code').
Securities and Stock Index Options. The Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ('OTC'). The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option 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 indices, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into interest rate
and stock index futures contracts and purchase and write (sell) related options
that are traded on an exchange designated by the Commodity Futures Trading
Commission (the 'CFTC') or, if consistent with CFTC regulations, on foreign
exchanges. These futures contracts are standardized contracts for the future
delivery of an interest rate sensitive security or, in the case of stock index
and certain other futures contracts, are settled in cash with reference to a
specified multiplier times the change in the specified index 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. However, the Fund may not write put options or purchase
or sell futures contracts or options on futures contracts to hedge more than its
total assets unless immediately after any such transaction the aggregate amount
of premiums paid on put options and the amount of

<PAGE>
margin deposits on its existing futures positions do not exceed 5% of its total
assets.
Hedging Considerations. The Fund may engage in options and futures
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 and futures contracts for hedging purposes could limit any
potential gain from an increase in value of the position hedged. In addition,
the movement in the portfolio position hedged may not be of the same magnitude
as movement in the hedge. The Fund will engage in hedging transactions only when
deemed advisable by Warburg, and successful use of hedging transactions will
depend on Warburg's ability to correctly predict movements in the hedge and the
hedged position and the correlation between them, which could prove to be
inaccurate. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes and interest rate and stock index futures
contracts and options on these futures contracts. The use of these strategies
may require that the Fund maintain cash or certain liquid securities in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
'covered' through ownership of the underlying security or financial instrument
or by other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
SHORT SELLING. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells borrowed securities in
anticipation of a decline in the market price of the securities. Possible losses
from short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases can equal only the total amount invested. The current market

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value of the securities sold short (excluding short sales 'against the box')
will not exceed 10% of the Fund's assets.
When the Fund makes a short sale, the proceeds it receives from the sale are
retained by a broker until the Fund replaces the borrowed securities. 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 may have to pay a premium to borrow the securities
and must pay any dividends or interest payable on the securities until they are
replaced.
The Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by cash or certain 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
U.S. government 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,' will be entered into by the Fund for the purpose of receiving a portion of
the interest earned by the executing broker from the proceeds of the sale. The
proceeds of the sale will generally be held by the broker until the settlement
date when the Fund delivers securities to close out its short position. Although
prior to delivery the Fund will have to pay an amount equal to any dividends
paid on the securities sold short, the Fund will receive the dividends from the
securities sold short or the dividends from the preferred stock or interest from
the debt securities convertible or exchangeable into the securities sold short,
plus a portion of the interest earned from the proceeds of the short sale. 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. The
Fund will endeavor to offset transaction costs associated with short sales
against the box

<PAGE>
with the income from the investment of the cash proceeds. 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
requirements of the Code for qualification as a regulated investment company.
See 'Dividends, Distributions and Taxes' for other tax considerations applicable
to short sales.
ZERO COUPON SECURITIES. The Fund may invest without limit in 'zero coupon
securities.' Zero coupon securities pay no cash income to their holders until
they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of the Fund that require it
to sell zero coupon securities prior to maturity may result in capital gains or
losses that may be substantial. In addition, the Fund's investments in zero
coupon securities will result in special tax consequences, which are described
below under 'Dividends, Distributions and Taxes -- Taxes.'

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) time deposits maturing in more than seven calendar days; (iii)
certain Rule 144A Securities and (iv) repurchase agreements with maturities
greater than seven days. The Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Fund may not
exceed 30% of its total assets at the time of borrowing and 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 total 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 Fund's
Statement of Additional Information.

<PAGE>
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Fund employs Warburg as its investment adviser.
Warburg, subject to the control of the Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment 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.
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 October 31,
1996, Warburg managed approximately $18.4 billion of assets, including
approximately $9.8 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. E.M. Warburg, Pincus & Co.,
Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of 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 MANAGERS. Anthony G. Orphanos, a managing director of EMW, is the
portfolio manager of the Fund. Mr. Orphanos has been with Warburg since 1977.
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 other regulatory filings
as necessary 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

<PAGE>
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 average
daily net assets, and .05% on average daily net assets over $1.5 billion. PFPC
has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of the Fund and 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 Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. 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') also
serves as shareholder servicing agent, transfer agent and dividend disbursing
agent for the Funds. State Street has delegated to Boston Financial Data
Services, Inc., 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 Funds. 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 to parties 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. In some instances,

<PAGE>
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.

DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to its Board. The Board sets broad
policies for the Fund and choose 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 are set forth in the
Statement of Additional Information of the Fund.

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 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 UGMA 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 Gifts to Minors Act or Uniform Transfers to Minors
Act ('UGMA') 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 UGMA 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 UGMA accounts, the minimum
initial investment is $500. The Fund reserves the right to change the initial
and subsequent investment minimum requirements at any time. In addition, the
Fund may, in its sole discretion, waive the initial and subsequent investment
minimum requirements with respect to investors who are employees of EMW or its
affiliates or persons with whom Warburg has entered into an investment advisory
agreement. Existing investors will be

<PAGE>
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 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:

<PAGE>

State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Strategic Value 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 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 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. 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 and 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

<PAGE>
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 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 investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications 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 gain
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 Funds 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

<PAGE>
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 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any business day. An
investor making a telephone withdrawal should state (i) the name of the Fund,
(ii) the account number of the Fund, (iii) the name of the investor(s) appearing
on the Fund's records, (iv) the amount to be withdrawn and (v) the name of the
person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
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 ten 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

<PAGE>
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 UGMA 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 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 a 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 their agent prior to the close of regular trading on
the NYSE, the exchange will be made at each Fund's net asset value determined at
the end of that business day. Exchanges 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

<PAGE>
shareholders. Currently, exchanges may be made with the following other funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS 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;
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
medium-sized domestic companies;

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 SMALL COMPANY GROWTH FUND -- an equity fund seeking capital
growth by investing in equity securities of small sized domestic companies;

<PAGE>

WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;

WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing 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 appreciation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth
of capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.

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 (which
includes amortization of market discounts) less amortization of market premiums
and applicable expenses. The Fund declares its dividends from its net investment
income and its net realized short-term and long-term capital gains annually and
pays them in the calendar year in which they are declared, generally in November
or December. Net 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

<PAGE>
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 ('capital gain
dividends') are taxable to investors as long-term capital gains, in each case
regardless of how long the shareholder has held Fund shares and whether received
in cash or reinvested in additional Fund shares. As a general rule, an
investor's gain or loss on a sale or redemption of his Fund shares will be 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, should not result in unrelated business taxable income to a
tax exempt investor. The Fund's dividends, to the extent not derived from
dividends attributable to certain types of stock issued by U.S. domestic
corporations, will not qualify for the dividends received deduction for
corporations.
The investments by the Fund in zero coupon securities may create special tax
consequences. Zero coupon securities do not make interest payments, although a
portion of the difference between a zero coupon security's face value and its
purchase price is imputed as income to the Fund each year even though the Fund
receives no cash distribution until maturity. Under the U.S. federal tax laws,
the Fund will not be subject to tax on this income if it pays dividends to its
shareholders substantially equal to all the income received

<PAGE>
from, or imputed with respect to, its investments during the year, including its
zero coupon securities. These dividends ordinarily will constitute taxable
income to the shareholders of the Fund.
Dividends and interest received by the Fund may be subject to withholding and
other taxes imposed by foreign countries. However, tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes. If the Fund
qualifies as a regulated investment company, if certain asset and distribution
requirements are satisfied and if more than 50% of the Fund's total assets at
the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount which will be available for the deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
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 a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.

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

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

PERFORMANCE
- --------------------------------------------------------------------------------
The 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 yield and average annual total return of its Common
Shares over various periods of time. The yield refers to net investment income
generated by the Common Shares over a specified thirty-day period, which is then
annualized. 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,

<PAGE>
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 yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Fund's Statement of Additional Information describes the method used to
determine the yield, tax-equivalent yield and total return. Current performance
figures may be obtained by calling Warburg Pincus Funds at (800) 927-2874.

In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance (i) with 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 and
the S&P 500 Index; or (iii) with other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The Fund
may include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Barron's, Business Week, Financial Times, Forbes, Fortune, Inc., Institutional
Investor, Investor's Busness Daily, Money, Morningstar, Inc., Mutual Fund
Magazine, Smart Money and The Wall Street Journal.

In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign securities on a portfolio otherwise composed of domestic
securities. 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

<PAGE>
data generated by Lipper Analytical Services, Inc. or similar investment
services that monitor mutual funds.

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

ORGANIZATION. The Fund was incorporated on November 12, 1996 under the laws
of the State of Maryland. On December 4, 1996, the Fund changed its name from
'Warburg, Pincus Special Equity Fund, Inc.' to 'Warburg, Pincus Strategic Value
Fund, Inc.' The charter of the Fund authorizes the Board to issue three billion
full and fractional shares of capital stock, $.001 par value per share, of which
two 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 the Fund's 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 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.
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

<PAGE>
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.

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
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
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.................................................. 14
How to Open an Account.................................................. 16
How to Purchase Shares.................................................. 16
How to Redeem and Exchange Shares....................................... 19
Dividends, Distributions and Taxes...................................... 23
Net Asset Value......................................................... 25
Performance............................................................. 26
General Information..................................................... 28
</TABLE>

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

P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
WPSVF-1-1296

[Logo]

Statement of Differences

The trademark symbol shall be expressed as .............................. 'tm'

<PAGE>

PROSPECTUS

WARBURG PINCUS ADVISOR

STRATEGIC

VALUE

FUND

December 31, 1996

[LOGO]

<PAGE>

WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 369-2728

December 31, 1996

PROSPECTUS

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:

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

NO MINIMUM INVESTMENT

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

This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission (the 'SEC') and is available for reference,
along with other related materials, on the SEC Internet Web site
(http://www.sec.gov). The Statement of Additional Information is also available
to investors without charge by calling Warburg Pincus Advisor Funds at (800)
369-2728. Information regarding the status of shareholder accounts may also be
obtained by calling Warburg Pincus Advisor Funds at the same number. 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 INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT 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 Strategic Value 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.................................................................................. .49%
12b-1 Fees....................................................................................... .50%`D'
Other Expenses................................................................................... .71%

Total Fund Operating Expenses*................................................................... 1.70%
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.......................................................................................... $ 18
3 years......................................................................................... $ 54
</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 the waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees would equal 1.00%, Other Expenses would
equal .81% and Total Fund Operating Expenses would equal 2.31%. Other
Expenses for the Fund 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 an Advisor Shareholder of the Fund. Institutions also
may charge their clients fees in connection with investments in Advisor Shares,
which fees are not reflected in the table. The Example should not be considered
a representation of past or future expenses; actual Fund expenses may be greater
or less than those shown. Moreover, while the Example assumes a 5% annual
return, the Fund's actual performance will vary and may result in a return
greater or less than 5%. Long-term shareholders of Advisor Shares may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the National Association of Securities Dealers, Inc. (the 'NASD').

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

The Fund is a diversified management investment company that pursues
its objective by investing, under normal market conditions, at least 65%
of its total assets in equity securities, including common stock, preferred
stock, warrants and securities convertible into or exchangeable for common
stock. Warburg will seek to identify and invest in companies which, in its
opinion, are (i) undervalued or (ii) which may not themselves be undervalued
but which are in sectors which are undervalued as a whole. In implementing its
investment strategy, the Fund may take positions that are different from or
inconsistent with those taken by other mutual funds.

Warburg will determine whether a company or a market sector is undervalued
based on a variety of measures, including price/earnings ratio, price/book
ratio, price/cash flow ratio, earnings growth, debt/capital ratio and absolute
and relative price history in relation to its peer group and to the market.
Other relevant factors, including a company's asset value, franchise value and
quality of management, will also be considered.

The Fund may hold securities of companies of any size, including
securities of companies with market capitalizations of less than $500
million, and may invest without limit in the securities of issuers which have
been in continuous operation for less than three years. The Fund may hold
from time to time various foreign currencies pending investment in
foreign securities or conversion into U.S. dollars, but does not
currently intend to invest more than 20% of its assets in securities of foreign
issuers. The Fund may also purchase without limit dollar-denominated
American Depository Receipts ('ADRs'). ADRs are issued by domestic banks and
evidence ownership of underlying foreign securities.

PORTFOLIO INVESTMENTS

DEBT. The Fund may invest up to 20% of its assets in debt securities (other than
money market obligations) 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. 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
growth 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 be expected to vary
depending upon, among other factors, interest rates, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions. The Fund's debt securities holdings may be rated below
investment grade and as low as C by Moody's Investors Service, Inc. ('Moody's')
or D by Standard & Poor's Ratings Group ('S&P') and the Fund may also invest
in unrated issues that are believed by Warburg to be of comparable quality.
Securities in these rating categories are in payment default or have
extremely poor prospects of attaining any investment standing.

<PAGE>

Lower-rated and comparable unrated securities (commonly referred to as
'junk bonds'), which the Fund may hold (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organization, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium- and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.

The market value of securities in lower-rated categories is more volatile
than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market, which may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of calculating the Fund's net asset
value.

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.

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
4

<PAGE>
will at all times be at least equal to the total amount of the purchase
obligation, including interest. The Fund bears a risk of loss in the event that
the other party to a repurchase agreement defaults on its obligations or
becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while
the Fund seeks to assert this right. Warburg, acting under the supervision of
the Fund's Board 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 OBLIGATIONS. 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-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.

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 newly created 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.

TEMPORARY DEFENSIVE MEASURES. When Warburg believes that a defensive posture is
warranted, the Fund may invest temporarily without limit in U.S.
dollar-denominated money market obligations, including repurchase agreements.

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, including with
respect to foreign securities and lower-rated securities, see 'Portfolio
Investments' beginning at page 3, and 'Certain Investment Strategies' beginning
at page 7.

EMERGING GROWTH AND SMALL COMPANIES; UNSEASONED ISSUERS. The Fund may invest in
securities of emerging growth and small- and medium-sized companies, as well as
companies with continuous operations of less than three years ('unseasoned
issuers'), which may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market

<PAGE>
in general. Because small- and medium-sized companies and unseasoned issuers
normally have fewer shares outstanding than larger companies, it may be more
difficult for the Fund to buy or sell significant amounts of such shares
without an unfavorable impact on prevailing prices. Small-sized companies and
unseasoned issuers may have limited product lines, markets or financial
resources and may lack management depth. In addition, small- and medium-sized
companies and unseasoned issuers 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
these companies than for larger, more established ones. Although investing in
securities of emerging growth companies 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 significantly decline
in value. Therefore, an investment in the Fund may involve a greater degree of
risk than an investment in other mutual funds which invest 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 '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 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.

SECTOR CONCENTRATION. At times the Fund may invest more than 25% of its
assets in securities of issuers in one or more market sectors such as, for
example, the financial services sector. The Fund will only concentrate its
investments in a particular market sector if Warburg believes the investment
return available from concentration in that sector justifies any additional
risk associated with concentration in that sector. When the Fund concentrates
its investments in a market sector, financial, economic, business and other
developments affecting issuers in that sector will have a greater

<PAGE>
effect on the Fund than if it had not concentrated its assets in that sector.

WARRANTS. At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging
increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.

PORTFOLIO TRANSACTIONS AND
TURNOVER RATE

The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Fund. The Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Fund's portfolio turnover rates. However, it is
anticipated that the Fund's annual turnover rate should not exceed 150%. High
portfolio turnover rates (100% or more) may result in dealer markups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See 'Dividends, Distributions and Taxes -- Taxes' below and 'Investment
Policies -- Portfolio Transactions' in the Statement of Additional Information.

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

CERTAIN INVESTMENT STRATEGIES

Although there is no current intention of doing so during the coming year,
the Fund is authorized to engage in the following investment strategies: (i)
lending portfolio securities, (ii) entering into forward currency transactions
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. There are certain risks involved in investing in securities
of companies and governments of foreign nations which are in addition to the
usual risks inherent in U.S. investments. These risks include those resulting
from fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers, the lack of
uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and

<PAGE>

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.

OPTIONS AND FUTURES TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options and
futures 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 or (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 and the NASD and by the
Internal Revenue Code of 1986, as amended (the 'Code').

Securities and Stock Index Options. The Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ('OTC'). The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option 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 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 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

<PAGE>

exchanges. These futures contracts are standardized contracts for the future
delivery of 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 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. However, the Fund may not write put options or purchase
or sell futures contracts or options on futures contracts to hedge more than its
total assets unless immediately after any such transaction the aggregate amount
of premiums paid on put options and the amount of margin deposits on its
existing futures positions do not exceed 5% of its total assets.

Hedging Considerations. The Fund may engage in options and futures
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 and futures contracts for hedging purposes could limit any
potential gain from an increase in value of the position hedged. In addition,
the movement in the portfolio position hedged may not be of the same magnitude
as movement in the hedge. The Fund will engage in hedging transactions only when
deemed advisable by Warburg, and successful use of hedging transactions will
depend on Warburg's ability to correctly predict movements in the hedge and the
hedged position and the correlation between them, which could prove to be
inaccurate. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends.

Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.

Asset Coverage. The Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities and indexes and interest rate and
stock index futures contracts and options on these futures contracts. The use of
these strategies may require that the Fund maintain cash or certain liquid
securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through ownership of the underlying
security or financial instrument or by other portfolio positions or by other
means consistent with applicable regulatory policies. Segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.

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

<PAGE>

anticipation of a decline in the market price of the securities. Possible losses
from short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases can equal only the total amount invested. The current market value of
the securities sold short (excluding short sales 'against the box') will not
exceed 10% of the Fund's assets.

When the Fund makes a short sale, the proceeds it receives from the sale
are retained by a broker until the Fund replaces the borrowed securities. 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 may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.

The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by cash or certain 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
U.S. government 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.

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,' will be entered into by the Fund for the purpose of receiving a portion of
the interest earned by the executing broker from the proceeds of the sale. The
proceeds of the sale will generally be held by the broker until the settlement
date when the Fund delivers securities to close out its short position. Although
prior to delivery the Fund will have to pay an amount equal to any dividends
paid on the securities sold short, the Fund will receive the dividends from the
securities sold short or the dividends from the preferred stock or interest from
the debt securities convertible or exchangeable into the securities sold short,
plus a portion of the interest earned from the proceeds of the short sale. 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. The
Fund will endeavor to offset transaction costs associated with short sales
against the box with the income from the investment of the cash proceeds. 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
requirements of the Code for qualification as a regulated investment company.
See 'Dividends, Distributions and Taxes' for other tax considerations applicable
to short sales.

ZERO COUPON SECURITIES. The Fund may invest without limit in 'zero coupon
securities.' Zero

<PAGE>

coupon securities pay no cash income to their holders until they mature and
are issued at substantial discounts from their value at maturity. When held
to maturity, their entire return comes from the difference between their
purchase price and their maturity value. Because interest on zero coupon
securities is not paid on a current basis, the values of securities of this
type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of the Fund that require it
to sell zero coupon securities prior to maturity may result in capital gains or
losses that may be substantial. In addition, the Fund's investments in zero
coupon securities will result in special tax consequences, which are described
below under 'Dividends, Distributions and Taxes -- Taxes.'

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) time deposits maturing in more than seven calendar days; (iii)
certain Rule 144A Securities and (iv) repurchase agreements with maturities
greater than seven days. The Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Fund may not
exceed 30% of its total assets at the time of borrowing, and 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 total 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 its investment adviser. Warburg,
subject to the control of the Fund's officers and the Board, manages the
investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment 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.

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
October 31, 1996, Warburg managed approximately $18.4 billion of assets,
including approximately $9.8 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. E.M.

<PAGE>
Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through its ownership of a
class of voting preferred stock of 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 MANAGERS. Anthony G. Orphanos, a managing director of EMW, is the
portfolio manager of the Fund. Mr. Orphanos has been with Warburg since 1977.

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 other regulatory filings
as necessary 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 average daily net
assets, and .05% on average daily net assets over $1.5 billion. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.

CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of the Fund and 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 Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. 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') also serves
as shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. State Street 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 Fund to Counsellors Securities for distribution services.

Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties 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. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of 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 its officers. A list of the Directors and
officers of the Fund and a brief statement of their present

<PAGE>

positions and principal occupations during the past five years are 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. The Fund also reserves the right to
suspend the offering of Advisor Shares for a period of time or to reject any
specific purchase order. References in this Prospectus to shareholders or
investors also include Institutions which may act as record holders of the
Advisor Shares.

Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.

Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.

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 Inc. 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 Strategic Value
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 (the '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.

The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other

<PAGE>

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.

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 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. 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
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

<PAGE>
Pincus Advisor Funds or their agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges 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 the 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 (which
includes amortization of market discounts) less amortization of market premiums
and 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 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 Purchase 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 the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be 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-

<PAGE>

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, should not result in unrelated business
taxable income to a tax exempt investor. The Fund's dividends, to the
extent not derived from dividends attributable to certain types of stock issued
by U.S. domestic corporations, will not qualify for the dividends received
deduction for corporations.

The investments by the Fund in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments, although
a portion of the difference between a zero coupon security's face value and its
purchase price is imputed as income to the Fund each year even though the Fund
receives no cash distribution until maturity. Under the U.S. federal tax laws,
the Fund will not be subject to tax on this income if it pays dividends to its
shareholders substantially equal to all the income received from, or imputed
with respect to, its investments during the year, including its zero coupon
securities. These dividends ordinarily will constitute taxable income to the
shareholders of the Fund.

Dividends and interest received by the Fund may be subject to withholding
and other taxes imposed by foreign countries. However, tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes. If the Fund
qualifies as a regulated investment company, if certain asset and distribution
requirements are satisfied and if more than 50% of the Fund's total assets at
the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount which will be available for the deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.

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. Individuals investing in the
Fund through Institutions should consult those Institu-

<PAGE>

tions 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.

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 yield and average annual total return of
its Advisor Shares over various periods of time. The yield refers to the net
investment income generated by the Advisor Shares over a specified thirty-day
period, which is then annualized. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis).

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

<PAGE>

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.

In reports or other communications to investors or in advertising
material, the Fund may describe general economic and market conditions
affecting the Fund and may compare its performance (i) with 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 and the S&P 500 Index, which are unmanaged indexes of
common stocks; or (iii) with other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The
Fund may include evaluations of the Fund published by nationally
recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Financial Times,
Forbes, Fortune, Inc., Institutional Investor, Investor's Busness Daily, Money,
Morningstar, Inc., Mutual Fund Magazine, Smart Money and The Wall Street
Journal.

In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objectives. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign securities on a portfolio otherwise composed of domestic
securities. 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.

GENERAL INFORMATION

ORGANIZATION. The Fund was incorporated on November 12, 1996 under the laws of
the State of Maryland. On December 4, 1996, the Fund changed its name from
'Warburg, Pincus Special Equity Fund, Inc.' to 'Warburg, Pincus Strategic Value
Fund, Inc.' The charter of the Fund authorizes the Board to issue three billion
full and fractional shares of capital stock, $.001 par value per share, of which
two 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 the Fund's shares into one or more
series and,

<PAGE>

without shareholder approval, may increase the number of authorized shares of
the Fund.

MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 927-2874.

VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Fund may be removed from office
upon the vote of 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
his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling Warburg Pincus Advisor Funds at (800) 369-2728. 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 its 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

<PAGE>

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

To offset start-up costs and expenses associated with certain qualified
retirement plans making Advisor Shares available to plan participants,
Counsellors Securities pays CIGNA Financial Advisors, Inc., a registered
broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.

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 pay a portion of the fees paid pursuant
to the Plan to 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 FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.

<PAGE>

ADSVF-1-1296

Warburg Pincus Advisor Funds

Counsellors Securities Inc., distributor

Table of Contents

<TABLE>
<C> <S>
2 THE FUND'S EXPENSES

3 INVESTMENT OBJECTIVE AND POLICIES

3 PORTFOLIO INVESTMENTS

5 RISK FACTORS AND SPECIAL CONSIDERATIONS

7 PORTFOLIO TRANSACTIONS AND TURNOVER RATE

7 CERTAIN INVESTMENT STRATEGIES

11 INVESTMENT GUIDELINES

11 MANAGEMENT OF THE FUND

13 HOW TO PURCHASE SHARES

14 HOW TO REDEEM AND EXCHANGE SHARES

15 DIVIDENDS, DISTRIBUTIONS AND TAXES

17 NET ASSET VALUE

17 PERFORMANCE

18 GENERAL INFORMATION

19 SHAREHOLDER SERVICING
</TABLE>

[LOGO]

<PAGE>1

STATEMENT OF ADDITIONAL INFORMATION

December 31, 1996

WARBURG PINCUS STRATEGIC VALUE FUND

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

Contents

Page
----
Investment Objective.........................................................2
Investment Policies..........................................................2
Management of the Fund......................................................26
Additional Purchase and Redemption Information..............................33
Exchange Privilege..........................................................34
Additional Information Concerning Taxes.....................................34
Determination of Performance................................................38
Independent Accountants and Counsel.........................................39
Financial Statement.........................................................39
Appendix-- Description of Ratings..........................................A-1
Report of Coopers & Lybrand L.L.P., Independent Accountants................A-5

This Statement of Additional Information is meant to be read
in conjunction with the Prospectus for the Common Shares and the Prospectus for
the Advisor Shares of Warburg Pincus Strategic Value Fund (the "Fund"), each
dated December 31, 1996, 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.

<PAGE>2

INVESTMENT OBJECTIVE

The investment objective of the Fund is capital appreciation.

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 call options
and put options on 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

<PAGE>3

with respect to which the Fund has written options may exceed the time within
which the Fund must make delivery in accordance with an exercise notice. In
these instances, the Fund may purchase or temporarily borrow the underlying
securities for purposes of physical delivery. By so doing, the Fund will not
bear any market risk, since the Fund will have the absolute right to receive
from the issuer of the underlying security an equal number of shares to replace
the borrowed securities, but the Fund may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.

Additional risks exist with respect to certain of the
securities for which 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

<PAGE>4

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 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,

<PAGE>5

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 group of stocks by assigning relative values
to the 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 New York Stock Exchange ("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 securities
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

<PAGE>6

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 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. Securities indexes are capitalization
weighted indexes which reflect the market value of the securities listed on the
indexes. An index futures contract is an agreement to be settled by delivery of
an amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract and
the price at which the agreement is made.

No consideration is paid or received by 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

<PAGE>7

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.

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

<PAGE>8

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 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.

<PAGE>9

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 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
contracts 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

<PAGE>10

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 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
rates 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.

<PAGE>11

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 currencies, 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 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. 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

<PAGE>12

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.

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. In addition, 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 countries. 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. 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.

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.

Dollar-Denominated Debt Securities of Foreign Issuers. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries. The relative performance of various
countries' fixed income markets historically has reflected wide variations
relating to the unique characteristics of each country's economy. Year-to-year
fluctuations in certain markets have been significant, and negative returns have
been experienced in various markets from time to time.

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

<PAGE>13

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.

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

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

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 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 Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the

<PAGE>14

issuer. The lack of a liquid secondary market for certain securities also may
make it more difficult for the Fund 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.

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

Lending of Portfolio Securities. The Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33-1/3% of the Fund's net 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

<PAGE>15

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.

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.

American, European and Continental Depositary Receipts. The
assets of the Fund may be invested in the securities of foreign issuers in the
form of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). 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

<PAGE>16

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 typically by non-U.S. banks and trust
companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in U.S. securities
markets and EDRs and CDRs in bearer form are designed for use in European
securities markets.

Convertible Securities. Convertible securities in which the
Fund may invest, including both convertible debt and convertible preferred
stock, may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities enable
an investor to benefit from increases in the market price of the underlying
common stock. Convertible securities provide higher yields than the underlying
equity securities, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates and, in addition, also
fluctuates in relation to the underlying common stock.

Warrants. The Fund may purchase warrants issued by domestic
and foreign companies to purchase newly created equity securities consisting of
common and preferred stock. The equity security underlying a warrant is
outstanding 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.

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

Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market.

<PAGE>17

Mutual funds do not typically hold a significant amount of these restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.

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

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

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

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

<PAGE>18

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.

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

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 total assets. Although the principal of such borrowings will be
fixed, the Fund's assets may change in value during the time the borrowing is
outstanding. 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.

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 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 a Fund's obligation
to repurchase the securities, and the Fund's

<PAGE>19

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 approval 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.

Securities of Emerging Growth and Small Companies; Unseasoned
Issuers. The Fund's investments in emerging growth and small companies, as well
as companies with continuous operations of less than three years ("unseasoned
issuers"), involve considerations that are not applicable to investing in
securities of established, larger-capitalization issuers, including reduced and
less reliable information about issuers and markets, less stringent accounting
standards, illiquidity of securities and markets, higher brokerage commissions
and fees and greater market risk in general. In addition, securities of emerging
growth and small companies and unseasoned issuers may involve greater risks
since these securities may have limited marketability and, thus, may be more
volatile.

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

<PAGE>20

Other Investment Limitations

The investment limitations numbered 1 through 10 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 11 through 16 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 rolls 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. Make loans, except that the Fund may purchase or hold
fixed-income securities, lend portfolio securities and enter into repurchase
agreements in accordance with its investment objective, policies and
limitations.

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

4. 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.

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

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

<PAGE>21

7. Make short sales of securities or maintain a short
position, except that the Fund may maintain short positions in options on
currencies, securities and stock indexes, futures contracts and options on
futures contracts and enter into short sales or short sales "against the box"
in accordance with the Fund's investment objective, policies and limitations.

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

9. Invest in commodities, except that the Fund may (a)
purchase and sell futures contracts, including those relating to securities,
currencies and indexes, and options on futures contracts, securities,
currencies or indexes, (b) purchase and sell currencies on a forward commitment
or delayed-delivery basis and (c) enter into stand-by commitments.

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

11. 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.

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

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

14. 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.

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

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

<PAGE>22

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 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 certain 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

<PAGE>23

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 exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.

Warburg will select specific portfolio investments and effect
transactions for 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 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

<PAGE>24

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.

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.

<PAGE>25

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.

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. 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.

<PAGE>26

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.

<TABLE>
<CAPTION>
<S> <C>
Richard N. Cooper (62)........................... Director
Harvard University National Intelligence Counsel;
1737 Cambridge Street Professor at Harvard University;
Cambridge, MA 02138 Director or Trustee of Circuit City Stores, Inc.
(retail electronics and appliances) and Phoenix Home
Life Mutual Insurance Company.

Donald J. Donahue (72)........................... Director
27 Signal Road Chairman of Magma Copper from December 1987
Stamford, CT 06902 until December 1995; Chairman and Director of NAC
Holdings from September 1990-June 1993; Director of
Chase Brass Industries, Inc. since December 1994;
Director of Pioneer Companies, Inc. (chlor-alkali
chemicals) and predecessor companies since 1990 and
Vice Chairman since December 1995.

Jack W. Fritz (69)............................... Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and operators of radio
stations); Director of Advo, Inc. (direct mail
advertising).

John L. Furth* (65).............................. Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of E.M. Warburg,
New York, New York 10017-3147 Pincus & Co., Inc. ("EMW"); Associated with EMW since
1970; President of The Grant Street Settlement; Trustee
of Blythedale Children's Hospital and Barnard College;
Treasurer of the Foundation for Child Development;
Director and

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

<PAGE>27

officer of other investment companies advised by Warburg.

Thomas A. Melfe (64)............................. 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* (48)......................... President and Director
466 Lexington Avenue Managing Director and Assistant Secretary
New York, New York 10017-3147 of EMW; Associated with EMW since 1984; Senior Vice
President, Secretary and Chief Operating Officer of
Counsellors Securities; Officer of other investment
companies advised by Warburg.

Alexander B. Trowbridge (66)..................... Director
1317 F Street, N.W. President of Trowbridge Partners, Inc.
5th Floor (business consulting) from January 1990-
Washington, DC 20036 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).

Eugene L. Podsiadlo (39)......................... Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank, N.A. from
1987-1991; Senior Vice President of Counsellors
Securities and officer of other investment companies
advised by Warburg.

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

<PAGE>28

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

Howard Conroy (42)............................... Vice President and Chief Financial Officer
466 Lexington Avenue Associated with EMW 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 Accounting Officer of other investment
companies advised by Warburg.

Daniel S. Madden, CPA (31)....................... Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with EMW 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.

</TABLE>

<PAGE>29

<TABLE>
<CAPTION>
<S> <C>
Janna Manes, Esq. (29)...................... Assistant Secretary
466 Lexington Avenue Associated with EMW since March 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.

</TABLE>
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.

Directors' Compensation

<TABLE>
<CAPTION>
Total Total Compensation from
Name of Director Compensation from all Investment Companies
Fund+ Managed by Warburg+*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $48,500
Donald J. Donahue $1,500 $48,500
Jack W. Fritz $1,500 $48,500
Thomas A. Melfe $1,500 $48,500
Alexander B. Trowbridge $1,500 $48,500
<FN>
- ------------------------
+ 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 22 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.

</TABLE>

<PAGE>30

Portfolio Manager

Mr. Anthony G. Orphanos, portfolio manager of the Fund, is
also the senior portfolio manager of Warburg's institutional value product. He
has 24 years of investment experience. Prior to joining Warburg, Mr. Orphanos
was vice president and investment officer of Dreyfus Leverage Fund, Inc. from
1972 to 1977. He received his A.B. degree from Harvard University and his
M.B.A. from New York University.

Investment Adviser and Co-Administrators

Warburg serves as investment adviser to the Fund, Counsellors
Funds Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators
to the Fund pursuant to separate written agreements (the "Advisory Agreement,"
the "Counsellors Service Co-Administration Agreement" and the "PFPC
Co-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. These fees are
calculated at an annual rate based on a percentage of the Fund's average daily
net assets. See the Prospectuses, "Management of the Fund."

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 Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101. The principal business address of Fiduciary is Two World Trade Center,
New York, New York 10048.

<PAGE>31

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., 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,
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
Shares"), of which two billion shares are designated Common Shares and one
billion shares are designated Advisor Shares.

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

<PAGE>32

Common Shares, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising, and
related travel and entertainment expenses; (e) costs of printing and
distributing prospectuses, statements of additional information and reports of
the Fund to prospective shareholders of the Fund; and (f) costs 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.

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, pursuant to which the Fund will pay in consideration for services, a
fee calculated at an annual rate of .50% of the average daily net assets of the
Advisor Shares of the Fund. The 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

<PAGE>33

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 be spent
thereunder without shareholder approval of the Advisor Shares or the Common
Shares, as the case may be. The Distribution Plan or 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

<PAGE>34

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.

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 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); (ii) derive at least 90% of its gross income
from dividends, interest, payments with respect to

<PAGE>35

loans of securities, gains from the sale or other disposition of securities, 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
securities; (iii) derive less than 30% of its annual gross income from the sale
or other disposition of securities, options, futures or forward contracts 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
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 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.

<PAGE>36

The Fund's investments in zero coupon securities may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between zero coupon security's face value
and its purchase price is imputed as income to the Fund each year even though
the Fund receives no cash distribution until maturity. Under the U.S. federal
tax laws, the Fund will not be subject to tax on this income if it pays
dividends to its shareholders substantially equal to all the income received
from, or imputed with respect to, its investments during the year, including its
zero coupon securities. These dividends ordinarily will constitute taxable
income to the shareholders of the Fund.

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 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. Proposed legislation would reduce the dividends received deduction
available to corporations (as discussed in the Prospectuses) from 70% to 50% of
dividends received.

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.

<PAGE>37

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.

Investment in Passive Foreign Investment Companies

If the Fund purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Fund may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed as a taxable dividend by the Fund to its
shareholders. In addition, gain on the disposition of shares in a PFIC generally
is treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.

The Fund may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Fund compared to a fund
that did not make the election. In addition, information required to make such
an election may not be available to the Fund.

On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will provide that regulated investment companies may
elect the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of the Fund is unclear. If the Fund is not able to make the
foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Fund. Recently proposed legislation would codify
the mark-to-market election for regulated investment companies.

<PAGE>38

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. 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)[*GRAPHIC OMITTED-SEE FOOTNOTE
BELOW] = ERV. For purposes of this formula, "P" is a hypothetical investment
of $1,000; "T" is average annual total return; "n" is number of years; and
"ERV" is the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- or ten-year periods (or fractional portion
thereof). Total return or "T" is computed by finding the average annual change
in the value of an initial $1,000 investment over the period and assumes that
all dividends and distributions are reinvested during the period.

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

YIELD = 2[(a-b + 1)[**GRAPHIC OMITTED-SEE FOOTNOTE BELOW] -1]
---
cd

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

The 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

- ------------------------
* The expression (1 + T) is being raised to the nth power.

** The expression (a-b + 1) is being raised to the 6th power.

<PAGE>39

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.

The Fund intends to diversify its assets among countries, and
in doing so, would expect to be able to reduce the risk arising from economic
problems affecting a single country. Warburg thus believes that, by spreading
risk throughout many diverse markets outside the United States, the Fund will
reduce its exposure to country-specific economic problems. Warburg also believes
that a diversified portfolio of international equity securities, when combined
with a similarly diversified portfolio of domestic equity securities, tends to
have a lower volatility than a portfolio composed entirely of domestic
securities. Furthermore, international equities have been shown to reduce
volatility in single asset portfolios regardless of whether the investments are
in all domestic equities or all domestic fixed-income instruments, and research
indicates that volatility can be significantly decreased when international
equities are added.

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.

FINANCIAL STATEMENT

The Fund's financial statement follows the Report of
Independent Accountants.

<PAGE>A-1

APPENDIX

DESCRIPTION OF RATINGS

Commercial Paper Ratings

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

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

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.

<PAGE>A-2

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

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

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

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

CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.

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

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

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

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

<PAGE>A-3

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.

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.

<PAGE>A-4

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

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

<PAGE>1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
of Warburg, Pincus Strategic Value Fund, Inc.

We have audited the accompanying Statement of Assets and Liabilities of
Warburg, Pincus Strategic Value 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 Strategic
Value 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 STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of December 12, 1996

Assets:

Cash $100,000

Deferred Organizational Costs 20,780

Deferred Offering Costs 117,105
-------
Total Assets 237,885

Liabilities:

Accrued Organizational Costs 20,780

Accrued Offering Costs 117,105
-------
Total Liabilities 137,885
-------

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

Net Asset Value, Redemption and Offering Price Per
Share (three billion shares authorized, consisting of 2
billion Common Shares and 1 billion Advisor Shares -
$.001 per share designated) applicable to
10,000 Common Shares. $10.00
======
</TABLE>

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

<PAGE>1

WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
Notes to Financial Statement
December 12, 1996

1. Organization:

Warburg, Pincus Strategic Value Fund, Inc. (the "Fund") was
incorporated on November 12, 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 two billion shares are designated Common Shares and 1
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
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.