WARBURG PINCUS CAPITAL APPRECIATION FUND
497, 1995-10-10
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<PAGE>
                                          Rule 497(c)
                                          Securities Act File No. 33-12344
                                          Investment Co. Act File No. 811-5041
                                     [LOGO]

                                   PROSPECTUS

                               SEPTEMBER 29, 1995

                [ ] WARBURG PINCUS CAPITAL APPRECIATION FUND
                [ ] WARBURG PINCUS EMERGING GROWTH FUND
                [ ] WARBURG PINCUS POST-VENTURE CAPITAL FUND
                [ ] WARBURG PINCUS INTERNATIONAL EQUITY FUND
                [ ] WARBURG PINCUS JAPAN OTC FUND

<PAGE>
                              WARBURG PINCUS FUNDS
                                 P.O. BOX 9030
                        BOSTON, MASSACHUSETTS 02205-9030
                        TELEPHONE NUMBER: (800) 888-6878

                                                              September 29, 1995

PROSPECTUS

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

WARBURG,  PINCUS CAPITAL APPRECIATION FUND  seeks long-term capital appreciation
by  investing  principally  in   equity  securities  of  medium-sized   domestic
companies.

WARBURG,  PINCUS  EMERGING GROWTH  FUND  seeks maximum  capital  appreciation by
investing in equity securities of small- to medium-sized companies in the United
States with emerging or renewed growth potential.

WARBURG, PINCUS POST-VENTURE CAPITAL FUND  seeks long-term growth of capital  by
investing  principally  in equity  securities of  issuers in  their post-venture
capital stage  of development  and pursues  an aggressive  investment  strategy.
Because  of the nature of  the Fund's investments and  certain strategies it may
use, an investment in the Fund involves certain risks and may not be appropriate
for all investors.

WARBURG, PINCUS INTERNATIONAL EQUITY  FUND seeks long-term capital  appreciation
by  investing  in international  equity securities  that  are considered  by the
Fund's investment adviser to have above-average potential for appreciation.

WARBURG, PINCUS JAPAN OTC FUND seeks long-term capital appreciation by investing
in a portfolio of securities traded in the Japanese over-the-counter market.

International investing entails special risk considerations, including  currency
fluctuations,  lower liquidity, economic  instability, political uncertainty and
differences   in   accounting   methods.   See   'Risk   Factors   and   Special
Considerations.'

NO LOAD CLASS OF COMMON SHARES

Each  Fund offers two  classes of shares. A  class of Common  Shares that is 'no
load' is offered by  this Prospectus (i) directly  from the Funds'  distributor,
Counsellors  Securities Inc., and (ii) through various brokerage firms including
Charles Schwab  &  Company,  Inc.  Mutual  Fund  OneSourceTM  Program;  Fidelity
Brokerage  Services, Inc. FundsNetworkTM Program; Jack White & Company, Inc. and
Waterhouse Securities, Inc. The availability of the Japan OTC Fund through these
brokerage firms  may  vary.  Common  Shares  of  the  Japan  OTC  Fund  and  the
Post-Venture Capital Fund are subject to a 12b-1 fee of .25% per annum.

LOW MINIMUM INVESTMENT

The  minimum  initial investment  in each  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 Funds  that
investors  should  know before  investing. Investors  are  advised to  read this
Prospectus and retain it for future reference. Additional information about each
Fund, contained in a  Statement of Additional Information,  has been filed  with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without  charge by calling  Warburg Pincus Funds  at (800) 257-5614. Information
regarding the status of shareholder accounts may be obtained by calling  Warburg
Pincus  Funds at (800)  888-6878. The Statements  of Additional Information bear
the same date  as this  Prospectus and are  incorporated by  reference in  their
entirety into this Prospectus.

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

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 FUNDS' EXPENSES


     Each  of Warburg, Pincus  Capital Appreciation Fund,  Emerging Growth Fund,
International Equity Fund,  Japan OTC  Fund and Post-Venture  Capital Fund  (the
'Funds')  currently offers  two separate  classes of  shares: Common  Shares and
Advisor Shares. For a  description of Advisor  Shares see 'General  Information'
and  'Shareholder Servicing.' In  addition, Common Shares of  the Japan OTC Fund
and the Post-Venture Capital  Fund pay the Fund's  distributor a 12b-1 fee.  See
'Management of the Funds -- Distributor.'



<TABLE>
<CAPTION>
                                                                CAPITAL      EMERGING   INTERNATIONAL   JAPAN       POST-
                                                              APPRECIATION    GROWTH       EQUITY        OTC       VENTURE
                                                                  FUND         FUND         FUND        FUND        FUND
                                                              ------------   --------   -------------   -----     ---------
<S>                                                           <C>            <C>        <C>             <C>       <C>
Shareholder Transaction Expenses
     Maximum Sales Load Imposed on Purchases (as a percentage
       of offering price)....................................    0             0            0            0           0
     Redemption Fee (as a percentage of the value of shares
       redeemed).............................................    0             0            0           1.00 %*      0
Annual Fund Operating Expenses (after fee waivers) (as a
  percentage of average net assets)
     Management Fees.........................................      .69%         .86%         1.00%       .97 %`D'      .69 %`D'
     12b-1 Fees..............................................    0             0            0            .25 %         .25 %
     Other Expenses..........................................      .36%         .36%          .44%       .53 %`D'      .71 %`D'
                                                                ------       --------      ------       -----     ---------
     Total Fund Operating Expenses...........................     1.05%        1.22%         1.44%      1.75 %        1.65 %
EXAMPLE
     You would pay the following expenses
       on a $1,000 investment, assuming (1) 5% annual return
       and (2) redemption at the end of each time period:
     1 year..................................................     $ 11         $ 12         $  15       $ 18          $ 17
     3 years.................................................     $ 33         $ 39         $  46       $ 55          $ 52
     5 years.................................................     $ 58         $ 67         $  79       n.a.          n.a.
     10 years................................................     $128         $148         $ 172       n.a.          n.a.
</TABLE>


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

* Redemption  fees are  charged to  shareholders redeeming  their shares  of the
  Japan OTC Fund within six  months after the date of  purchase and are paid  to
  the  Fund. The redemption fee is currently  being waived until such later date
  as the Japan OTC Fund may determine. See 'How to Redeem and Exchange Shares.'


 `D' Estimated amounts  to be  charged  in the  current  fiscal year  after  the
     anticipated   waiver  of  fees   by  the  Funds'   investment  adviser  and
     co-administrator; the investment adviser and co-administrator are under  no
     obligation to continue these waivers.


                                       2

<PAGE>

     The expense  table shows the costs and expenses  that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. With respect to the
Japan OTC Fund and the Post-Venture  Capital Fund, 'Other Expenses' are based on
estimated  amounts  to be  charged  in  the  current  fiscal  year.  Absent  the
anticipated   waiver   of   fees   by  the   Funds'   investment   adviser   and
co-administrator,  Management  Fees for the Japan OTC and  Post-Venture  Capital
Funds  would  each  equal  1.25%,  Other  Expenses  would  equal  .56% and .75%,
respectively,  and Total Fund  Operating  Expenses  would equal 2.06% and 2.25%,
respectively;   the  investment  adviser  and   co-administrator  are  under  no
obligation  to continue  these  waivers.  Certain  broker-dealers  and financial
institutions  also may charge their clients fees in connection with  investments
in a Fund's Common Shares, which fees are not reflected in the table. Absent the
voluntary  waiver of a portion  of the fees  payable  to the  Funds'  investment
adviser,  the Management Fees for the Capital Appreciation Fund and the Emerging
Growth  Fund would have  equalled  .70% and .90%,  respectively,  and Total Fund
Operating  Expenses for the Capital  Appreciation  Fund and the Emerging  Growth
Fund would have equalled 1.06% and 1.26%,  respectively.  No fees were waived in
the case of the International  Equity Fund. The Example should not be considered
a representation of past or future expenses; actual Fund expenses may be greater
or less  than  those  shown.  Moreover,  while the  Example  assumes a 5% annual
return,  each  Fund's  actual  performance  will vary and may result in a return
greater  or less than 5%.  Long-term  shareholders  of the Japan OTC Fund or the
Post-Venture  Capital  Fund may pay more  than the  economic  equivalent  of the
maximum  front-end  sales  charges  permitted  by the  National  Association  of
Securities Dealers, Inc. (the 'NASD').


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


     The information  regarding each Fund for the two fiscal years/period ending
October 31, 1994 has been derived from information  audited by Coopers & Lybrand
L.L.P.,  independent  auditors,  whose report dated December 12, 1994 appears in
the  relevant  Fund's  Statement  of  Additional  Information.  For the  Capital
Appreciation,  Emerging Growth and  International  Equity Funds, the information
for the prior  fiscal  years/period  ending  October  31, 1992 (up to three such
years/period)  has  been  audited  by  Ernst  &  Young  LLP,  whose  report  was
unqualified.  The  information  for the  six  months  ended  April  30,  1995 is
unaudited.  Financial  information is not presented for the Post-Venture Capital
Fund,  which  had  not  commenced  operations  as of  April  30,  1995.  Further
information  about the  performance  of the Funds  (other than the  Post-Venture
Capital Fund) is contained in the Funds' annual report,  dated October 31,
1994, copies of which may be obtained without charge by calling Warburg
Pincus Funds at (800) 257-5614.


                                       3
<PAGE>
CAPITAL APPRECIATION FUND

<TABLE>
<CAPTION>

                                                                                                              FOR THE PERIOD
                          FOR THE SIX                                                                         AUGUST 17, 1987
                            MONTHS                                                                             (COMMENCEMENT
                             ENDED                                                                             OF OPERATIONS)
                           APRIL 30,                        FOR THE YEAR ENDED OCTOBER 31,                        THROUGH
                             1995         -------------------------------------------------------------------   OCTOBER 31,
                          (UNAUDITED)      1994      1993      1992      1991      1990      1989       1988       1987
                          -----------     ------    ------    ------    ------    ------    ------     ------  -------------
<S>                       <C>             <C>       <C>       <C>       <C>       <C>       <C>        <C>     <C>
Net Asset Value,
  Beginning of Period....   $ 14.29       $15.32    $13.30    $12.16    $ 9.78    $11.48    $ 9.47      $7.74     $ 10.00
                          -----------     ------    ------    ------    ------    ------    ------     ------      ------
  Income from Investment
    Operations
  Net Investment Income
    (Loss)...............       .03          .04       .05       .04       .15       .20       .19        .17         .04
  Net Gains (Loss) from
    Securities (both
    realized and
    unrealized)..........       .75          .17      2.78      1.21      2.41     (1.28)     2.15       1.70       (2.30)
                          -----------     ------    ------    ------    ------    ------    ------     ------      ------
  Total from Investment
    Operations...........       .78          .21      2.83      1.25      2.56     (1.08)     2.34       1.87       (2.26)
                          -----------     ------    ------    ------    ------    ------    ------     ------      ------
  Less Distributions
  Dividends (from net
    investment income)...       .00         (.05)     (.05)     (.06)     (.18)     (.21)     (.19)      (.14)        .00
  Distributions (from
    capital gains).......      (.98)       (1.19)     (.76)     (.05)      .00      (.41)     (.14)       .00         .00
                          -----------     ------    ------    ------    ------    ------    ------     ------      ------
  Total Distributions....      (.98)       (1.24)     (.81)     (.11)     (.18)     (.62)     (.33)      (.14)        .00
                          -----------     ------    ------    ------    ------    ------    ------     ------      ------
Net Asset Value, End of
  Period.................   $ 14.09       $14.29    $15.32    $13.30    $12.16    $ 9.78    $11.48      $9.47     $  7.74
                          -----------     ------    ------    ------    ------    ------    ------     ------      ------
                          -----------     ------    ------    ------    ------    ------    ------     ------      ------
Total Return.............     13.25%*       1.65%    22.19%    10.40%    26.39%   (10.11%)   25.42%     24.31%     (71.26%)*
Ratios/Supplemental Data
Net Assets, End of Period
  (000s).................   $181,109      $159,346  $159,251  $117,900  $115,191  $76,537   $56,952    $29,351    $17,917
Ratios to Average Daily
  Net Assets:
  Operating expenses.....      1.08%*       1.05%     1.01%     1.06%     1.08%     1.04%     1.10%      1.07%       1.00%*
  Net investment
    income...............       .49%*        .26%      .30%      .41%     1.27%     2.07%     1.90%      2.00%       1.88%*
  Decrease reflected in
    above expense ratios
    due to
waivers/reimbursements...       .00%         .01%      .00%      .01%      .00%      .01%      .08%       .91%        .84%*
Portfolio Turnover
  Rate...................    153.53%*      51.87%    48.26%    55.83%    39.50%    37.10%    36.56%     33.16%      20.00%
</TABLE>

- ------------
* Annualized.

EMERGING GROWTH FUND

<TABLE>
<CAPTION>
                                                                                                               FOR THE PERIOD
                          FOR THE SIX                                                                         JANUARY 21, 1988
                            MONTHS                                                                             (COMMENCEMENT
                             ENDED                                                                             OF OPERATIONS)
                           APRIL 30,                        FOR THE YEAR ENDED OCTOBER 31,                        THROUGH
                             1995          -----------------------------------------------------------------    OCTOBER 31,
                          (UNAUDITED)        1994        1993       1992       1991       1990        1989          1988
                          -----------      --------    --------    -------    -------    -------     -------  ----------------
<S>                       <C>              <C>         <C>         <C>        <C>        <C>         <C>      <C>
Net Asset Value,
  Beginning of Period....     $22.38         $23.74      $18.28     $16.97     $10.83     $13.58      $11.21        $10.00
                          -----------      --------    --------    -------    -------    -------     -------       -------
  Income from Investment
    Operations
  Net Investment Income
    (Loss)...............       (.05)           .00        (.10)      (.03)       .05        .13         .16           .07
  Net Gains (Loss) from
    Securities (both
    realized and
    unrealized)..........       1.72            .00        5.93       1.71       6.16      (2.32)       2.51          1.18
                          -----------      --------    --------    -------    -------    -------     -------       -------
  Total from Investment
    Operations...........       1.67            .00        5.83       1.68       6.21      (2.19)       2.67          1.25
                          -----------      --------    --------    -------    -------    -------     -------       -------
  Less Distributions
  Dividends (from net
    investment income)...        .00            .00         .00       (.01)      (.07)      (.18)       (.12)         (.04)
  Distributions (from
    capital gains).......        .00          (1.36)       (.37)      (.36)       .00       (.38)       (.18)          .00
                          -----------      --------    --------    -------    -------    -------     -------       -------
  Total Distributions....        .00          (1.36)       (.37)      (.37)      (.07)      (.56)       (.30)         (.04)
                          -----------      --------    --------    -------    -------    -------     -------       -------
Net Asset Value, End of
  Period.................     $24.05         $22.38      $23.74     $18.28     $16.97     $10.83      $13.58        $11.21
                          -----------      --------    --------    -------    -------    -------     -------       -------
                          -----------      --------    --------    -------    -------    -------     -------       -------
Total Return.............      15.62%*          .16%      32.28%      9.87%     57.57%    (16.90%)     24.20%        16.34%*
Ratios/Supplemental Data
Net Assets, End of Period
  (000s).................  $ 289,226       $240,664    $165,525    $99,562    $42,061    $23,075     $26,685      $ 10,439
Ratios to Average Daily
  Net Assets:
  Operating expenses.....       1.25%*         1.22%       1.23%      1.24%      1.25%      1.25%       1.25%         1.25%*
  Net investment income
    (loss)...............       (.52%)*        (.58%)      (.60%)     (.25%)      .32%      1.05%       1.38%         1.10%*
  Decrease reflected in
    above expense ratios
    due to
 waivers/reimbursements..        .00%           .04%        .00%       .08%       .47%       .42%        .78%         3.36%*
Portfolio Turnover
  Rate...................      97.48%*        60.38%      68.35%     63.35%     97.69%    107.30%     100.18%        82.21%
</TABLE>

- ------------
* Annualized.

                                       4

<PAGE>
INTERNATIONAL EQUITY FUND

<TABLE>
<CAPTION>
                          FOR THE SIX                                                              FOR THE PERIOD
                            MONTHS                                                                  MAY 2, 1989
                             ENDED                                                                  (COMMENCEMENT
                           APRIL 30,                  FOR THE YEAR ENDED OCTOBER 31,               OF OPERATIONS)
                             1995        ---------------------------------------------------------    THROUGH
                          (UNAUDITED)       1994         1993        1992        1991       1990   OCTOBER 31, 1989
                          -----------    ----------    --------    --------     -------    -------  ------------
<S>                       <C>            <C>           <C>         <C>          <C>        <C>      <C>
Net Asset Value,
  Beginning of Period....     $20.51         $17.00      $12.22      $13.66      $11.81     $11.35     $10.00
                          -----------    ----------    --------    --------     -------    -------  ------------
  Income from Investment
    Operations
  Net Investment Income
    (Loss)...............        .09            .09         .09         .15         .19        .13         .05
  Net Gains (Losses) from
    Securities and
    Foreign Currency
    Related Items (both
    realized and
    unrealized)..........      (1.89)          3.51        4.84       (1.28)       2.03        .55        1.30
                          -----------    ----------    --------    --------     -------    -------  ------------
  Total from Investment
    Operations...........      (1.80)          3.60        4.93       (1.13)       2.22        .68        1.35
                          -----------    ----------    --------    --------     -------    -------  ------------
  Less Distributions
  Dividends (from net
    investment income)...       (.07)          (.04)       (.02)       (.16)       (.33)      (.10)        .00
  Distributions in excess
    of net investment
    income...............        .00           (.01)        .00         .00         .00        .00         .00
  Distributions (from
    capital gains).......       (.53)          (.04)       (.13)       (.15)       (.04)      (.12)        .00
                          -----------    ----------    --------    --------     -------    -------  ------------
  Total Distributions....       (.60)          (.09)       (.15)       (.31)       (.37)      (.22)        .00
                          -----------    ----------    --------    --------     -------    -------  ------------
Net Asset Value, End of
  Period.................     $18.11         $20.51      $17.00      $12.22      $13.66     $11.81      $11.35
                          -----------    ----------    --------    --------     -------    -------  ------------
                          -----------    ----------    --------    --------     -------    -------  ------------
Total Return.............     (17.05%)*       21.22%      40.68%      (8.44%)     19.42%      5.92%      28.73%*
Ratios/Supplemental Data
Net Assets, End of Period
  (000s)................. $1,796,703     $1,533,872    $378,661    $101,763     $72,553    $38,946    $ 13,260
Ratios to Average Daily
  Net Assets:
  Operating expenses.....       1.38%*         1.44%       1.48%       1.49%       1.50%      1.46%       1.50%*
  Net investment income
    (loss)...............        .90%*          .19%        .38%        .88%       1.19%      1.58%       1.33%*
  Decrease reflected in
    above expense ratios
    due to
waivers/reimbursements...        .00%           .00%        .00%        .07%        .17%       .38%        .89%*
Portfolio Turnover
  Rate...................      22.67%*        17.02%      22.60%      53.29%      54.95%     66.12%      27.32%
</TABLE>

- ------------
* Annualized.

JAPAN OTC FUND

<TABLE>
<CAPTION>
                            FOR THE SIX         FOR THE PERIOD
                            MONTHS ENDED      SEPTEMBER 30, 1994
                             APRIL 30,          (COMMENCEMENT
                                1995        OF OPERATIONS) THROUGH
                            (UNAUDITED)        OCTOBER 31, 1994
                            ------------    ----------------------
<S>                         <C>             <C>
Net Asset Value,
  Beginning of Period....       $9.85                $10.00
                            ------------            -------
  Income from Investment
    Operations
  Net Investment
    Income...............          .01                  .00
  Net Gains (Losses) from
    Securities and
    Foreign Currency
    Related Items (both
    realized and
    unrealized)..........        (2.01)                (.15)
                            ------------            -------
  Total from Investment
    Operations...........        (2.00)                (.15)
                            ------------            -------
  Less Distributions
  Dividends (from net
    investment income)...          .00                  .00
  Distributions (from
    capital gains).......          .00                  .00
                            ------------            -------
  Total Distributions....          .00                  .00
                            ------------            -------
Net Asset Value, End of
  Period.................        $7.85                $9.85
                            ------------            -------
                            ------------            -------
Total Return.............       (36.72%)*            (15.84%)*
Ratios/Supplemental Data
Net Assets, End of Period
  (000s).................     $ 26,573             $ 19,878
Ratios to Average Daily
  Net Assets:
  Operating expenses.....         1.00%*               1.00%*
  Net investment
    income...............          .16%*                .49%*
  Decrease reflected in
    above expense ratios
    due to
waivers/reimbursements...         2.28%*               4.96%*
Portfolio Turnover
  Rate...................       138.17%*                .00%
</TABLE>

- ------------
* Annualized.


  The  Total Return  shown above  has been  annualized; the  actual Total Return
  (after the effect of expense waivers)  for the one-month period September  30,
  1994 (commencement of operations) through October 31, 1994 was -1.50%, and the
  actual  Total Return (after the effect of  expense waivers) for the six months
  ended April  30, 1995  was -20.30%.  In the  absence of  expense waivers,  the
  annualized  Total Return shown  above would have been  -17.76% and -38.02% for
  the periods ended October 31, 1994 and April 30, 1995, respectively.


                                       5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES


     Each  Fund's  objective is  a  fundamental policy  and  may not  be amended
without first obtaining the approval of a majority of the outstanding shares  of
that  Fund.  Any  investment  involves  risk and,  therefore,  there  can  be no
assurance that  any Fund  will achieve  its investment  objective. See  'Certain
Investment  Strategies'  for descriptions  of certain  types of  investments the
Funds may make.


CAPITAL APPRECIATION FUND


     The Capital  Appreciation Fund  seeks long-term  capital appreciation.  The
Fund  is a diversified management investment company that pursues its investment
objective by investing in a  broadly diversified portfolio of equity  securities
of  domestic companies. The Fund will ordinarily invest substantially all of its
total assets -- but no  less than 80% of its  total assets -- in common  stocks,
warrants  and securities convertible into or exchangeable for common stocks. The
Fund intends to  focus on  securities of medium-sized  companies, consisting  of
companies  having stock market capitalizations of  between $500 million and $4.5
billion. (Market  capitalization means  the total  market value  of a  company's
outstanding  common stock.) Under normal market conditions, except for temporary
defensive purposes, the  Fund will  invest no  less than  80% of  its assets  in
medium-sized companies, with the remainder invested in companies with smaller or
larger   market  capitalizations.  The  prices  of  securities  of  medium-sized
companies, which are traded on exchanges or in the over-the-counter market, tend
to fluctuate  in  value  more  than the  prices  of  securities  of  large-sized
companies.


     Warburg,   Pincus   Counsellors,  Inc.,   the  Funds'   investment  adviser
('Counsellors'), will attempt to  identify sectors of  the market and  companies
within  market  sectors that  it believes  will  outperform the  overall market.
Counsellors also  seeks  to  identify  themes or  patterns  it  believes  to  be
associated  with high  growth potential  firms, such  as significant fundamental
changes (including senior management changes) or generation of a large free cash
flow.

EMERGING GROWTH FUND


     The Emerging Growth Fund seeks maximum capital appreciation. The Fund is  a
non-diversified  management  investment  company  that  pursues  its  investment
objective  by  investing  in  a  portfolio  of  equity  securities  of  domestic
companies.  The Fund ordinarily will invest at  least 65% of its total assets in
common stocks or warrants of emerging growth companies that represent attractive
opportunities for maximum  capital appreciation. Emerging  growth companies  are
small-  or medium-sized companies that have passed their start-up phase and that
show positive earnings and prospects of achieving significant profit and gain in
a relatively short period of time.


     Although under  current market  conditions the  Fund expects  to invest  in
companies  having  stock  market  capitalizations of  up  to  approximately $500
million, the Fund  may invest  in emerging  growth companies  without regard  to
their  market  capitalization.  Emerging  growth  companies  generally  stand to
benefit from new products or services, technological developments or changes  in
management  and other factors and include smaller companies experiencing unusual
developments affecting their market  value. These 'special situation  companies'
include  companies  that  are  involved  in  the  following:  an  acquisition or
consolidation; a reorganization; a  recapitalization; a merger, liquidation,  or
distribution  of cash, securities or other assets; a tender or exchange offer; a
breakup  or  workout  of  a  holding  company;  litigation  which,  if  resolved
favorably,  would  improve the  value of  the  company's stock;  or a  change in
corporate control.

                                       6

<PAGE>
INTERNATIONAL EQUITY FUND


     The International  Equity Fund  seeks long-term  capital appreciation.  The
Fund  is a diversified management investment company that pursues its investment
objective by investing primarily  in a broadly  diversified portfolio of  equity
securities  of companies, wherever organized, that in Counsellors' judgment have
their principal business activities and interests outside the United States. The
Fund will ordinarily invest substantially all of its assets -- but no less  than
65% of its total assets -- in common stocks, warrants and securities convertible
into  or exchangeable for common  stocks. Ordinarily the Fund  will hold no less
than 65% of its total assets in  at least three countries other than the  United
States.  The Fund  intends to  be widely  diversified across  securities of many
corporations located in a number of foreign countries. Counsellors  anticipates,
however, that the Fund may from time to time invest a significant portion of its
assets  in a single country such as  Japan, which may involve special risks. See
'Risk Factors  and Special  Considerations --  Japanese Investments'  below.  In
appropriate circumstances, such as when a direct investment by the International
Equity Fund in the securities of a particular country cannot be made or when the
securities  of  an  investment  company  are  more  liquid  than  the underlying
portfolio securities,  the  Fund may,  consistent  with the  provisions  of  the
Investment  Company Act  of 1940,  as amended  (the '1940  Act'), invest  in the
securities of closed-end investment companies that invest in foreign securities.


     The Fund intends  to invest  principally in the  securities of  financially
strong  companies  with opportunities  for  growth within  growing international
economies and markets through increased  earning power and improved  utilization
or  recognition  of  assets. Investment  may  be  made in  equity  securities of
companies of any size, whether traded on or off a national securities exchange.

JAPAN OTC FUND


     The Japan OTC  Fund seeks  long-term capital  appreciation. The  Fund is  a
non-diversified  management  investment  company  that  pursues  its  investment
objective by  investing in  a portfolio  of securities  traded in  the  Japanese
over-the-counter  market.  The Fund  is designed  to  provide an  opportunity to
participate in the dynamic structural changes in the Japanese industrial  system
through  investment  in less-established,  higher growth  companies that  can be
expected to benefit from  these changes. At all  times, except during  temporary
defensive  periods, the Fund will  maintain at least 65%  of its total assets in
securities of companies  traded through JASDAQ,  the primary Japanese  over-the-
counter  market,  or  the  Japanese Second  Section  OTC  Market  (the 'Frontier
Market'). The portion of the Fund's  assets that is not invested through  JASDAQ
or  the Frontier Market may  be invested in securities  of Japanese issuers that
are not traded  through JASDAQ  or the  Frontier Market  or exchange-traded  and
over-the-counter  securities of issuers  in other Asian  markets, in addition to
the other instruments  described below. The  Fund may  invest up to  35% of  its
total  assets  in securities  of  other Asian  issuers,  with no  more  than 10%
invested in any one country. The Fund will not invest in securities of non-Asian
issuers, except that the Fund may,  for defensive purposes, invest in U.S.  debt
securities  and  money market  instruments. The  Fund  intends its  portfolio to
consist principally of equity securities (common stock, warrants and  securities
convertible   into  common  stock),  which  may  include  shares  of  closed-end
investment companies investing in Asia. The Japan OTC Fund may also invest up to
5% of the Fund's net assets in  each of the following: foreign debt  securities,
including  foreign government  securites and  debt obligations  of supranational
entities, mortgage-backed securities,  asset-backed securities  and zero  coupon
securities.  The Japan  OTC Fund may  involve a  greater degree of  risk than an
investment in other mutual funds that seek


                                       7

<PAGE>
capital appreciation by investing in  better-known, larger companies. From  time
to  time,  the Japan  OTC Fund  may hedge  part or  all of  its exposure  to the
Japanese yen, thereby  reducing or  substantially eliminating  any favorable  or
unfavorable  impact of changes in  the value of the yen  in relation to the U.S.
dollar.

     At December 31,  1994, 581  issues were  traded through  JASDAQ, having  an
aggregate market capitalization in excess of 14 trillion yen (approximately $134
billion  as of September 19, 1995).  The entry requirements for JASDAQ generally
require a minimum of 2 million shares outstanding at the time of registration, a
minimum of 200 shareholders,  minimum pre-tax profits  of 10 yen  (approximately
$.10  as of  September 19, 1995)  per share over  the prior fiscal  year and net
worth of 200 million yen (approximately $1.92 million as of September 19, 1995).
JASDAQ has generally attracted small  growth companies or companies whose  major
shareholders wish to sell only a small portion of the company's equity.

     The  Frontier Market is under the jurisdiction of JASDAQ, which is overseen
by the Japanese Securities and Exchange Commission. The Frontier Market has less
stringent entry  requirements  than those  described  above for  JASDAQ  and  is
designed  to enable  early stage companies  access to  capital markets. Frontier
Market companies need not have a history of earnings, provided their spending on
research and development equals at least 3% of revenues. In addition,  companies
traded  through the Frontier  Market are not  required to have  2 million shares
outstanding at the time of registration.  As a result, investments in  companies
traded  through the Frontier  Market may involve  a greater degree  of risk than
investments in  companies  traded  through  JASDAQ.  As  of  the  date  of  this
Prospectus, there were not yet any registrations on the Frontier Market, but the
first registrations are expected to be effective in November 1995.


POST-VENTURE CAPITAL FUND



     The  Post-Venture Capital Fund seeks long-term  growth of capital. The Fund
is a  diversified  management investment  company  that pursues  its  investment
objective by investing primarily in equity securities of companies considered by
Counsellors  to be in their post-venture capital stage. The Fund is not designed
to provide venture  capital financing. Rather,  under normal market  conditions,
the  Fund will invest at  least 65% of its total  assets in equity securities of
'post-venture capital companies.'  A post-venture capital  company is a  company
that  has received venture capital financing  either (a) during the early stages
of the company's  existence or  the early  stages of  the development  of a  new
product or service, or (b) as part of a restructuring or recapitalization of the
company.  The  investment of  venture  capital financing,  distribution  of such
company's securities to  venture capital investors,  or initial public  offering
('IPO'),  whichever is later, will have been  made within ten years prior to the
Fund's purchase of the company's securities.



     Counsellors believes  that venture  capital  participation in  a  company's
capital  structure  can lead  to revenue/earnings  growth  rates above  those of
older, public companies such as those in the Dow Jones Industrial Average or the
Fortune 500. Venture  capitalists finance start-up  companies, companies in  the
early  stages of developing new products  or services and companies undergoing a
restructuring or recapitalization, since these companies may not have access  to
conventional  forms  of financing  (such as  bank loans  or public  issuances of
stock). Venture capitalists may hold substantial positions in companies that may
have been acquired  at prices  significantly below the  initial public  offering
price.  This may  create a  potential adverse  impact in  the short-term  on the
market price of a company's stock due to  sales in the open market by a  venture
capitalist  or  others who  acquired  the stock  at  lower prices  prior  to the
company's IPO. Counsellors will consider the impact of


                                       8

<PAGE>

such sales in  selecting post-venture capital  investments. Venture  capitalists
may be individuals or funds organized by venture capitalists which are typically
offered  only to large  institutions, such as pension  funds and endowments, and
certain accredited  investors. Venture  capital participation  in a  company  is
often reduced when the company engages in an IPO of its securities or when it is
involved in a merger, tender offer or acquisition.



     Counsellors  has experience in researching  smaller companies, companies in
the early stages of development and venture capital-financed companies. Its team
of analysts,  led by  Elizabeth  Dater and  Stephen Lurito,  regularly  monitors
portfolio companies whose securities are held by over 250 of the larger domestic
venture capital funds. Ms. Dater and Mr. Lurito have managed post-venture equity
securities in separate accounts for institutions since 1989 and currently manage
over  $800 million  of such  assets for  institutions. The  Fund will  invest in
securities of  post-venture capital  companies  that are  traded on  a  national
securities  exchange or  in an organized  over-the-counter market.  The Fund may
also hold non-publicly traded equity securities of companies in the venture  and
post-venture  stages of development, such as  those of closely-held companies or
private placements  of  public  companies.  The portion  of  the  Fund's  assets
invested in these non-publicly traded securities, which together with the Fund's
other  illiquid assets may not  exceed 15% of the  Fund's assets, will vary over
time depending on investment opportunities and other factors. The Fund may  also
invest  up  to  35%  of  its  assets  in  exchange-traded  and  over-the-counter
securities that do  not meet  the definition of  post-venture capital  companies
without  regard to market capitalization. Up to  10% of the Fund's assets may be
invested in securities  of issuers engaged  in 'special situations,'  such as  a
restructuring  or  recapitalization;  an acquisition,  consolidation,  merger or
tender offer;  a  change  in  corporate  control  or  investment  by  a  venture
capitalist.



     To  attempt to reduce risk, the Fund  will diversify its investments over a
broad range of issuers operating in a  variety of industries. The Fund may  hold
securities  of  companies of  any  size, and  will  not limit  capitalization of
companies it selects to  invest in. However,  due to the  nature of the  venture
capital  to post-venture  cycle, the  Fund anticipates  that the  average market
capitalization of companies in which it invests will be less than $1 billion  at
the  time  of  investment.  Although  the Fund  will  invest  primarily  in U.S.
companies, up to  20% of  the Fund's  assets may  be invested  in securities  of
issuers located in any foreign country. Equity securities in which the Fund will
invest  are common stock,  preferred stock, warrants  and securities convertible
into or exchangeable  for common  stock. The  Fund may  engage in  a variety  of
strategies to reduce risk or seek to enhance return, including engaging in short
selling (see 'Certain Investment Strategies').


PORTFOLIO INVESTMENTS


INVESTMENT GRADE DEBT. The International Equity Fund and the Japan OTC Fund each
may invest up to 35% of its total assets, and the Capital Appreciation Fund, the
Emerging Growth Fund and the Post-Venture Capital Fund each may invest up to 20%
of  its  total assets,  in investment  grade debt  securities (other  than money
market instruments) and preferred  stocks that are  not convertible into  common
stock for the purpose of seeking capital appreciation. The interest income to be
derived  may  be  considered as  one  factor  in selecting  debt  securities for
investment by Counsellors. Because the market  value of debt obligations can  be
expected to vary inversely to changes in prevailing interest rates, investing in
debt  obligations  may  provide  an opportunity  for  capital  appreciation when
interest rates  are expected  to decline.  The  success of  such a  strategy  is
dependent  upon Counsellors' ability to  accurately forecast changes in interest
rates. The market value of debt obligations may


                                       9

<PAGE>
also be expected to vary depending upon, among other factors, the ability of the
issuer to repay  principal and  interest, any  change in  investment rating  and
general economic conditions. A security will be deemed to be investment grade if
it  is rated within the  four highest grades by  Moody's Investors Service, Inc.
('Moody's') or  Standard &  Poor's  Ratings Group  ('S&P')  or, if  unrated,  is
determined to be of comparable quality by Counsellors. Bonds rated in the fourth
highest  grade  may have  speculative  characteristics and  changes  in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make  principal and  interest payments  than is  the case  with higher  grade
bonds. 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. Counsellors will
consider such event in its determination of whether the Fund should continue  to
hold  the securities. The  Japan OTC Fund  does not currently  intend during the
coming year to hold more than 5% of its net assets in securities that have  been
downgraded below investment grade.

     When  Counsellors believes that a defensive posture is warranted, each Fund
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money  market obligations, including repurchase  agreements
as   discussed  below.  When   such  a  defensive   posture  is  warranted,  the
International Equity Fund  and the Japan  OTC Fund may  also invest  temporarily
without limit in securities of U.S. companies.


MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal market
conditions,  up to 20% of its total  assets in domestic and foreign money market
obligations having a maturity of  one year or less at  the time of purchase  and
for  temporary defensive purposes may invest  in these securities without limit.
These short-term instruments consist of obligations issued or guaranteed by  the
United  States government,  its agencies or  instrumentalities ('U.S. government
securities') (including,  in  the case  of  the Capital  Appreciation,  Emerging
Growth  and International  Equity Funds,  repurchase agreements  with respect to
such securities);  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 Counsellors 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,
in  the case of the Japan OTC Fund and the Post-Venture Capital Fund, repurchase
agreements with respect to the foregoing.


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

                                       10

<PAGE>
risk of a possible decline in the value of the underlying securities during  the
period  while the Fund seeks to assert this right. Counsellors, acting under the
supervision of the Fund's  Board of Directors or  Board of Trustees  ('governing
Board'  or 'Board'),  monitors the creditworthiness  of those  bank and non-bank
dealers with which each Fund enters into repurchase agreements to evaluate  this
risk. A repurchase agreement is considered to be a loan under the 1940 Act.

     Money  Market Mutual  Funds. Where  Counsellors believes  that it  would be
beneficial to the  Fund and appropriate  considering the factors  of return  and
liquidity,  each Fund may invest  up to 5% of its  assets in securities of money
market mutual funds that are unaffiliated with the Fund, Counsellors or, in  the
case  of the Japan OTC Fund, the sub-investment adviser (each investment adviser
and sub-investment  adviser referred  to  individually as  an 'Adviser').  As  a
shareholder in any mutual fund, a Fund will bear its ratable share of the mutual
fund's  expenses, including management fees, and  will remain subject to payment
of the Fund's administration fees and  other expenses with respect to assets  so
invested.

U.S.  GOVERNMENT  SECURITIES. U.S.  government securities  in  which a  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  a Fund  may  invest,
including  both  convertible  debt  and  convertible  preferred  stock,  may  be
converted at either  a stated  price or stated  rate into  underlying shares  of
common stock. Because of this feature, convertible securities enable an investor
to  benefit from increases in  the market price of  the underlying common stock.
Convertible  securities  provide  higher  yields  than  the  underlying   equity
securities,  but generally offer lower yields than non-convertible securities of
similar quality. The value of  convertible securities fluctuates in relation  to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the  underlying common stock. The Japan OTC Fund will invest only in convertible
securities rated investment grade  at the time  of purchase or  deemed to be  of
equivalent  quality. The  Japan OTC  Fund does  not currently  intend during the
coming year  to  hold more  than  5%  of its  net  assets in  the  aggregate  of
investment  grade convertible  securities and  investment grade  debt downgraded
below investment grade subsequent to acquisition by the Fund.

RISK FACTORS AND SPECIAL
CONSIDERATIONS

EMERGING GROWTH AND SMALL COMPANIES.  Investing in common stocks and  securities
convertible  into common stocks is subject  to the inherent risk of fluctuations
in the prices  of such securities.  Investing in securities  of emerging  growth
companies,  which may include JASDAQ and Frontier Market securities, may involve
greater risks since these securities  may have limited marketability and,  thus,
may  be  more  volatile.  In addition,  small-  and  medium-sized  companies are
typically subject  to a  greater  degree of  changes  in earnings  and  business
prospects  than  are  larger,  more established  companies.  Because  small- and
medium-sized companies  normally  have  fewer  shares  outstanding  than  larger
companies,  it  may be  more difficult  for a  Fund to  buy or  sell significant
amounts of such shares without an unfavorable impact on prevailing prices. There
is  typically  less  publicly   available  information  concerning  small-   and
medium-sized  companies than  for larger,  more established  ones. Securities of
issuers in 'special  situations' also  may be  more volatile,  since the  market
value  of these securities may  decline in value if  the anticipated benefits do
not materialize. Companies in 'special situations' include, but are not  limited
to,

                                       11

<PAGE>

companies   involved  in   an  acquisition   or  consolidation;  reorganization;
recapitalization; merger,  liquidation or  distribution of  cash, securities  or
other  assets; a  tender or exchange  offer, a  breakup or workout  of a holding
company; or litigation which, if resolved favorably, would improve the value  of
the  companies' securities. Although investing  in securities of emerging growth
companies or 'special situations' offers potential for above-average returns  if
the  companies  are successful,  the  risk exists  that  the companies  will not
succeed and the prices of the  companies' shares could significantly decline  in
value.  Therefore, an investment in the  Capital Appreciation Fund, the Emerging
Growth Fund, the Japan OTC Fund or  the Post-Venture Capital Fund may involve  a
greater  degree  of risk  than an  investment  in other  mutual funds  that seek
capital appreciation by investing in better-known, larger companies. For certain
additional  risks   relating  to   each  Fund's   investments,  see   'Portfolio
Investments'  beginning at page 9  and 'Certain Investment Strategies' beginning
at page 14.


JAPANESE INVESTMENTS. A significant portion of the Japan OTC Fund's assets  will
be  invested in securities  traded through JASDAQ.  Trading of equity securities
through the JASDAQ market is conducted  by securities firms in Japan,  primarily
through  an  organization which  acts as  a  'matching agent,'  as opposed  to a
recognized stock exchange. Consequently,  securities traded through JASDAQ  may,
from  time  to time,  and  especially in  falling  markets, become  illiquid and
experience short-term price volatility  and wide spreads  between bid and  offer
prices.  This combination of limited liquidity  and price volatility may have an
adverse effect on the  investment performance of the  Fund. In periods of  rapid
price increases, the limited liquidity of JASDAQ restricts the Fund's ability to
adjust  its portfolio quickly in  order to take full  advantage of a significant
market increase,  and conversely,  during periods  of rapid  price declines,  it
restricts  the ability of the Fund to  dispose of securities quickly in order to
realize gains  previously made  or to  limit losses  on securities  held in  its
portfolio.  In  addition, although  JASDAQ  has generally  experienced sustained
growth in aggregate market  capitalization and trading  volume, there have  been
periods  in  which  aggregate  market  capitalization  and  trading  volume have
declined.  The  Frontier  Market  is  expected  to  present  greater  liquidity,
volatility and trading considerations than JASDAQ.

     Investing  in  Japanese securities  may involve  the risks  described below
associated with investing in foreign securities generally. In addition,  because
the  Japan OTC Fund invests primarily in Japan and the International Equity Fund
may from time to time have a large position in Japanese securities, these  Funds
will be subject to general economic and political conditions in Japan. The Japan
OTC Fund should be considered a vehicle for diversification, but the Fund itself
is not diversified.

     Securities  in Japan  are denominated  and quoted  in 'yen.'  Yen are fully
convertible  and  transferable  based  on  floating  exchange  rates  into   all
currencies,  without administrative or legal restrictions for both non-residents
and residents of Japan.  In determining the  net asset value  of shares of  each
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S.  dollars. As a result,  in the absence of  a successful currency hedge, the
value of  each  Fund's  assets as  measured  in  U.S. dollars  may  be  affected
favorably  or unfavorably by fluctuations in  the value of Japanese yen relative
to the U.S. dollar.

     Japan is  largely  dependent  upon foreign  economies  for  raw  materials.
International  trade is  important to  Japan's economy,  as exports  provide the
means to  pay for  many of  the raw  materials it  must import.  Because of  the
concentration   of  Japanese  exports   in  highly  visible   products  such  as
automobiles, machine tools  and semiconductors,  and the  large trade  surpluses
ensuing therefrom, Japan has entered a difficult

                                       12

<PAGE>
phase  in its relations with its  trading partners, particularly with respect to
the United States, with whom the trade imbalance is the greatest.

     JASDAQ-traded securities can be volatile,  which would result in the  Japan
OTC  Fund's net asset value fluctuating in response. The decline in the Japanese
securities markets since  1989 has  contributed to  a weakness  in the  Japanese
economy,  and the impact of a further  decline cannot be ascertained. The common
stocks of  many Japanese  companies  continue to  trade at  high  price-earnings
ratios  in comparison  with those  in the United  States, even  after the recent
market decline. Differences in accounting  methods make it difficult to  compare
the  earnings of Japanese companies with  those of companies in other countries,
especially the United States.


     Japan  has  a  parliamentary  form  of  government.  In  1993  a  coalition
government  was formed which, for the first time since 1955, did not include the
Liberal Democratic Party.  Since mid-1993,  there have been  several changes  in
leadership  in Japan. What, if any,  effect the current political situation will
have on  prospective  regulatory reforms  on  the  economy in  Japan  cannot  be
predicted.  Recent  and  future  developments  in  Japan  and  neighboring Asian
countries may lead to  changes in policy that  might adversely affect the  Funds
investing  there.  For additional  information,  see 'Japan  and  its Securities
Markets,' beginning at page  28 of the Statement  of Additional Information  for
the Japan OTC Fund, and 'Investment Policies -- Japanese Investments,' beginning
at  page  3 of  the Statement  of Additional  Information for  the International
Equity Fund.


EMERGING MARKETS. The  International Equity and  Japan OTC Funds  may invest  in
securities  of  issuers located  in less  developed  countries considered  to be
'emerging markets.'  Investing  in securities  of  issuers located  in  emerging
markets  involves not only the risks  described below, with respect to investing
in foreign  securities, but  also other  risks, including  exposure to  economic
structures  that are  generally less diverse  and mature than,  and to political
systems that can  be expected to  have less stability  than, those of  developed
countries.  Other characteristics of emerging markets that may affect investment
there  include  certain  national  policies  that  may  restrict  investment  by
foreigners  in  issuers  or  industries deemed  sensitive  to  relevant national
interests and the absence  of developed legal  structures governing private  and
foreign  investments  and  private property.  The  typically small  size  of the
markets  for  securities  of  issuers  located  in  emerging  markets  and   the
possibility  of a low or  nonexistent volume of trading  in those securities may
also result in a lack of liquidity and in price volatility of those securities.


INVESTMENTS IN  NON-PUBLICLY TRADED  SECURITIES. Although  the Funds  expect  to
invest  primarily in publicly traded equity  securities, each Fund may invest up
to 10% of its assets (15% in the case of the Japan OTC Fund and the Post-Venture
Capital Fund) in non-publicly traded equity securities, which may involve a high
degree of business  and financial  risk and  may result  in substantial  losses.
Because  of  the  absence  of  any liquid  trading  market  currently  for these
investments, a Fund may take longer  to liquidate these positions than would  be
the case for publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized on such sales could be
less than those originally paid by the Fund. Further, companies whose securities
are  not publicly traded may not be subject to the disclosure and other investor
protection requirements applicable  to companies whose  securities are  publicly
traded.  A Fund's investment in illiquid securities  is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price  that is deemed  to be representative  of their value,  the
value  of the Fund's net assets could  be adversely affected. Except in the case
of the Japan OTC  Fund, each Fund's limitation  on illiquid securities  excludes


                                       13

<PAGE>

Rule 144A Securities determined by the Fund's Board to be liquid.


NON-DIVERSIFIED  STATUS. Each of the Emerging Growth Fund and the Japan OTC Fund
is classified as a non-diversified investment company under the 1940 Act,  which
means  that each Fund  is not limited by  the 1940 Act in  the proportion of its
assets that it may invest in the obligations of a single issuer. Each Fund will,
however, comply  with  diversification  requirements  imposed  by  the  Internal
Revenue  Code of 1986, as amended (the 'Code'), for qualification as a regulated
investment company.  As  a non-diversified  investment  company, each  Fund  may
invest  a greater proportion of its assets  in the obligations of a small number
of issuers and,  as a result,  may be subject  to greater risk  with respect  to
portfolio  securities. To the extent that a  Fund assumes large positions in the
securities of a small number of issuers,  its return may fluctuate to a  greater
extent  than  that  of a  diversified  company as  a  result of  changes  in the
financial condition or in the market's assessment of the issuers.

PORTFOLIO TRANSACTIONS AND
TURNOVER RATE


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


     All  orders for transactions in  securities or options on  behalf of a Fund
are placed  by  an  Adviser  with  broker-dealers  that  it  selects,  including
Counsellors  Securities Inc., the Funds' distributor ('Counsellors Securities').
A Fund may utilize Counsellors Securities in connection with a purchase or  sale
of securities when Counsellors 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 governing Board.

CERTAIN INVESTMENT STRATEGIES

     Although there is  no intention of  doing so during  the coming year,  each
Fund  is  authorized  to  engage in  the  following  investment  strategies: (i)
purchasing  securities  on  a  when-issued  basis  and  purchasing  or   selling
securities  for  delayed  delivery  and (ii)  lending  portfolio  securities. As
described below, the  Funds may invest  in investments commonly  referred to  as
'derivative  securities,'  such  as  options on  securities,  stock  indexes and
currencies; futures contracts  and options  on futures  contracts; and  currency
forward  contracts.  These strategies  may be  used for  the purpose  of hedging
against a decline in value  of its portfolio holdings  or to generate income  to
offset  expenses or increase  return. SUCH TRANSACTIONS  THAT ARE NOT CONSIDERED
HEDGING SHOULD BE CONSIDERED  SPECULATIVE AND MAY SERVE  TO INCREASE THE  FUND'S
INVESTMENT  RISK.  Detailed information  concerning  these strategies  and their
related risks is  contained below  and in  each Fund's  Statement of  Additional
Information.

                                       14

<PAGE>
STRATEGIES AVAILABLE TO ALL FUNDS


FOREIGN  SECURITIES. The International  Equity Fund and the  Japan OTC Fund each
will ordinarily hold no less than 65% of its total assets in foreign securities.
The Emerging Growth Fund may invest up to 10% and the Capital Appreciation  Fund
and  the Post-Venture Capital Fund may each invest up to 20% of its total assets
in the  securities of  foreign  issuers. There  are  certain risks  involved  in
investing  in securities of  companies and governments  of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include  those  resulting   from  fluctuations  in   currency  exchange   rates,
revaluation  of currencies,  future adverse political  and economic developments
and the  possible imposition  of currency  exchange blockages  or other  foreign
governmental  laws or  restrictions, reduced availability  of public information
concerning issuers,  the  lack of  uniform  accounting, auditing  and  financial
reporting  standards and  other regulatory  practices and  requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign  companies 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 Funds, including the withholding of dividends. Foreign  securities
may  be subject to foreign  government taxes that would  reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably  or
unfavorably  from the U.S. economy in such  respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency  and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S.  dollars, the payment of fixed  brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher  valuation
and  communications costs and the expense of maintaining securities with foreign
custodians.


RULE 144A SECURITIES. The Funds 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  each  Fund's limitation  on the
purchase of illiquid securities, unless the Fund's governing Board determines on
an ongoing basis that an adequate trading market exists for the security. In the
case of the Japan OTC Fund, Rule 144A  Securities will be limited to 10% of  the
Fund's  net assets, included within the Fund's 15% limit on illiquid securities.
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  Funds  to  the  extent  that  qualified  institutional  buyers   become
uninterested  for a time in purchasing Rule 144A Securities. The governing Board
of each Fund will  carefully monitor any  investments by the  Fund in Rule  144A
Securities.  The governing Board may adopt guidelines and delegate to an Adviser
the daily function  of determining  and monitoring  the liquidity  of Rule  144A
Securities,  although  each Board  will retain  ultimate responsibility  for any
determination regarding liquidity.


WRITING OPTIONS ON SECURITIES. Each Fund may write covered call options and,  in
the  case of the Japan  OTC Fund and the  Post-Venture Capital Fund, covered put
options on up to 25% of the net asset value of the stock and debt securities  in


                                       15

<PAGE>
its portfolio and will realize fees (referred to as 'premiums') for granting the
rights  evidenced  by  the options.  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.  Thus, the purchaser  of a put option  written by a Fund  has the right to
compel the purchase  by the Fund  of the underlying  security at an  agreed-upon
price for a specified time period or at a specified time, while the purchaser of
a  call option written  by a Fund  has the right  to purchase from  the Fund the
underlying security owned by the Fund  at the agreed-upon price for a  specified
time period or at a specified time.


     Upon  the exercise  of a put  option written by  the Japan OTC  Fund or the
Post-Venture Capital Fund,  the Fund may  suffer an economic  loss equal to  the
excess  of the exercise price of the  option over the security's market value at
the time  of the  option exercise,  less the  premium received  for writing  the
option.  Upon the  exercise of  a call option  written by  a Fund,  the Fund may
suffer an economic loss equal  to the excess of  the security's market value  at
the  time  of  the option  exercise  over  the Fund's  acquisition  cost  of the
security, less the premium received for writing the option.


     A Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security  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).  To effect a  closing purchase transaction,  a Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the  same  series  as  that  on which  the  Fund  desires  to  terminate  its
obligation.  The obligation of a Fund under  an option that it has written would
be terminated  by a  closing purchase  transaction, but  the Fund  would not  be
deemed  to own an option as the result of the transaction. The ability of a Fund
to engage  in  closing transactions  with  respect  to options  depends  on  the
existence  of a liquid secondary market. While a Fund generally will purchase or
write options only  if there appears  to be  a liquid secondary  market for  the
options  purchased or sold, for some options, no such secondary market may exist
or the market  may cease  to exist, particularly  with respect  to options  that
trade over-the-counter ('OTC options').

     Option writing for each Fund may be limited by position and exercise limits
established  by securities exchanges  and the NASD. Furthermore,  a Fund may, at
times, have to  limit its  option writing  in order  to qualify  as a  regulated
investment company under the Code.

     In  addition to writing  covered options to generate  income, each Fund may
enter into options transactions as  hedges to reduce investment risk,  generally
by  making  an  investment expected  to  move  in the  opposite  direction  of a
portfolio position. A hedge is designed to offset a loss on a portfolio position
with a  gain on  the  hedge position;  at the  same  time, however,  a  properly
correlated hedge will result in a gain on the portfolio position being offset by
a  loss on the hedge position.  Each Fund bears the risk  that the prices of the
securities being hedged will not  move in the same amount  as the hedge. A  Fund
will  engage in hedging  transactions only when deemed  advisable by an Adviser.
Successful use by  a Fund  of options  for hedging  purposes will  depend on  an
Adviser's  ability  to  correctly  predict movements  in  the  direction  of the
security underlying the option or, in the case of stock index options (described
below), the underlying securities  market, which could  prove to be  inaccurate.
Losses incurred in options transactions and the costs of these transactions will
affect each Fund's performance. Even if an

                                       16

<PAGE>
Adviser's  expectations are correct, where options are used as a hedge there may
be an imperfect correlation between the change  in the value of the options  and
of  the portfolio securities  hedged. Therefore, an investment  in the Funds may
involve a  greater risk  than an  investment  in other  mutual funds  that  seek
capital appreciation or growth of capital.


PURCHASING  PUT AND CALL  OPTIONS ON SECURITIES.  The International Equity Fund,
the Japan OTC Fund and the Post-Venture Capital Fund each may utilize up to  10%
of  its assets to  purchase put and  call options on  stocks and debt securities
that are traded on foreign  as well as U.S. exchanges,  as well as OTC  options.
The  Capital Appreciation Fund and the Emerging  Growth Fund each may utilize up
to 2%  of its  assets to  purchase U.S.  exchange-traded and  OTC put  and  call
options on stocks and debt securities.


     By  buying a  put, a Fund  limits its  risk of loss  from a  decline in the
market value of the underlying security until the put expires. Any  appreciation
in  the value  of and  yield otherwise  available from  the underlying security,
however, will be partially offset by the amount of the premium paid for the  put
option  and any related transaction costs. Call options may be purchased by each
Fund in order to acquire the underlying securities for the Fund at a price  that
avoids  any additional cost that would result from a substantial increase in the
market value of a security. Each Fund also may purchase call options to increase
its return to investors  at a time  when the option is  expected to increase  in
value due to anticipated appreciation of the underlying security.

     Prior  to their expirations,  put and call  options may be  sold in closing
sale transactions (sales by a Fund, prior to the exercise of options that it has
purchased, of options of the same series), and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid  for
the option plus the related transaction costs.


STOCK   INDEX  OPTIONS.  In  addition  to  purchasing  and  writing  options  on
securities, each Fund  may utilize up  to 10%  of its total  assets to  purchase
exchange-listed and, in the case of the International Equity Fund, the Japan OTC
Fund  and  the Post-Venture  Capital Fund,  OTC  put and  call options  on stock
indexes, and may  write put  and call  options on  such indexes.  A stock  index
measures  the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index. Options on stock indexes are similar
to options on stock except that (i) the expiration cycles of stock index options
are monthly, while those of stock options are currently quarterly, and (ii)  the
delivery requirements are different. Instead of giving the right to take or make
delivery  of stock at  a specified price, an  option on a  stock index gives the
holder the right to receive a cash 'exercise settlement amount' equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in  the
case  of a put) or is less than (in the case of a call) the closing value of the
underlying index  on the  date of  exercise  multiplied by  (b) a  fixed  'index
multiplier.'  The discussion  of options  on securities  above, and  the related
risks, is applicable to options on securities indexes.



FUTURES CONTRACTS AND  OPTIONS. Each Fund  may enter into  interest rate,  stock
index  and, in the case of the  International Equity, Japan OTC and Post-Venture
Capital Funds, currency 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  consistent with CFTC regulations on  foreign
exchanges.  These transactions  may be entered  into for 'bona  fide hedging' as
defined in  CFTC  regulations  and  other  permissible  purposes  including  (i)
protecting  against anticipated changes in the value of portfolio securities the
Fund intends to purchase and (ii) increasing return.


                                       17

<PAGE>
     An interest rate futures contract is a standardized contract for the future
delivery of  a  specified interest  rate  sensitive  security (such  as  a  U.S.
Treasury  Bond or U.S.  Treasury Note or its  equivalent) at a  future date at a
price set at the time of the contract. Stock indexes are capitalization weighted
indexes which reflect the  market value of  the stock listed  on the indexes.  A
stock  index futures contract  is an agreement  to be settled  by delivery of an
amount of cash equal to a specified multiplier times the difference between  the
value  of the index at the  beginning and at the end  of the contract period. 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 at a specified exercise
price at any time prior to the expiration date of the option. 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  foreign currency  at  a
specified price, date, time and place.

     Parties to a futures contract must make 'initial margin' deposits to secure
performance  of the  contract. There  are also  requirements to  make 'variation
margin' deposits  from  time  to time  as  the  value of  the  futures  contract
fluctuates.  The  Funds are  not commodity  pools and,  in compliance  with CFTC
regulations currently  in  effect, may  enter  into any  futures  contracts  and
related  options for  'bona fide hedging'  purposes and, in  addition, for other
purposes, provided  that  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 each Fund's net  asset value, after taking  into
account  unrealized profits  and unrealized losses  on any  such contracts. Each
Fund reserves the right to engage in transactions involving futures and  options
thereon  to the extent allowed  by CFTC regulations in  effect from time to time
and in accordance with the Fund's  policies. Certain provisions of the Code  may
limit the extent to which the Fund may enter into futures contracts or engage in
options transactions.

     There  are several risks  in connection with the  use of futures contracts.
Successful use of futures contracts is subject to the ability of the Advisers to
predict correctly movements in the direction  of the currency, interest rate  or
stock  index underlying the particular futures contract or related option. These
predictions  and,  thus,  the  use  of  futures  contracts  involve  skills  and
techniques that are different from those involved in the management of portfolio
securities.  In  addition,  there can  be  no  assurance that  there  will  be a
correlation  between  movements  in  the  currencies,  interest  rate  or  index
underlying  the futures  contract and  movements in  the price  of the portfolio
securities which are the subject of a hedge. A decision concerning whether, when
and how to utilize futures involves the exercise of skill and judgment, and even
a well-conceived hedge may be unsuccessful to some degree because of  unexpected
market  behavior  or  trends  in foreign  currencies,  interest  rates  or stock
indexes. Losses  incurred  in  futures  transactions  and  the  costs  of  these
transactions will affect the Fund's performance.

     A further risk involves the lack of a liquid secondary market for a futures
contract  and the resulting  inability to close out  a futures contract. Futures
and options  contracts  may only  be  closed  out by  entering  into  offsetting
transactions  on the exchange where  the position was entered  into (or a linked
exchange), and  as a  result of  daily  price fluctuation  limits there  can  no
assurance   that  an  offsetting  transaction  could   be  entered  into  at  an
advantageous price at any  particular time. Consequently, a  Fund may realize  a
loss  on a futures contract or  option that is not offset  by an increase in the
value of the Fund's securities that are being hedged or the Fund may not be able
to close a futures or options position without incurring a loss in the event  of
adverse price movements.

                                       18

<PAGE>

ASSET  COVERAGE FOR FORWARD CONTRACTS, OPTIONS,  FUTURES AND OPTIONS ON FUTURES.
Each Fund  will  comply with  guidelines  established  by the  SEC  designed  to
eliminate any potential for leverage with respect to options written by the Fund
on currencies, securities and indexes; currency, interest rate and index futures
contracts and options on these futures contracts and forward currency contracts.
The  use of these  strategies may require  that a Fund  maintain cash or certain
liquid high-grade  debt  securities  or  other assets  that  are  acceptable  as
collateral  to the appropriate regulatory authority in a segregated account with
its custodian or a designated sub-custodian to the extent the Fund's obligations
with respect to these strategies  are not otherwise 'covered' through  ownership
of  the  underlying  security,  financial instrument  or  currency  or  by other
portfolio positions  or by  other means  consistent with  applicable  regulatory
policies.  Segregated  assets cannot  be sold  or transferred  unless equivalent
assets are substituted in their place or it is no longer necessary to  segregate
them. As a result, there is a possibility that segregation of a large percentage
of  a Fund's assets could  impede portfolio management or  the Fund's ability to
meet redemption requests or other current obligations.



STRATEGY AVAILABLE TO THE INTERNATIONAL EQUITY FUND, THE JAPAN OTC FUND AND  THE
POST-VENTURE CAPITAL FUND



CURRENCY  EXCHANGE  TRANSACTIONS.  Each  Fund may  engage  in  currency exchange
transactions to  protect against  uncertainty in  the level  of future  exchange
rates  and  to increase  the Fund's  income  and total  return (except  that the
International Equity Fund  may only  enter into forward  currency contracts  for
hedging purposes). Each 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  forward contracts  to  purchase  or  sell
currency,  (iii)  as described  above,  through entering  into  foreign currency
futures contracts or options on such contracts or (iv) in the case of the  Japan
OTC Fund and the Post-Venture Capital Fund, by purchasing 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  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 their  customers.  The  use  of forward
currency contracts as a hedge 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. In  addition, although forward currency contracts  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.


STRATEGIES AVAILABLE TO THE JAPAN OTC FUND
AND THE POST-VENTURE CAPITAL FUND


CURRENCY OPTIONS. Each Fund may purchase exchange-traded put and call options on
currencies. An option on a foreign currency gives the purchaser, in return for a
premium, the right to  sell, in the  case of a put,  and buy, in  the case of  a
call,  the  underlying currency  at a  specified  price during  the term  of the
option. The  benefit to  the Fund  derived from  purchases of  foreign  currency
options,  like the benefit derived from other  types of options, will be reduced
by the amount  of the  premium and related  transaction costs.  In addition,  if
currency  exchange  rates  do  not  move  in  the  direction  or  to  the extent
anticipated, the Fund could sustain  losses on transactions in foreign  currency
options  that would  require it  to forgo a  portion or  all of  the benefits of
advantageous changes in the rates.

                                       19

<PAGE>

REVERSE REPURCHASE AGREEMENTS. Each of the  Japan OTC Fund and the  Post-Venture
Capital  Fund may  also 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 high-grade debt  securities having a  value not less
than the repurchase price (including accrued interest). The assets contained  in
the segregated account will be marked-to-market daily and additional assets will
be  placed  in such  account  on any  day  in which  the  assets fall  below the
repurchase price (plus accrued  interest). The Fund's  liquidity and ability  to
manage  its  assets might  be  affected when  it  sets aside  cash  or portfolio
securities to cover such commitments. Reverse repurchase agreements involve  the
risk  that  the market  value of  the securities  retained in  lieu of  sale may
decline below the price of the securities the Fund has sold but is obligated  to
repurchase.  In the  event the  buyer of  securities under  a reverse repurchase
agreement files for bankruptcy or becomes  insolvent, such buyer or its  trustee
or receiver may receive an extension of time to determine whether to enforce the
Fund's  obligation  to repurchase  the  securities, and  the  Fund's use  of the
proceeds of  the  reverse repurchase  agreement  may effectively  be  restricted
pending  such  decision.  Reverse  repurchase agreements  are  considered  to be
borrowings under the 1940 Act.


DOLLAR ROLL TRANSACTIONS. Each 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 forgo 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 that the Fund enters into a
dollar roll transaction, it will place  in a segregated account maintained  with
an  approved custodian cash or other liquid high-grade debt 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. For
financial reporting and tax purposes, each  Fund proposes to treat dollar  rolls
as  two  separate transactions,  one  involving the  sale  of a  security  and a
separate transaction involving  the purchase  of a  security. The  Funds do  not
currently  intend  to  enter into  dollar  rolls  that are  accounted  for  as a
financing.


STRATEGY AVAILABLE TO THE POST-VENTURE CAPITAL FUND


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 value  of
the securities sold short 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

                                       20

<PAGE>
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 U.S. government 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 U.S.
government 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 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 Code
requirements  for  qualification   as  a  regulated   investment  company.   See
'Dividends,  Distributions and Taxes' for other tax considerations applicable to
short sales.

INVESTMENT GUIDELINES


     The International  Equity  Fund,  the Capital  Appreciation  Fund  and  the
Emerging  Growth Fund may each invest up to  10% of its total assets (15% of net
assets, in the case of the Japan OTC Fund and the Post-Venture Capital Fund)  in
securities   with  contractual  or  other   restrictions  on  resale  and  other
instruments that are not  readily marketable ('illiquid securities'),  including
(i)  securities issued as part of  a privately negotiated transaction between an
issuer and one or  more purchasers; (ii)  repurchase agreements with  maturities
greater  than  seven  days; (iii)  time  deposits  maturing in  more  than seven
calendar days; and (iv) in the case of the Japan OTC Fund, Rule 144A Securities.
In addition,  up to  5% of  each  Fund's total  assets may  be invested  in  the
securities  of issuers  which have  been in  continuous operation  for less than


                                       21

<PAGE>

three years, and up to an additional 5%  of its total assets may be invested  in
warrants.  Each Fund may borrow from  banks for temporary or emergency purposes,
such  as  meeting  anticipated   redemption  requests,  provided  that   reverse
repurchase  agreements and any other borrowing by the Fund may not exceed 10% of
its total assets (30% in  the case of the  International Equity Fund, the  Japan
OTC  Fund and  the Post-Venture Capital  Fund) and may  pledge up to  10% of its
assets (to the extent  necessary to secure permitted  borrowings in the case  of
the  Japan  OTC  Fund and  the  Post-Venture  Capital Fund)  in  connection with
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 governing Board of each Fund, subject
to the limitations  contained in  the 1940 Act.  A complete  list of  investment
restrictions that each Fund has adopted identifying additional restrictions that
cannot be changed without the approval of the majority of the Fund's outstanding
shares is contained in each Fund's Statement of Additional Information.

MANAGEMENT OF THE FUNDS

INVESTMENT  ADVISERS. Each Fund employs Counsellors as investment adviser to the
Fund. The Japan OTC Fund employs SPARX Investment & Research, USA, Inc.  ('SPARX
USA')  as its sub-investment adviser.  With respect to each  Fund other than the
Japan OTC Fund, Counsellors, subject to the control of each Fund's officers  and
the  governing Board, manages  the investment and reinvestment  of the assets of
the Funds  in  accordance  with  each Fund's  investment  objective  and  stated
investment  policies. Counsellors makes investment  decisions for each such Fund
and places orders to purchase  or sell securities on  behalf of each such  Fund.
With  respect to the Japan  OTC Fund, Counsellors has  general oversight for the
day-to-day management  of the  Fund,  manages the  Fund's U.S.  investments  and
investments  in debt securities, determines  the country allocation and industry
allocation of Fund  assets, monitors  Fund expenses and  evaluates the  services
provided  by the sub-investment adviser to  the Fund. Counsellors also employs a
support staff  of management  personnel to  provide services  to the  Funds  and
furnishes  each Fund with office space, furnishings and equipment. SPARX USA, in
accordance with the investment objective and policies of the Japan OTC Fund  and
under  the  supervision of  Counsellors and  the  Fund's governing  Board, makes
investment decisions  for the  Fund involving  Japanese and  other Asian  equity
securities,  places orders to buy and sell such securities on behalf of the Fund
and provides research to the Fund relating to Japanese and other Asian companies
and securities markets.


     For the services  provided by Counsellors,  the Capital Appreciation  Fund,
the  Emerging Growth  Fund, the International  Equity Fund  and the Post-Venture
Capital Fund will each  pay Counsellors a  fee calculated at  an annual rate  of
 .70%,  .90%,  1.00% and  1.25%, respectively,  of the  Fund's average  daily net
assets. The Japan  OTC Fund pays  Counsellors an advisory  fee calculated at  an
annual  rate  of 1.25%  of the  Fund's average  daily net  assets, out  of which
Counsellors pays SPARX USA a fee of .625%. Although in the case of the  Emerging
Growth  Fund,  the  International  Equity  Fund,  the  Japan  OTC  Fund  and the
Post-Venture Capital Fund this  advisory fee is higher  than that paid by  most
other  investment  companies, including  money  market and  fixed  income funds,
Counsellors believes that it is comparable to fees charged by other mutual funds
with similar policies and strategies.  The advisory agreement between each  Fund
and  Counsellors provides that Counsellors will reimburse the Fund to the extent
certain expenses that are described  in the Statement of Additional  Information
exceed applicable state


                                       22

<PAGE>
expense  limitations. Counsellors,  SPARX USA and  each Fund's co-administrators
may voluntarily waive a portion of their fees from time to time and  temporarily
limit the expenses to be borne by the Fund.

     Counsellors  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  August 31,
1995, Counsellors  managed  approximately  $11.4 billion  of  assets,  including
approximately   $5.8  billion  of  assets  of  twenty  investment  companies  or
portfolios. Incorporated in 1970,  Counsellors is a  wholly owned subsidiary  of
Warburg,  Pincus  Counsellors  G.P.  ('Counsellors G.P.'),  a  New  York general
partnership. E.M.  Warburg,  Pincus &  Co.,  Inc. ('EMW')  controls  Counsellors
through  its  ownership of  a class  of voting  preferred stock  of Counsellors.
Counsellors G.P.  has  no  business  other  than  being  a  holding  company  of
Counsellors  and its subsidiaries. Counsellors' address is 466 Lexington Avenue,
New York, New York 10017-3147.


     SPARX USA, a Delaware corporation, is  a wholly owned subsidiary of  SPARX.
SPARX  USA,  which has  not previously  acted  as adviser  to a  U.S. investment
company, is  registered  as an  investment  adviser under  the  U.S.  Investment
Advisers Act of 1940. SPARX is an independent investment advisory company, which
is  owned by Shuhei Abe.  The predecessor of SPARX  was incorporated in Tokyo in
July 1988  and was  registered as  an investment  adviser under  the  Investment
Advisory  Act  of 1986  of Japan.  SPARX  has no  business other  than providing
investment advisory services, and as of  August 31, 1995 had approximately  $554
million  in assets under management. SPARX  USA's address is 413 Seaside Avenue,
Honolulu, Hawaii 96815.



PORTFOLIO MANAGERS. The portfolio  manager of the  International Equity Fund  is
Richard  H. King. Together with Shuhei Abe of SPARX USA, Mr. King, Nicholas P.W.
Horsley and Nicholas Edwards  are co-portfolio managers of  the Japan OTC  Fund.
The  president of the International Equity Fund,  the Japan OTC Fund and Warburg
Pincus Emerging Markets Fund is Mr. King. Mr. King has been a portfolio  manager
of  the International Equity  Fund since its  inception on May  2, 1989, and Mr.
King, Mr. Horsley and Mr. Abe have  been co-portfolio managers of the Japan  OTC
Fund  since  its  inception  on  September 30,  1994.  Mr.  Edwards  has  been a
co-portfolio manager of the Japan OTC Fund since October 1995. Mr. King has been
a managing  director of  EMW  since 1989.  From 1984  until  1988 he  was  chief
investment  officer and a director at Fiduciary Trust Company International S.A.
in London,  with  responsibility for  all  international equity  management  and
investment  strategy. From 1982 to 1984 he was  a director in charge of Far East
equity  investments   at  N.M.   Rothschild  International   Asset   Management,
a  London merchant bank. Mr.  Horsley is a senior  vice president of Counsellors
and has been with Counsellors since 1993,  before which time he was a  director,
portfolio  manager and analyst  at Barclays deZoete  Wedd in New  York City. Mr.
Edwards has been with Counsellors since August 1995, before which time he was  a
director  at Jardine Fleming Investment Advisers, Tokyo. He was a vice president
of Robert Fleming Inc. in New York City from 1988 to 1991.



     Together with Mr. Horsley and Mr. Edwards, Harold W. Ehrlich and Vincent J.
McBride  are  associate  portfolio  managers  and  research  analysts  for   the
International Equity Fund. Mr. Ehrlich is a senior vice president of Counsellors
and  has been with  Counsellors and the  Fund since February  1995, before which
time he was a senior vice president, portfolio manager and analyst at  Templeton
Investment Counsel Inc. Mr. McBride has been with Counsellors and the Fund since
1994.  Prior to  joining Counsellors,  Mr. McBride  was an  international equity
analyst at  Smith  Barney  Inc.  from  1993 to  1994  and  at  General  Electric
Investment  Corporation from 1992 to 1993. From  1989 to 1992 he was a portfolio
manager/analyst at United Jersey Bank.


                                       23

<PAGE>
     Shuhei Abe of SPARX USA, a co-portfolio  manager of the Japan OTC Fund,  is
the  founder and president of SPARX Asset Management Company Ltd. ('SPARX'), the
parent company  of SPARX  USA. Prior  to  founding SPARX  in 1989  (by  assuming
control  of a predecessor company), Mr. Abe worked for Soros Fund Management and
Credit Suisse Trust  Bank as  an independent  adviser. Toshikatsu  Kimura is  an
associate  portfolio  manager of  the  Japan OTC  Fund.  Mr. Kimura  has  been a
portfolio manager and analyst at  SPARX since 1992, before  which time he was  a
warrant  trader  and portfolio  manager, respectively,  at Sanyo  Securities and
Sanyo Investment Management from 1986 to 1990, and at Funai Capital from 1990 to
1992.


     The co-portfolio managers of the Emerging Growth Fund and the  Post-Venture
Capital  Fund are Elizabeth B. Dater and Stephen J. Lurito, co-presidents of the
Emerging Growth  Fund. Ms.  Dater has  been portfolio  manager of  the  Emerging
Growth  Fund since its inception on January 21, 1988. She is a managing director
of EMW and has been  a portfolio manager of  Counsellors since 1978. Mr.  Lurito
has  been a portfolio  manager of the Emerging  Growth Fund since  1990. He is a
managing director of EMW and has been with Counsellors since 1987, before  which
time he was a research analyst at Sanford C. Bernstein & Company, Inc. Robert S.
Janis  and Christopher  M. Nawn  are associate  portfolio managers  and research
analysts for the Post-Venture Capital Fund. Mr. Janis has been with  Counsellors
since  October  1994, before  which  time he  was  a vice  president  and senior
research analyst at  U.S. Trust  Company of  New York.  Mr. Nawn  has been  with
Counsellors  since  September 1994,  before which  time he  was a  senior sector
analyst and portfolio manager at the Dreyfus Corporation.


     George U. Wyper and Susan L.  Black have been co-portfolio managers of  the
Capital  Appreciation Fund since December 1994. Mr. Wyper is a managing director
of EMW,  which  he  joined in  August  1994,  before which  time  he  was  chief
investment officer of White River Corporation and president of Hanover Advisers,
Inc.  (1993-August 1994), chief investment officer of Fund American Enterprises,
Inc. (1990-1993) and the director of fixed income investments at Fireman's  Fund
Insurance  Company (1987-1990). Ms. Black is a  managing director of EMW and has
been with Counsellors since 1985.


CO-ADMINISTRATORS.  The   Funds   employ   Counsellors   Funds   Service,   Inc.
('Counsellors  Service'),  a  wholly  owned  subsidiary  of  Counsellors,  as  a
co-administrator. As co-administrator, Counsellors Service provides  shareholder
liaison  services to the Funds including responding to shareholder inquiries and
providing information  on  shareholder  investments.  Counsellors  Service  also
performs a variety of other services, including furnishing certain executive and
administrative  services, acting as liaison between  the Funds and their various
service providers,  furnishing  corporate secretarial  services,  which  include
preparing  materials  for  meetings  of  the  governing  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 Funds. As compensation, each Fund pays Counsellors Service  a
fee calculated at an annual rate of .10% of the Fund's average daily net assets.


     Counsellors  may,  at its  own expense,  provide promotional  incentives to
qualified recipients who  support the  sale of  shares of  the Funds.  Qualified
recipients are 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.

     Each  Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the  Fund's   net   asset   value,  provides   all   accounting   services   for

                                       24

<PAGE>

the   Fund  and  assists  in  related  aspects  of  the  Fund's  operations.  As
compensation the Emerging  Growth Fund,  the Capital Appreciation  Fund and  the
Post-Venture  Capital Fund each pays PFPC a  fee calculated at an annual rate of
 .10% of each Fund's average daily net assets, and the International Equity  Fund
and the Japan OTC Fund each pays PFPC a fee calculated at an annual rate of .12%
of  each Fund's first $250 million in average daily net assets, .10% of the next
$250 million in  average daily  net assets,  .08% of  the next  $250 million  in
average  daily  net assets,  and  .05% of  average  daily net  assets  over $750
million, subject in each case to a  minimum annual fee and exclusive of  out-of-
pocket  expenses.  PFPC  has  its principal  offices  at  400  Bellevue Parkway,
Wilmington, Delaware 19809.


CUSTODIAN.  Fiduciary  Trust  Company  International  ('Fiduciary')  serves   as
custodian  of the International  Equity Fund's assets and  State Street Bank and
Trust Company  ('State Street')  serves as  custodian of  the Japan  OTC  Fund's
assets.  Fiduciary's principal business  address is Two  World Trade Center, New
York, New York 10048. State Street's principal business address is 225  Franklin
Street, Boston, Massachusetts 02110.


     PNC  Bank,  National  Association  ('PNC'),  serves  as  custodian
of the Post-Venture Capital Fund's U.S.  assets, and State  Street serves as
custodian of the Fund's  non-U.S. assets. PNC  serves as custodian  of the
assets  of the Capital Appreciation Fund  and  the  Emerging  Growth Fund
and  also provides  certain custodial   services  generally  in  connection
with purchases  and  sales  of International Equity Fund  shares. Like PFPC,
PNC is a  subsidiary of PNC  Bank Corp.  and  its  principal  business
address is  Broad  and  Chestnut Streets, Philadelphia, Pennsylvania 19101.


TRANSFER AGENT.  State  Street  also  serves  as  shareholder  servicing  agent,
transfer  agent and dividend disbursing agent for the Funds. It has delegated to
Boston  Financial  Data  Services,  Inc.,  a  50%  owned  subsidiary   ('BFDS'),
responsibility  for  most  shareholder  servicing  functions.  BFDS's  principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.


DISTRIBUTOR. Counsellors Securities serves as  distributor of the shares of  the
Funds. Counsellors Securities is a wholly owned subsidiary of Counsellors and is
located  at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the International Equity, Emerging Growth or Capital  Appreciation
Funds   to  Counsellors   Securities  for   distribution  services.  Counsellors
Securities receives a fee at an annual  rate equal to .25% of the average  daily
net  assets of  each of  the Japan  OTC and  Post-Venture Capital  Fund's Common
Shares for  distribution  services,  pursuant to  a  shareholder  servicing  and
distribution  plan ('12b-1  Plan') adopted by  each Fund pursuant  to Rule 12b-1
under the 1940 Act.  Amounts paid to Counsellors  Securities under a 12b-1  Plan
may  be  used by  Counsellors Securities  to cover  expenses that  are primarily
intended to result in, or  that are primarily attributable  to, (i) the sale  of
the  Common Shares, (ii) ongoing servicing and/or maintenance of the accounts of
Common  Shareholders  of  the  Fund  and  (iii)  sub-transfer  agency  services,
subaccounting  services or  administrative services related  to the  sale of the
Common Shares, all as  set forth in  the 12b-1 Plans.  Payments under the  12b-1
Plans are not tied exclusively to the distribution expenses actually incurred by
Counsellors  Securities  and  the  payments  may  exceed  distribution  expenses
actually  incurred.  The  governing  Boards  of  the  Japan  OTC  Fund  and  the
Post-Venture  Capital Fund evaluate  the appropriateness of the  12b-1 Plan on a
continuing basis  and  in doing  so  consider all  relevant  factors,  including
expenses  borne by Counsellors  Securities and amounts  received under the 12b-1
Plans.


DIRECTORS AND  OFFICERS.  The  officers  of  each  Fund  manage  its  day-to-day
operations  and are directly responsible to  its governing Board. The Boards set
broad  policies  for  each  Fund  and  choose  its  officers.  A  list  of   the
Direc-

                                       25

<PAGE>
tors/Trustees  and officers of each Fund and  a brief statement of their present
positions and principal occupations during the  past five years is set forth  in
the Statement of Additional Information of each Fund.

HOW TO OPEN AN ACCOUNT

     In  order to invest in a Fund, an  investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds  at  (800)  257-5614.  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 about investing in the Funds
through a tax-deferred retirement plan, such as an Individual Retirement Account
('IRA') or a  Simplified Employee Pension  IRA ('SEP-IRA'), or  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) 888-6878 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) 888-6878.

HOW TO PURCHASE SHARES

     Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire.

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 Inc., 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 before 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 4:00 p.m.,  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 a  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) 888-6878. Federal

                                       26

<PAGE>
funds may  be wired  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.
[Insert Warburg Pincus fund name(s) here]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]

     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 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.

     The  minimum  initial investment  in each  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 in the  next
section.  For a tax-deferred retirement plan, such as an IRA or an UGMA account,
the minimum initial  and subsequent 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 Counsellors has entered
into an investment advisory agreement. Existing investors will be given 15 days'
notice by mail of any increase in investment minimum requirements.

     After an investor has made his initial investment, additional shares may be
purchased at any  time by mail  or by wire  in the manner  outlined above.  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 Funds
are not normally issued.

     The Funds  understand  that  some broker-dealers  (other  than  Counsellors
Securities),  financial  institutions,  securities  dealers  and  other industry
professionals may impose certain conditions on their clients that invest in  the
Funds,  which  are in  addition to  or  different than  those described  in this
Prospectus, and, to the extent permitted by applicable regulatory authority, may
charge their clients  direct fees. Certain  features of the  Funds, such as  the
initial  and subsequent investment minimums, may  be modified 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  accounts with the organization. These organizations will be responsible for
promptly transmitting client or customer  purchase and redemption orders to  the
Funds in

                                       27

<PAGE>
accordance with their agreements with clients or customers.


     Common  Shares  of each  Fund are  available through  the Charles  Schwab &
Company, Inc. Mutual Fund OneSourceTM Program, Fidelity Brokerage Services, Inc.
Funds-NetworkTM Program, Jack White &  Company, Inc. and Waterhouse  Securities,
Inc.  The availability of the  Japan OTC Fund through  these brokerage firms may
vary. Generally, these programs  do not require customers  to pay a  transaction
fee  in  connection  with purchases.  These  and other  organizations  that have
entered into agreements with  a Fund or its  agent may enter confirmed  purchase
orders  on behalf of customers, with payment  to follow no later than the Funds'
pricing on the following business day. If payment is not received by such  time,
the organization could be held liable for resulting fees or losses.


AUTOMATIC  MONTHLY INVESTING. Automatic monthly investing allows shareholders to
authorize a  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)  888-6878 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.

HOW TO REDEEM AND EXCHANGE
SHARES

REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on  any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Proceeds  from the redemption of shares of the Japan OTC Fund will be reduced by
the amount of any applicable redemption fee (see 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 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) 888-6878 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.

                                       28

<PAGE>
     After  receipt  of the  redemption  request by  mail  or by  telephone, the
redemption proceeds will, at the  option of the investor,  be paid by check  and
mailed to the investor of record or be wired to the investor's bank as indicated
in  the  account application  previously  filled out  by  the investor.  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 each Fund will
redeem shares  purchased by  check  before the  check  clears, payments  of  the
redemption proceeds will be delayed until such check has cleared, which may take
up  to  15 days  from the  purchase date.  Investors should  consider purchasing
shares using a  certified or bank  check or  money order if  they anticipate  an
immediate need for a redemption.

     If  a redemption order is received 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. 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  Counsellors,  immediate
payment  would adversely affect a Fund, each  Fund reserves the right to pay the
redemption proceeds within seven  days after the  redemption order is  effected.
Furthermore,  each Fund may suspend the right of redemption or postpone the date
of payment upon redemption (as well as suspend or postpone the recordation of an
exchange of shares) for such periods as are permitted under the 1940 Act.

     The proceeds  paid upon  redemption may  be more  or less  than the  amount
invested  depending upon a share's net asset value at the time of redemption. If
an  investor  redeems  all  the  shares  in  his  account,  all  dividends   and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.

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

     The  Japan OTC Fund imposes a redemption charge on any redemption of shares
(which includes an exchange of shares of the Japan OTC Fund into another Warburg
Pincus Fund) made within six months from the date of purchase. The charge, which
is deducted from the redemption proceeds and  retained by the Fund, is equal  to
1.00%  of the current value of shares redeemed  that were held for less than six
months, including any appreciation  in value of the  redeemed shares. If  shares
being  redeemed were not all held for the same length of time, those shares held
longest will be redeemed  first for purposes of  determining whether the  charge
applies. The redemption charge will not be imposed on redemptions (or exchanges)
of  shares acquired through the reinvestment of dividends, and these shares will
be redeemed  before any  shares  to which  the  redemption charge  applies.  The
redemption  fee is currently being waived until  such later date as the Fund may
determine.

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

                                       29

<PAGE>
exchanges  by  telephone. Neither  a  Fund nor  its  agents will  be  liable for
following instructions communicated by telephone that it reasonably believes  to
be  genuine. Reasonable procedures  will be employed  on behalf of  each Fund 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. Each Fund  offers investors  an automatic cash
withdrawal plan  under  which  investors  may elect  to  receive  periodic  cash
payments  of  at least  $250 monthly  or quarterly.  To establish  this service,
complete the 'Automatic Withdrawal Plan' section of the account application  and
attach  a  voided  check from  the  bank  account to  be  credited.  For further
information regarding  the  automatic  cash  withdrawal plan  or  to  modify  or
terminate  the  Plan, investors  should contact  Warburg  Pincus Funds  at (800)
888-6878.

EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for  Common
Shares of another Fund or for Common Shares of the other mutual funds advised by
Counsellors  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 prior to 4:00  p.m.
(Eastern  time),  the exchange  will  be made  at  each Fund's  net  asset value
determined at the end of that business day. Exchanges may be effected without  a
sales  charge  but must  satisfy  the minimum  dollar  amount necessary  for new
purchases and may, in the case of exchanges from the Japan OTC Fund, be  subject
to a redemption fee. Due to the costs involved in effecting exchanges, each Fund
reserves  the right to  refuse to honor  more than three  exchange requests by a
shareholder in any  30-day period.  The exchange  privilege may  be modified  or
terminated  at  any  time  upon  60  days'  notice  to  shareholders. Currently,
exchanges may be made among the Funds and with the following other funds:

      WARBURG PINCUS  CASH RESERVE  FUND --  a money  market fund  investing  in
      short-term, high quality money market instruments;

      WARBURG  PINCUS NEW YORK TAX EXEMPT FUND  -- a money market fund investing
      in short-term, high  quality municipal obligations  designed for New  York
      investors  seeking income exempt from federal, New York State and New York
      City income tax;

      WARBURG   PINCUS   NEW   YORK   INTERMEDIATE   MUNICIPAL   FUND   --    an
      intermediate-term  municipal  bond fund  designed  for New  York investors
      seeking income  exempt from  federal, New  York State  and New  York  City
      income tax;

      WARBURG PINCUS 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 SHORT-TERM TAX-ADVANTAGED BOND FUND -- a bond fund seeking
      maximum income  after the  effect of  federal income  taxes as  a  primary
      objective  and  capital  appreciation  as  a  secondary  objective through
      investments in taxable and tax-exempt debt instruments;

                                       30

<PAGE>
      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; and

      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.

     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) 257-5614.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND  DISTRIBUTIONS.  Each  Fund  calculates  its  dividends  from  net
investment income. Net investment income includes interest accrued and dividends
earned  on  the  Fund's  portfolio securities  for  the  applicable  period less
applicable expenses. Each Fund declares dividends from its net investment income
semiannually and pays them in the calendar year in which they are declared.  Net
investment  income earned  on weekends  and when  the NYSE  is not  open will be
computed as of the  next business day. Distributions  of net realized  long-term
and  short-term capital gains are declared annually and, as a general rule, will
be distributed or paid in November or December of each calendar year. Unless  an
investor  instructs a Fund to pay  dividends or distributions in cash, dividends
and distributions will automatically be  reinvested in additional Common  Shares
of  the relevant Fund at  net asset value. The  election to receive dividends in
cash may be  made on  the account application  or, subsequently,  by writing  to
Warburg  Pincus Funds at the address set forth under 'How to Open an Account' or
by calling Warburg Pincus Funds at (800) 888-6878.

     A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders  who fail to provide  the Fund with  their
correct  taxpayer identification number  or to make  required certifications, or
who have  been notified  by the  U.S.  Internal Revenue  Service that  they  are
subject to backup withholding.

TAXES.  Each  Fund  intends to  qualify  each  year as  a  'regulated investment
company' within  the meaning  of  the Code.  Each Fund,  if  it qualifies  as  a
regulated  investment company, will be subject to a 4% non-deductible excise tax
measured with respect to  certain undistributed amounts  of ordinary income  and
capital  gain. Each Fund  expects to pay  such additional dividends  and to make
such additional distributions as are necessary to avoid the application of  this
tax.


     Dividends paid from net investment income and distributions of net realized
short-term  capital  gains  are taxable  to  investors as  ordinary  income, and
distributions derived from net realized  long-term capital gains are taxable  to
investors  as long-term capital gains,  in each case regardless  of how long the
shareholder has held


                                       31

<PAGE>

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 Funds, but investors not subject to tax on their  income
will  not be  required to  pay tax  on amounts  distributed to  them. The Fund's
investment activities, including short sales  of securities, will not result  in
unrelated  business taxable income to a tax-exempt investor. A 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.


     Special Tax Matters Relating to the International Equity Fund and the Japan
OTC Fund. Dividends and interest received  by the International Equity Fund  and
the  Japan OTC  Fund may be  subject to  withholding and other  taxes imposed by
foreign countries. However,  tax conventions between  certain countries and  the
United  States may reduce  or eliminate such taxes.  If the International Equity
Fund or  the Japan  OTC 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 International  Equity Fund or the Japan
OTC Fund, as the case  may be, may elect for  U.S. income tax purposes to  treat
foreign  income taxes paid by it as paid by its shareholders. A Fund may qualify
for and make  this election in  some, but  not necessarily all,  of its  taxable
years.  If a 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 International Equity Fund or the Japan OTC
Fund will report to its shareholders the amount per share of such foreign income
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.

     Special Tax  Matters Relating  to the  Japan OTC  Fund. In  the opinion  of
Japanese  counsel for the Fund, the operations  of the Fund will not subject the
Fund to any Japanese income, capital gains or other taxes except for withholding
taxes on interest and  dividends paid to the  Fund by Japanese corporations  and
securities  transaction  taxes  payable  in  the  event  of  sales  of portfolio
securities in Japan. In  the opinion of such  counsel, under the tax  convention
between  the United States and Japan (the 'Convention') as currently in force, a
Japanese withholding tax at a rate  of 15% is, with certain exceptions,  imposed
upon  dividends  paid by  Japanese  corporations to  the  Fund. Pursuant  to the
present terms of  the Convention,  interest received  by the  Fund from  sources
within Japan is subject to a Japanese withholding tax at a rate of 10%.


     Special  Tax  Matters Relating  to the  Post-Venture Capital  Fund. 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


                                       32

<PAGE>
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

     Each  Fund's net  asset value per  share is  calculated as of  the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE  is
currently  scheduled to be closed on New Year's Day, 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 each Fund is computed by adding the
Common  Shares' pro rata share of the  value of the Fund's assets, deducting the
Common Shares' pro  rata share  of the  Fund's liabilities  and the  liabilities
specifically  allocated to  Common Shares  and then  dividing the  result by the
total number of outstanding Common Shares. Generally, the Funds' investments are
valued at market value or, in the absence of a quoted market value with  respect
to  any  portfolio securities,  at  fair value  as  determined by  or  under the
direction of the governing Board.

     Portfolio securities that  are primarily  traded on  foreign exchanges  are
generally  valued at the  closing values of such  securities on their respective
exchanges preceding the  calculation of a  Fund's net asset  value, except  that
when  an occurrence subsequent to the time  a value was so established is likely
to have changed such value, then the fair market value of those securities  will
be determined by consideration of other factors by or under the direction of the
governing Board or its delegates.

     Securities  listed  on  a U.S.  securities  exchange  (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
will be valued  on the  basis of  the closing  value on  the date  on which  the
valuation   is   made.   Other   U.S.   over-the-counter   securities,   foreign
over-the-counter securities and securities listed  or traded on certain  foreign
stock exchanges whose operations are similar to the U.S. over-the-counter market
are  valued on the basis of the bid price  at the close of business on each day.
Option or futures contracts will be valued  at the last sale price at 4:00  p.m.
(Eastern  time) on  the date on  which the valuation  is made, as  quoted on the
primary exchange or board of  trade on which the  option or futures contract  is
traded  or, in the absence of sales, at  the mean between the last bid and asked
prices. Unless the governing Board  determines that using this valuation  method
would  not reflect the investments' value, short-term investments that mature in
60 days  or less  are valued  on the  basis of  amortized cost,  which  involves
valuing  a portfolio instrument at its  cost initially 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
valuation of  short sales  of securities,  which are  not traded  on a  national
exchange,  will  be  at  the  mean  of bid  and  asked  prices.  Any  assets and
liabilities initially expressed in non-U.S. dollar currencies

                                       33

<PAGE>
are translated  into  U.S.  dollars at  the  prevailing  rate as  quoted  by  an
independent  pricing  service  on  the date  of  valuation.  Further information
regarding valuation policies is contained in each Fund's Statement of Additional
Information.

PERFORMANCE

     The Funds quote the  performance of Common  Shares separately from  Advisor
Shares.  The  net asset  value of  Common Shares  is listed  in The  Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund  may advertise  the average annual  total return  of its  Common
Shares over various periods of time. These total return figures show the average
percentage  change  in value  of an  investment  in the  Common Shares  from the
beginning of  the measuring  period to  the  end of  the measuring  period.  The
figures  reflect changes  in the  price of the  Common Shares  assuming that any
income dividends and/or capital gain distributions  made by the Fund during  the
period  were reinvested in Common Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other  periods
as   well  (such  as  from  commencement  of  the  Fund's  operations  or  on  a
year-by-year, quarterly or current year-to-date basis).

     When considering average total return  figures for periods longer than  one
year,  it is important to note that the  annual total return for one year in the
period might have been greater or less  than the average for the entire  period.
When  considering  total  return  figures for  periods  shorter  than  one year,
investors should bear in  mind that each Fund  seeks long-term appreciation  and
that  such return may not  be representative of any  Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
Common Shares for various periods,  representing the cumulative change in  value
of  an investment in the Common Shares for the specific period (again reflecting
changes  in   share  prices   and  assuming   reinvestment  of   dividends   and
distributions).  Aggregate and  average total returns  may be shown  by means of
schedules, charts or graphs and may indicate various components of total  return
(i.e.,  change in value of initial investment, income dividends and capital gain
distributions).

     Investors should note  that total  return figures are  based on  historical
earnings  and  are  not intended  to  indicate future  performance.  Each Fund's
Statement of Additional Information describes  the method used to determine  the
total  return. Current total  return figures may be  obtained by calling Warburg
Pincus Funds at (800) 257-5614.


     In reports or other communications to investors or in advertising material,
a Fund may describe general economic  and market conditions affecting the  Fund.
The  Fund may  compare its performance  with (i)  that of other  mutual funds as
listed in the rankings prepared by  Lipper Analytical Services, Inc. or  similar
investment services that monitor the performance of mutual funds or as set forth
in  the publications listed below; (ii) in  the case of the Capital Appreciation
Fund, with the Russell Midcap  Index, the S&P Midcap 400  Index and the S&P  500
Index;  in the  case of the  Emerging Growth  Fund, with the  Russell 2000 Small
Stock Index, the T. Rowe Price New Horizons Fund Index and the S&P 500 Index; in
the  case  of  the  International  Equity  Fund,  the  Morgan  Stanley   Capital
International Europe, Australia and Far East ('EAFE') Index, the Salomon Russell
Global  Equity Index,  the FT-Actuaries World  Indices (jointly  compiled by The
Financial Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.) and the
S&P 500 Index; in the  case of the Japan OTC  Fund, the indexes noted above  for
the  International Equity Fund, as well  as the Nikkei over-the-counter average,
the JASDAQ Index, the Nikkei 225 and  300 Stock Indexes and the Topix Index;  in
the  case of the Post-Venture  Capital Fund, with the  Venture Capital 100 Index
(compiled by Venture Capital  Journal), the Russell 2000  Small Stock Index  and
the S&P 500 Index; all of which are unmanaged indexes of common stocks; or (iii)
other appro-

                                       34

<PAGE>

priate  indexes of investment  securities or with  data developed by Counsellors
derived  from  such  indexes.  The  Post-Venture  Capital  Fund  may  also  make
comparisons  using data  and indexes  compiled by  the National  Venture Capital
Association, VentureOne  and  Private  Equity Analysts  Newsletter  and  similar
organizations  and  publications. A  Fund may  include  evaluations of  the Fund
published  by   nationally  recognized   ranking  services   and  by   financial
publications  that are nationally  recognized, such as  The Wall Street Journal,
Investor's  Daily,  Money,  Inc.,  Institutional  Investor,  Barron's,  Fortune,
Forbes,  Business  Week, Mutual  Fund Magazine,  Morningstar, Inc.  and
Financial Times.



     In reports or  other communications  to investors or  in advertising,  each
Fund may also describe the general biography or work experience of the portfolio
managers  of the Fund  and may include quotations  attributable to the portfolio
managers  describing  approaches  taken  in  managing  the  Fund's  investments,
research  methodology  underlying  stock  selection  or  the  Fund's  investment
objective. The Post-Venture Capital Fund may discuss characteristics of  venture
capital  financed  companies  and  the benefits  expected  to  be  achieved from
investing in these companies. Each Fund  may also discuss the continuum of  risk
and return relating to different investments and the potential impact of foreign
stocks  on a portfolio  otherwise composed of  domestic securities. In addition,
each Fund may from time to time  compare the expense ratio of its Common  Shares
to  that of investment companies with  similar objectives and policies, based on
data generated  by  Lipper  Analytical  Services,  Inc.  or  similar  investment
services that monitor mutual funds.

GENERAL INFORMATION


ORGANIZATION. The International Equity Fund was incorporated on February 9, 1989
under  the laws of the State of Maryland.  Although the Fund's name as set forth
in its  charter  is  'Counsellors  International Equity  Fund,  Inc.,'  it  does
business  under  the  name  'Warburg,  Pincus  International  Equity  Fund.' The
Emerging Growth Fund was incorporated on November 12, 1987 under the laws of the
State of Maryland.  Although the  Fund's name  as set  forth in  its charter  is
'Counsellors  Emerging  Growth  Fund, Inc.,'  it  does business  under  the name
'Warburg, Pincus  Emerging  Growth  Fund.' The  Capital  Appreciation  Fund  was
organized   on  January  20,  1987  under   the  laws  of  The  Commonwealth  of
Massachusetts and is a business entity commonly known as 'Massachusetts business
trust.' On February 26, 1992, the Fund amended the Agreement and Declaration  of
Trust  to change  the name  of the  Fund from  'Counsellors Capital Appreciation
Fund' to 'Warburg, Pincus Capital Appreciation Fund.' The Japan OTC Fund and the
Post-Venture Capital Fund were incorporated on July 26, 1994 and July 12,  1995,
respectively, under the laws of the State of Maryland.



     The  charter of each of the  Emerging Growth Fund, the International Equity
Fund, the Japan OTC Fund and the Post-Venture Capital Fund authorizes the  Board
to  issue three billion full  and fractional shares of  capital stock, $.001 par
value per share, of which one billion shares are designated Series 2 Shares (the
Advisor Shares). The  Capital Appreciation Fund's  Agreement and Declaration  of
Trust  authorizes the Board to issue an  unlimited number of full and fractional
shares of beneficial interest, $.001 par  value per share, of which one  billion
shares are classified as Series 2 Shares (the Advisor Shares). Under each Fund's
charter  documents, the governing 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 governing Board  of a Fund may similarly classify
or reclassify any  class of  its shares  into one  or more  series and,  without
shareholder approval, may increase the number of authorized shares of the Fund.


MULTI-CLASS  STRUCTURE. Each Fund offers a separate class of shares, the Advisor
Shares, pursuant

                                       35

<PAGE>
to a separate  prospectus. Advisor Shares  may not be  purchased by  individuals
directly  but institutions and retirement plans  may purchase Advisor Shares for
individuals. Advisor Shares of each class represent equal pro rata interests  in
the  respective  Fund and  accrue dividends  and calculate  net asset  value and
performance quotations  in  the same  manner,  as described  elsewhere  in  this
Prospectus.  Because of the higher  fees borne 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 by
calling Counsellors Securities at (800) 888-6878.


VOTING  RIGHTS. Investors in a Fund are entitled to one vote for each full share
held and fractional  votes for fractional  shares held. Shareholders  of a  Fund
will  vote in the  aggregate except where  otherwise required by  law and except
that each  class will  vote  separately on  certain  matters pertaining  to  its
distribution  and shareholder servicing arrangements.  There will normally be no
meetings of investors for the purpose of electing members of the governing Board
unless and until such time as less than a majority of the members holding office
have been elected by investors. Any  Director of the International Equity  Fund,
the  Emerging Growth Fund, the  Japan OTC Fund or  the Post-Venture Capital Fund
may be removed  from office upon  the vote  of shareholders holding  at least  a
majority of the relevant Fund's outstanding shares, at a meeting called for that
purpose.  Investors  of record  of no  less than  two-thirds of  the outstanding
shares of  the  Capital  Appreciation  Fund  may  remove  a  Trustee  through  a
declaration in writing or by vote cast in person or by proxy at a meeting called
for  that purpose.  A meeting will  be called for  the purpose of  voting on the
removal of  a Board  member at  the written  request of  holders of  10% of  the
outstanding  shares of  a Fund.  John L.  Furth, a  Director and  Trustee of the
Funds, and Lionel I. Pincus, Chairman  of the Board and Chief Executive  Officer
of  EMW, may  be deemed to  be controlling persons  of each Fund  other than the
Post-Venture Capital Fund as of  August 31, 1995 because  they may be deemed  to
possess  or share investment  power over shares owned  by clients of Counsellors
and certain other entities.


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).  Each Fund  will  also  send to  its  investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund.

     The prospectuses of the  Funds are combined in  this Prospectus. Each  Fund
offers  only its own shares, yet it is  possible that a Fund might become liable
for a misstatement,  inaccuracy or omission  in this Prospectus  with regard  to
another Fund.

SHAREHOLDER SERVICING


     Common  Shares may be sold to  or through institutions, including insurance
companies, that will not be paid a distribution fee by the Fund pursuant to Rule
12b-1 under the 1940 Act for services  to their clients or customers who may  be
deemed  to be beneficial owners of Common Shares. These institutions may be paid
a fee by the Fund for transfer agency, administrative or other services provided
to their  customers that  invest in  the Funds'  Common Shares.  These  services
include  maintaining account records, processing  orders to purchase, redeem and
exchange  Common   Shares  and   responding  to   certain  customer   inquiries.
Organizations  that provide recordkeeping or  other services to certain employee
benefit plans and qualified and other retirement plans that include a Fund as an
investment alternative may also be paid a fee by the Fund for these services.


     Each Fund is authorized to offer Advisor Shares exclusively to institutions
that enter  into  account  servicing agreements  ('Agreements')  with  the  Fund
pursuant  to  a  distribution  plan  approved  by  each  Fund's  governing Board
pursu-

                                       36

<PAGE>
ant to Rule 12b-1 under the 1940 Act. Pursuant to the terms of an Agreement, the
institution  will   provide   certain   distribution,   shareholder   servicing,
administrative  and/or accounting services for its clients and customers who may
be deemed to be beneficial owners of Advisor Shares.


     Counsellors and Counsellors Securities may, from time to time, at their own
expense, also provide compensation to  these institutions and organizations.  To
the  extent  they do  so,  such compensation  does  not represent  an additional
expense to a Fund or its shareholders, since it will be paid from the assets  of
Counsellors,  Counsellors Securities or their affiliates. Counsellors Securities
currently receives a fee equal  to an annual rate of  .25% of the average  daily
net  assets of  each of  the Japan  OTC and  Post-Venture Capital  Fund's Common
Shares. See 'Management of the Funds -- Distributor.'


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

                                       37
<PAGE>
                               TABLE OF CONTENTS


  THE FUNDS' EXPENSES ...................................................... 2
  FINANCIAL HIGHLIGHTS ..................................................... 3
  INVESTMENT OBJECTIVES AND POLICIES ....................................... 6
  PORTFOLIO INVESTMENTS .................................................... 9
  RISK FACTORS AND SPECIAL
     CONSIDERATIONS ....................................................... 11
  PORTFOLIO TRANSACTIONS AND TURNOVER
     RATE ................................................................. 14
  CERTAIN INVESTMENT STRATEGIES ........................................... 14
  INVESTMENT GUIDELINES ................................................... 21
  MANAGEMENT OF THE FUNDS ................................................. 22
  HOW TO OPEN AN ACCOUNT .................................................. 26
  HOW TO PURCHASE SHARES .................................................. 26
  HOW TO REDEEM AND EXCHANGE
     SHARES ............................................................... 28
  DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 31
  NET ASSET VALUE ......................................................... 33
  PERFORMANCE ............................................................. 34
  GENERAL INFORMATION ..................................................... 35
  SHAREHOLDER SERVICING ................................................... 36

                                      [LOGO]

            [ ] WARBURG PINCUS
                CAPITAL APPRECIATION FUND

            [ ] WARBURG PINCUS
                EMERGING GROWTH FUND

            [ ] WARBURG PINCUS
                POST-VENTURE CAPITAL FUND

            [ ] WARBURG PINCUS
                INTERNATIONAL EQUITY FUND

            [ ] WARBURG PINCUS
                JAPAN OTC FUND

                                  PROSPECTUS

                               SEPTEMBER 29, 1995

WPEQF-1-0995


                 STATEMENT OF DIFFERENCES
<TABLE>
<S>                                                      <C>
The dagger symbol shall be expressed as ................   'D'
</TABLE>




<PAGE>
                                          Rule 497(c)
                                          Securities Act File No. 33-12344
                                          Investment Co. Act File No. 811-5041

                          WARBURG PINCUS ADVISOR FUNDS
                                 P.O. BOX 9030
                        BOSTON, MASSACHUSETTS 02205-9030
                        TELEPHONE NUMBER: (800) 888-6878


                                                              September 29, 1995

PROSPECTUS

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

WARBURG,  PINCUS CAPITAL APPRECIATION FUND  seeks long-term capital appreciation
by  investing  principally  in   equity  securities  of  medium-sized   domestic
companies.


The  Fund currently  offers two classes  of shares,  one of which,  the Series 2
Shares (referred  to  as  the  Advisor Shares),  is  offered  pursuant  to  this
Prospectus. The Advisor Shares of the Fund, as well as Advisor (Series 2) Shares
of  certain other Warburg Pincus-advised funds, are sold under the name 'Warburg
Pincus Advisor Funds.' The  Advisor Shares may not  be purchased by  individuals
directly  but institutions  and retirement  plans ('Institutions')  may purchase
Advisor Shares for individuals. The Advisor Shares  impose a 12b-1 fee of up  to
 .75%  per annum,  which is  the economic  equivalent of  a sales  charge. 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 to investors
without charge  by  calling Warburg  Pincus  Advisor Funds  at  (800)  888-6878.
Information regarding the status of shareholder accounts may also be obtained by
calling  Warburg  Pincus  Advisor  Funds at  (800)  888-6878.  The  Statement of
Additional  Information  bears  the  same   date  as  this  Prospectus  and   is
incorporated by reference in its entirety into this Prospectus.


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


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

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


     The Fund currently offers two separate classes of shares: Common Shares and
Advisor  Shares. See 'General Information'  and 'Shareholder Servicing.' Because
of the higher fees borne by Advisor Shares, the total return on such shares  can
be expected to be lower than the total return on Common Shares.


<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S>                                                                                                         <C>
     Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..........................    0
Annual Fund Operating Expenses (as a percentage of average net assets) (after fee waivers)
     Management Fees......................................................................................     .69%
     12b-1 Fees...........................................................................................     .75%*
     Other Expenses.......................................................................................     .36%
                                                                                                            --------
     Total Fund Operating Expenses........................................................................    1.80%
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..............................................................................................     $57
     5 years..............................................................................................     $97
     10 years.............................................................................................    $212
</TABLE>

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


*  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.



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

     The expense table shows the costs  and expenses that an investor will  bear
directly  or indirectly as an Advisor Shareholder of the Fund. Institutions also
may charge their  clients fees  in connection  with investments  in the  Advisor
Shares,  which fees are not reflected in  the table. Absent the voluntary waiver
of a portion of  the fees payable to  the Fund's investment adviser,  Management
Fees  would have equalled .70% and the  Total Fund Operating Expenses would have
equalled 1.81%. 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  holders of Advisor Shares may pay more than the economic equivalent of the
maximum front-end  sales  charges  permitted  by  the  National  Association  of
Securities Dealers, Inc. (the 'NASD').


                                       2

<PAGE>
FINANCIAL HIGHLIGHTS
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

     The  information regarding the Fund for the two fiscal years ending October
31, 1994 has been derived from information audited by Coopers & Lybrand  L.L.P.,
independent auditors, whose report dated December 12, 1994 appears in the Fund's
Statement  of  Additional  Information.  The information  for  the  prior fiscal
year/period ending October 31, 1992 has been

audited by Ernst & Young LLP, whose report was unqualified. The information  for
the  six months ended April 30, 1995 is unaudited. Further information about the
performance of the  Fund is contained  in the annual  report, dated October  31,
1994,  copies of which may be obtained  without charge by calling Warburg Pincus
Advisor Funds at (800) 888-6878.

<TABLE>
<CAPTION>
                                              FOR THE SIX                                             FOR THE PERIOD
                                                MONTHS                                                APRIL 4, 1991
                                                 ENDED                                                   (INITIAL
                                               APRIL 30,        FOR THE YEAR ENDED OCTOBER 31,          ISSUANCE)
                                                 1995       --------------------------------------       THROUGH
                                              (UNAUDITED)      1994          1993         1992       OCTOBER 31, 1991
                                              -----------   -----------   ----------   -----------   ----------------
<S>                                           <C>           <C>           <C>          <C>           <C>
Net Asset Value, Beginning of Period.......     $ 14.22      $   15.28      $13.28      $   12.16         $12.04
                                              -----------   -----------   ----------   -----------       -------
  Income from Investment Operations
  Net Investment Income (Loss).............         .00            .05         .00           (.01)           .05
  Net Gains (Loss) from Securities (both
     realized and unrealized)..............         .74            .10        2.76           1.20            .13
                                              -----------   -----------   ----------   -----------       -------
  Total from Investment Operations.........         .74            .15        2.76           1.19            .18
                                              -----------   -----------   ----------   -----------       -------
  Less Distributions
  Dividends (from net investment income)...         .00           (.02)        .00           (.02)          (.06)
  Distributions (from capital gains).......        (.98)         (1.19)       (.76)          (.05)           .00
                                              -----------   -----------   ----------   -----------       -------
  Total Distributions......................        (.98)         (1.21)       (.76)          (.07)          (.06)
                                              -----------   -----------   ----------   -----------       -------
Net Asset Value, End of Period.............     $ 13.98      $   14.22      $15.28      $   13.28         $12.16
                                              -----------   -----------   ----------   -----------       -------
                                              -----------   -----------   ----------   -----------       -------
Total Return...............................       12.70%*         1.23%      21.64%          9.83%          2.66%*
Ratios/Supplemental Data
Net Assets, End of Period (000s)...........     $ 8,966      $   8,169      $10,437     $   1,655         $  443
Ratios to Average Daily Net Assets:
  Operating expenses.......................        1.58%*         1.55%       1.51%          1.56%          1.63%*
  Net investment income (loss).............        (.01%)*        (.24%)      (.25%)         (.11%)          .25%*
  Decrease reflected in above expense
     ratios due to waivers/
     reimbursements........................         .00%           .01%        .00%           .01%           .01%*
Portfolio Turnover Rate....................      153.53%*        51.87%      48.26%         55.83%         39.50%
</TABLE>

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

* Annualized.

                                       3

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

     The  Fund  seeks  long-term  capital  appreciation.  This  objective  is  a
fundamental policy and may not be  amended without first obtaining the  approval
of  a majority of  the outstanding shares  of the Fund.  Any investment involves
risk and, therefore, there can  be no assurance that  the Fund will achieve  its
investment  objective. See  '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
investment  objective by investing in a  broadly diversified portfolio of equity
securities of domestic companies. The Fund will ordinarily invest  substantially
all of its total assets -- but no less than 80% of its total assets -- in common
stocks,  warrants  and securities  convertible into  or exchangeable  for common
stocks. The  Fund intends  to  focus on  securities of  medium-sized  companies,
consisting  of  companies having  stock market  capitalizations of  between $500
million and $4.5 billion. (Market capitalization means the total market value of
a company's outstanding common stocks.)  Under normal market conditions,  except
for  temporary defensive purposes, the Fund will  invest no less than 80% of its
assets in medium-sized companies, with the remainder invested in companies  with
smaller   or  larger  market  capitalizations.   The  prices  of  securities  of
medium-sized companies, which are traded on exchanges or in the over-the-counter
market, tend  to  fluctuate in  value  more than  the  prices of  securities  of
large-sized companies.

     Warburg,   Pincus   Counsellors,  Inc.,   the  Fund's   investment  adviser
('Counsellors'), will attempt to  identify sectors of  the market and  companies
within  market  sectors that  it believes  will  outperform the  overall market.
Counsellors also  seeks  to  identify  themes or  patterns  it  believes  to  be
associated  with high  growth potential  firms, such  as significant fundamental
changes (including senior management changes) or generation of a large free cash
flow.

PORTFOLIO INVESTMENTS

INVESTMENT GRADE DEBT.  The Fund may  invest up to  20% of its  total assets  in
investment  grade  debt securities  (other  than money  market  instruments) and
preferred stocks that are not convertible  into common stock for the purpose  of
seeking  capital  appreciation.  The  interest  income  to  be  derived  may  be
considered as  one  factor  in  selecting  debt  securities  for  investment  by
Counsellors.  Because the  market value of  debt obligations can  be expected to
vary inversely  to  changes in  prevailing  interest rates,  investing  in  debt
obligations  may provide an  opportunity for capital  appreciation when interest
rates are expected to decline. The success of such a strategy is dependent  upon
Counsellors'  ability  to accurately  forecast  changes in  interest  rates. The
market value of debt  obligations may also be  expected to vary depending  upon,
among  other factors, the ability of the issuer to repay principal and interest,
any change in investment rating and general economic conditions. A security will
be deemed to be investment grade if  it is rated within the four highest  grades
by  Moody's Investors  Service, Inc.  ('Moody's') or  Standard &  Poor's Ratings
Group ('S&P')  or, if  unrated, is  determined to  be of  comparable quality  by
Counsellors.  Bonds  rated  in the  fourth  highest grade  may  have speculative
characteristics and changes  in economic conditions  or other circumstances  are
more  likely  to lead  to a  weakened  capacity to  make principal  and interest
payments than is the case with higher grade bonds. Subsequent to its purchase by
the 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. Counsellors  will consider such  event in  its
determination of whether the Fund should continue to hold the securities.

                                       4

<PAGE>
     When  Counsellors believes that a defensive  posture is warranted, the Fund
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money  market obligations, including repurchase  agreements
as discussed below.

MONEY  MARKET  OBLIGATIONS.  The  Fund is  authorized  to  invest,  under normal
circumstances, up  to 20%  of its  total assets  in domestic  and foreign  money
market obligations having a maturity of one year or less at the time of purchase
and  for temporary  defensive purposes  may invest  in these  securities without
limit. These short-term instruments consist of obligations issued or  guaranteed
by  the  United  States  government, its  agencies  or  instrumentalities ('U.S.
government securities') (including  repurchase agreements with  respect to  such
securities);  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 Counsellors  to be high  quality investments; and  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.

     Repurchase Agreements. Among the types of money market instruments in which
the  Fund  may  invest  are  repurchase  agreement  transactions  on   portfolio
securities  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. Counsellors, acting under the supervision of the Fund's Board of Trustees
(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 Counsellors  believes that  it would  be
beneficial  to the  Fund and appropriate  considering the factors  of return and
liquidity, the Fund may  invest up to  5% of its assets  in securities of  money
market  mutual funds that  are unaffiliated with  the Fund or  Counsellors. As a
shareholder in any  mutual fund, the  Fund will  bear its ratable  share of  the
mutual  fund's expenses, including  management fees, and  will remain subject to
payment of the  Fund's administration fees  and other expenses  with respect  to
assets so invested.

U.S.  GOVERNMENT SECURITIES.  U.S. government securities  in which  the Fund may
invest include: direct obligations of  the U.S. Treasury and obligations  issued
by  U.S. government  agencies and instrumentalities,  including instruments that
are supported by  the full faith  and credit of  the United States,  instruments
that  are supported by the right of the  issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.

                                       5

<PAGE>
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.
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.
Medium-sized companies are typically subject to  a greater degree of changes  in
earnings  and business  prospects than  are larger,  more established companies.
Because medium-sized  companies  normally  have fewer  shares  outstanding  than
larger  companies,  it  may  be more  difficult  for  the Fund  to  buy  or sell
significant amounts of such shares  without an unfavorable impact on  prevailing
prices.  There  is  typically  less  publicly  available  information concerning
medium-sized companies than  for larger,  more established  ones. Therefore,  an
investment  in the Fund may involve a  greater degree of risk than an investment
in  other  mutual  funds  that   seek  capital  appreciation  by  investing   in
better-known,  larger companies.  For certain  additional risks  relating to the
Fund's investments, see 'Portfolio Investments' beginning at page 4 and 'Certain
Investment Strategies' below.
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
Counsellors 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. High  portfolio
turnover  rates (100%  or more)  may result in  dealer mark  ups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions.  In addition,  short-term gains  realized from  portfolio
turnover  may be  taxable to  shareholders as  ordinary income.  See 'Dividends,
Distributions and Taxes --  Taxes' below and  'Investment Policies --  Portfolio
Transactions' in the Statement of Additional Information.

     All  orders for transactions in securities or options on behalf of the Fund
are placed  by  Counsellors  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 Counsellors believes that the charge for the transaction
does  not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.

CERTAIN INVESTMENT STRATEGIES


     Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in  the following investment strategies: (i)  purchasing
securities  on  a when-issued  basis and  purchasing  or selling  securities for
delayed delivery and (ii) lending portfolio securities. As described below,  the
Fund  may invest in instruments commonly referred to as 'derivative securities,'
such as  options on  securities  and stock  indexes  and futures  contracts  and
options  on futures contracts. These  strategies may be used  for the purpose of
hedging against a  decline in  value of its  portfolio holdings  or to  generate
income  to offset  expenses or increase  return. SUCH TRANSACTIONS  THAT ARE NOT
CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY


                                       6

<PAGE>
SERVE TO INCREASE  THE FUND'S INVESTMENT  RISK. Detailed information  concerning
these and other strategies and their related risks is contained below and in the
Fund's Statement of Additional Information.

FOREIGN  SECURITIES. The Fund  may invest up to  20% of its  total assets in the
securities of foreign issuers. There are certain risks involved in investing  in
securities of companies and governments of foreign nations which are in addition
to  the usual risks inherent in  domestic investments. These risks include those
resulting  from  fluctuations  in   currency  exchange  rates,  revaluation   of
currencies,  future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws  or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory  practices and  requirements that  are often  generally less rigorous
than those applied in  the United States. Moreover,  securities of many  foreign
companies  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.

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  Counsellors  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 be less
liquid  than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than  those originally paid  by the Fund.  In addition, companies  whose
securities  are not publicly traded are not  subject to the disclosure and other
investor protection requirements  that would be  applicable if their  securities
were publicly traded. The Fund's investment in illiquid securities is subject to
the risk that should the

                                       7

<PAGE>
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.

WRITING  OPTIONS ON SECURITIES. The Fund may write covered call options on up to
25% of the net asset value of the stock and debt securities in its portfolio and
will realize fees (referred to as 'premiums') for granting the rights  evidenced
by  the options. 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. Thus, the
purchaser of a call option  written by the Fund has  the right to purchase  from
the  Fund the underlying security owned by the Fund at the agreed-upon price for
a specified time  period or at  a specified time.  Upon the exercise  of a  call
option  written by  a Fund, the  Fund may suffer  an economic loss  equal to the
excess of the security's market  value at the time  of the option exercise  over
the  Fund's  acquisition cost  of the  security, less  the premium  received for
writing the option.

     The Fund will write  only covered call  options. Accordingly, whenever  the
Fund  writes a call option it will continue  to own or have the present right to
acquire the  underlying security  for as  long as  it remains  obligated as  the
writer of the option.

     The  Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or 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).  To effect  a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise of
an option that the  Fund has written, an  option of the same  series as that  on
which  the Fund desires to terminate its  obligation. The obligation of the Fund
under an option that it  has written would be  terminated by a closing  purchase
transaction,  but the Fund would not be deemed to own an option as the result of
the transaction. The ability of the Fund to engage in closing transactions  with
respect  to options depends on the existence of a liquid secondary market. While
the Fund generally will purchase or write options only if there appears to be  a
liquid  secondary market for the options purchased or sold, for some options, no
such secondary market may exist or  the market may cease to exist,  particularly
with respect to options that trade over-the-counter ('OTC options').

     Option  writing for the Fund may be limited by position and exercise limits
established by securities exchanges and the NASD. Furthermore, the Fund may,  at
times,  have to  limit its  option writing  in order  to qualify  as a regulated
investment company under  the Internal  Revenue Code  of 1986,  as amended  (the
'Code').

     In  addition to  writing covered options  to generate income,  the Fund may
enter into options transactions as  hedges to reduce investment risk,  generally
by  making  an  investment expected  to  move  in the  opposite  direction  of a
portfolio position. A hedge is designed to offset a loss on a portfolio position
with a  gain on  the  hedge position;  at the  same  time, however,  a  properly
correlated hedge will result in a gain on the portfolio position being offset by
a  loss on the  hedge position. The Fund  bears the risk that  the prices of the
securities being hedged will not  move in the same amount  as the hedge. A  Fund
will  engage in hedging transactions only  when deemed advisable by Counsellors.
Successful use  by the  Fund of  options  for hedging  purposes will  depend  on
Counsellors'  ability to  correctly predict  movements in  the direction  of the
security underlying the option or, in the case of stock index options (described
below), the underlying securities  market, which could  prove to be  inaccurate.
Losses incurred in options transactions and the costs of these transactions will
affect  the Fund's performance.  Even if Counsellors'  expectations are correct,
where options are used as a hedge there may be an imperfect correlation  between
the change in the value of

                                       8

<PAGE>
the  options and of the portfolio securities hedged. Therefore, an investment in
the Fund may involve  a greater risk  than an investment  in other mutual  funds
that seek capital appreciation.

PURCHASING  PUT AND CALL OPTIONS ON SECURITIES. The Fund may utilize up to 2% of
its assets to  purchase U.S.  exchange-traded and OTC  put and  call options  on
stocks and debt securities.

     By  buying a put,  the Fund limits its  risk of loss from  a decline in the
market value of the underlying security until the put expires. Any  appreciation
in  the value  of and  yield otherwise  available from  the underlying security,
however, will be partially offset by the amount of the premium paid for the  put
option  and any related transaction costs. Call  options may be purchased by the
Fund in order to acquire the underlying securities for the Fund at a price  that
avoids  any additional cost that would result from a substantial increase in the
market value of a security. The Fund also may purchase call options to  increase
its  return to investors  at a time when  the option is  expected to increase in
value due to anticipated appreciation of the underlying security.

     Prior to their  expirations, put and  call options may  be sold in  closing
sale  transactions (sales by the Fund, prior  to the exercise of options that it
has purchased, of options of the same series), and profit or loss from the  sale
will depend on whether the amount received is more or less than the premium paid
for the option plus the related transaction costs.

STOCK   INDEX  OPTIONS.  In  addition  to  purchasing  and  writing  options  on
securities, the Fund  may utilize  up to  10% of  its total  assets to  purchase
exchange-listed  put and call  options on stock  indexes, and may  write put and
call options on such indexes. A stock  index measures the movement of a  certain
group  of stocks by assigning  relative values to the  common stocks included in
the index. Options on stock indexes are similar to options on stock except  that
(i)  the expiration cycles  of stock index  options are monthly,  while those of
stock options are currently  quarterly, and (ii)  the delivery requirements  are
different.  Instead of giving the  right to take or make  delivery of stock at a
specified price,  an option  on a  stock index  gives the  holder the  right  to
receive  a cash 'exercise settlement amount' equal to (a) the amount, if any, by
which the fixed exercise price of the option  exceeds (in the case of a put)  or
is  less than (in the case of a  call) the closing value of the underlying index
on the  date of  exercise multiplied  by  (b) a  fixed 'index  multiplier.'  The
discussion  of options on securities above, and the related risks, is applicable
to options on securities indexes.

FUTURES CONTRACTS AND 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  consistent with CFTC  regulations on  foreign exchanges. These
transactions may be  entered into  for 'bona fide  hedging' as  defined in  CFTC
regulations  and  other permissible  purposes  including (i)  protecting against
anticipated changes in  the value of  portfolio securities the  Fund intends  to
purchase and (ii) increasing return.

     An interest rate futures contract is a standardized contract for the future
delivery  of  a  specified interest  rate  sensitive  security (such  as  a U.S.
Treasury Bond or U.S.  Treasury Note or  its equivalent) at a  future date at  a
price set at the time of the contract. Stock indexes are capitalization weighted
indexes  which reflect the  market value of  the stock listed  on the indexes. A
stock index futures contract  is an agreement  to be settled  by delivery of  an
amount  of cash equal to a specified multiplier times the difference between the
value of the index at  the beginning and at the  end of the contract period.  An
option  on a futures contract  gives the purchaser the  right, in return for the
premium paid, to assume

                                       9

<PAGE>
a position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option.

     Parties to a futures contract must make 'initial margin' deposits to secure
performance of  the contract.  There are  also requirements  to make  'variation
margin'  deposits  from  time to  time  as  the value  of  the  futures contract
fluctuates. The  Fund is  not a  commodity  pool and,  in compliance  with  CFTC
regulations  currently  in  effect, may  enter  into any  futures  contracts and
related options for  'bona fide hedging'  purposes and, in  addition, for  other
purposes,  provided  that  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. The Fund
reserves the  right to  engage  in transactions  involving futures  and  options
thereon  to the extent allowed  by CFTC regulations in  effect from time to time
and in accordance with the Fund's  policies. Certain provisions of the Code  may
limit the extent to which the Fund may enter into futures contracts or engage in
options transactions.

     There  are several risks  in connection with the  use of futures contracts.
Successful use of futures contracts is subject to the ability of Counsellors  to
predict correctly movements in the direction of the interest rate or stock index
underlying  the particular futures contract or related option. These predictions
and, thus, the use of futures  contracts involve skills and techniques that  are
different  from those  involved in  the management  of portfolio  securities. In
addition, there can  be no assurance  that there will  be a correlation  between
movements  in the  interest rate  or index  underlying the  futures contract and
movements in the price of  the portfolio securities which  are the subject of  a
hedge.  A decision concerning whether, when  and how to utilize futures involves
the exercise  of skill  and judgment,  and even  a well-conceived  hedge may  be
unsuccessful  to some degree because of  unexpected market behavior or trends in
interest rates or stock indexes. Losses incurred in futures transactions and the
costs of these transactions will affect the Fund's performance.

     A further risk involves the lack of a liquid secondary market for a futures
contract and the resulting  inability to close out  a futures contract.  Futures
and  options  contracts  may only  be  closed  out by  entering  into offsetting
transactions on the exchange  where the position was  entered into (or a  linked
exchange),  and as a  result of daily  price fluctuation limits  there can be no
assurance  that  an  offsetting  transaction   could  be  entered  into  at   an
advantageous  price at any particular time. Consequently, the Fund may realize a
loss on a futures contract  or option that is not  offset by an increase in  the
value of the Fund's securities that are being hedged or the Fund may not be able
to  close a futures or options position without incurring a loss in the event of
adverse price movements.


ASSET COVERAGE FOR OPTIONS, FUTURES AND OPTIONS ON FUTURES. The Fund will comply
with guidelines established by the SEC  designed to eliminate any potential  for
leverage  with respect to options written by  the Fund on securities and indexes
and currency, interest  rate and index  futures contracts and  options on  these
futures  contracts.  The  use of  these  strategies  may require  that  the Fund
maintain cash or certain liquid high-grade debt securities or other assets  that
are  acceptable  as  collateral to  the  appropriate regulatory  authority  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


                                       10

<PAGE>
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.
INVESTMENT GUIDELINES

     The  Fund  may invest  up to  10% of  its total  assets in  securities with
contractual or other restrictions on resale  and other instruments that are  not
readily  marketable,  including (i)  securities issued  as  part of  a privately
negotiated transaction  between  an issuer  and  one or  more  purchasers;  (ii)
repurchase  agreements with maturities  greater than seven  days; and (iii) time
deposits maturing in more than seven calendar days. In addition, up to 5% of the
Fund's total assets may be invested in the securities of issuers which have been
in continuous operation for less than three years and up to an additional 5%  of
its total assets may be invested in warrants. The Fund may borrow from banks for
temporary   or  emergency  purposes,  such  as  meeting  anticipated  redemption
requests, provided that borrowings by the Fund  may not exceed 10% of its  total
assets  and may pledge  up to 10%  of its assets  in connection with borrowings.
Whenever borrowings 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 Counsellors as  investment adviser to  the
Fund. Counsellors,  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. Counsellors
makes investment decisions  for  the  Fund and places orders to purchase or sell
securities  on behalf of the  Fund. Counsellors 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 Counsellors,  the Fund pays Counsellors a  fee
calculated at an annual rate of .70% of the Fund's average daily net assets. The
advisory  agreement between the  Fund and Counsellors  provides that Counsellors
will reimburse the Fund to the extent certain expenses that are described in the
Statement of Additional Information exceed applicable state expense limitations.
Counsellors and the Fund's co-administrators may voluntarily waive a portion  of
their  fees from time to time and temporarily  limit the expenses to be borne by
the Fund.

     Counsellors 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 August  31,
1995,  Counsellors  managed  approximately $11.4  billion  of  assets, including
approximately  $5.8  billion  of  assets  of  twenty  investment  companies   or
portfolios.  Incorporated in 1970,  Counsellors is a  wholly owned subsidiary of
Warburg, Pincus  Counsellors  G.P.  ('Counsellors G.P.'),  a  New  York  general
partnership.  E.M.  Warburg, Pincus  &  Co., Inc.  ('EMW')  controls Counsellors
through its  ownership of  a class  of voting  preferred stock  of  Counsellors.
Counsellors  G.P.  has  no  business  other  than  being  a  holding  company of
Counsellors and its subsidiaries. Counsellors' address is 466 Lexington  Avenue,
New York, New York 10017-3147.

PORTFOLIO  MANAGERS. George U.  Wyper and Susan L.  Black have been co-portfolio
managers of the Fund since  December 1994. Mr. Wyper  is a managing director  of
EMW,   which  he  joined  in  August  1994,  before  which  time  he  was  chief

                                       11

<PAGE>
investment officer of White River Corporation and president of Hanover Advisers,
Inc. (1993-August 1994), chief investment officer of Fund American  Enterprises,
Inc.  (1990-1993) and the director of fixed income investments at Fireman's Fund
Insurance Company (1987-1990). Ms. Black is  a managing director of EMW and  has
been with Counsellors since 1985, before which time she was a partner at Century
Capital Associates.

CO-ADMINISTRATORS.   The   Fund   employs   Counsellors   Funds   Service,  Inc.
('Counsellors  Service'),  a  wholly  owned  subsidiary  of  Counsellors,  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  governing  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 its average daily net assets.

     Counsellors may,  at its  own expense,  provide promotional  incentives  to
qualified  recipients who  support the  sale of  shares of  the Funds. Qualified
recipients are 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.

     The Fund employs PFPC Inc.  ('PFPC'), an indirect, wholly owned  subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the  Fund's net asset value,  provides all accounting services  for the Fund and
assists in related aspects of the  Fund's operations. As compensation, the  Fund
pays  to PFPC a fee calculated  at an annual rate of  .10% of the Fund's average
daily net assets, subject to a minimum annual fee and exclusive of out-of-pocket
expenses. PFPC has its  principal offices at  400 Bellevue Parkway,  Wilmington,
Delaware 19809.

CUSTODIAN.  PNC Bank,  National Association ('PNC')  serves as  custodian of the
assets of the  Fund. PNC is  a subsidiary of  PNC Bank Corp.  and its  principal
business  address  is  Broad and  Chestnut  Streets,  Philadelphia, Pennsylvania
19101.

TRANSFER AGENT. State  Street Bank and  Trust Company ('State  Street') acts  as
shareholder  servicing agent, transfer  agent and dividend  disbursing agent for
the Fund. It has delegated to Boston Financial Data Services, Inc., a 50%  owned
subsidiary  ('BFDS'), responsibility  for most  shareholder servicing functions.
State Street's  principal  business  address is  225  Franklin  Street,  Boston,
Massachusetts  02110.  BFDS's principal  business address  is 2  Heritage Drive,
North Quincy, Massachusetts 02171.

DISTRIBUTOR. Counsellors Securities serves as  distributor of the shares of  the
Fund.  Counsellors Securities is a wholly owned subsidiary of Counsellors 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.

TRUSTEES 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 Trustees and officers of the Fund
and a  brief statement  of  their present  positions and  principal  occupations
during  the  past  five  years  is set  forth  in  the  Statement  of Additional
Information.

                                       12

<PAGE>
HOW TO PURCHASE SHARES

     Warburg Pincus Advisor  Fund shares  are only available  for investment  by
Institutions  on behalf  of their  customers and  through retirement  plans that
elect to make one or more Advisor Funds an option for participants in the plans.
Individuals, including participants in retirement plans, cannot invest  directly
in  Advisor  Shares of  the Fund,  but may  do so  only through  a participating
Institution. The Fund  reserves the right  to make Advisor  Shares available  to
other  investors in the future. References in this Prospectus to shareholders or
investors are generally  to Institutions as  the record holders  of the  Advisor
Shares.

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

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

     Institutions may  purchase  Advisor  Shares by  telephoning  the  Fund  and
sending  payment by wire. After telephoning  (800) 888-6878 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 Capital Appreciation
  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 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 the Fund's
pricing on the following business day. 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

                                       13

<PAGE>
industry  professionals  may impose  certain  conditions on  their  clients that
invest in the Fund, which are in  addition to or different than those  described
in  this  Prospectus,  and, to  the  extent permitted  by  applicable regulatory
authority, may charge their clients direct  fees. Certain features of the  Fund,
such as the initial and subsequent investment minimums, may be modified 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 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) 888-6878 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 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. 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 Counsellors, immediate payment  would
adversely  affect the Fund,  the Fund reserves  the right to  pay the redemption
proceeds within seven days after the redemption order is effected.  Furthermore,
the  Fund may suspend  the right of  redemption or postpone  the date of payment
upon redemption (as well as suspend  or postpone the recordation of an  exchange
of shares) for such periods as are permitted under the 1940 Act.

     The  proceeds paid  upon redemption  may be  more or  less than  the amount
invested depending upon a share's net asset value at the time of redemption.  If
an   investor  redeems  all  the  shares  in  his  account,  all  dividends  and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.

EXCHANGE OF SHARES. An Institution may  exchange Advisor Shares of the Fund  for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset   values.  Exchanges  may  be  effected  in  the  manner  described  under
'Redemption of Shares'  above. If  an exchange  request is  received by  Warburg
Pincus Advisor Funds prior to 4:00 p.m. (Eastern

                                       14

<PAGE>
time),  the exchange will be  made at each fund's  net asset value determined at
the end of that business day. Exchanges may be effected without a sales  charge.
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) 888-6878.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS  AND  DISTRIBUTIONS.  The  Fund  calculates  its  dividends  from  net
investment income. Net investment income includes interest accrued and dividends
earned on  the  Fund's  portfolio  securities for  the  applicable  period  less
applicable  expenses. The Fund declares dividends from its net investment income
semiannually and pays them in the calendar year in which they are declared.  Net
investment  income earned  on weekends  and when  the NYSE  is not  open will be
computed as of the  next business day. Distributions  of net realized  long-term
and  short-term capital gains are declared annually and, as a general rule, will
be distributed or paid in November or December of each calendar year. 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 Redeem and Exchange Shares'
or by calling Warburg Pincus Advisor Funds at (800) 888-6878.

     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  continue  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 will be  taxable
to  investors as long-term  capital gains, in  each case regardless  of how long
investors have held Advisor Shares or whether received in cash or reinvested  in
additional  Advisor Shares. As a  general rule, an investor's  gain or loss on a
sale or redemption of its Fund shares  will be a long-term capital gain or  loss
if  it has  held its  shares for  more than  one year  and will  be a short-term
capital gain or loss if  it has held its shares  for one year or less.  However,
any  loss realized upon the sale or  redemption of shares within six months from
the date of their purchase  will be treated as a  long-term capital loss to  the
extent  of any amounts treated as distributions of long-term capital gain during
such six-month period with


                                       15

<PAGE>
respect to such  shares. Investors may  be proportionately liable  for taxes  on
income  and gains of the Fund, but investors  not subject to tax on their income
will not be  required to  pay tax  on amounts  distributed to  them. The  Fund's
investment  activities will not result in unrelated business taxable income to a
tax-exempt investor.  The  Fund's dividends,  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.

GENERAL.  Statements  as to  the  tax status  of  each investor's  dividends and
distributions  are  mailed  annually.  Each  investor  will  also  receive,   if
applicable,  various written notices after the close of the Fund's prior taxable
year with respect  to certain  dividends and distributions  which were  received
from  the Fund  during the Fund's  prior taxable year.  Investors should consult
their own tax  advisers with  specific reference  to their  own tax  situations,
including  their state and  local tax liabilities.  Individuals investing in the
Fund through Institutions  should consult  those Institutions or  their own  tax
advisers regarding the tax consequences of investing in the Fund.
NET ASSET VALUE

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

     The net asset value per Advisor Share of the Fund is computed by adding the
Advisor  Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro  rata share of  the Fund's liabilities  and the  liabilities
specifically  allocated to  Advisor Shares and  then dividing the  result by the
total number of  outstanding Advisor Shares.  Generally, the Fund's  investments
are  valued at  market value or,  in the absence  of a quoted  market value with
respect to any portfolio securities, at fair value as determined by or under the
direction of the Board.

     Portfolio securities that  are primarily  traded on  foreign exchanges  are
generally  valued at the  closing values of such  securities on their respective
exchanges preceding the calculation of the  Fund's net asset value, except  that
when  an occurrence subsequent to the time  a value was so established is likely
to have changed such value, then the fair market value of those securities  will
be determined by consideration of other factors by or under the direction of the
Board.

     Securities  listed  on  a U.S.  securities  exchange  (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
will be valued  on the  basis of  the closing  value on  the date  on which  the
valuation   is   made.   Other   U.S.   over-the-counter   securities,   foreign
over-the-counter securities and securities listed  or traded on certain  foreign
stock exchanges whose operations are similar to the U.S. over-the-counter market
are  valued on the basis of the bid price  at the close of business on each day.
Option or futures contracts will be valued  at the last sale price at 4:00  p.m.
(Eastern  time) on  the date on  which the valuation  is made, as  quoted on the
primary exchange or board of  trade on which the  option or futures contract  is
traded,  or in  absence of  sales, at the  mean between  the last  bid and asked
prices. Unless the Board determines that  using this valuation method would  not
reflect the investments' value, short-term investments that mature in 60 days or
less  are  valued on  the  basis of  amortized  cost, which  involves  valuing a
portfolio instrument at its  cost initially and  thereafter assuming a  constant
amortization to maturity of

                                       16

<PAGE>
any  discount or premium, regardless of the impact of fluctuating interest rates
on the market  value of  the instrument.  Any assets  and liabilities  initially
expressed  in non-U.S. dollar currencies are translated into U.S. dollars at the
prevailing rate  as quoted  by an  independent pricing  service on  the date  of
valuation.  Further information regarding valuation policies is contained in the
Statement of Additional Information.
PERFORMANCE

     The Fund quotes the  performance of Advisor  Shares separately from  Common
Shares.  The net asset value of the Advisor  Shares is listed in The Wall Street
Journal each business day under the  heading Warburg Pincus Advisor Funds.  From
time  to time,  the Fund  may advertise average  annual total  return of Advisor
Shares over various periods of time. These total return figures show the average
percentage change  in value  of an  investment in  the Advisor  Shares from  the
beginning  of  the measuring  period to  the  end of  the measuring  period. The
figures reflect changes  in the price  of the Advisor  Shares assuming that  any
income  dividends and/or capital gain distributions  made by the Fund during the
period were reinvested in Advisor Shares. Total return will be shown for  recent
one-,  five- and ten-year  periods, and may  be shown for  other periods as well
(such as on a year-by-year, quarterly or current year-to-date basis).

     When considering average total return  figures for periods longer than  one
year,  it is important to note that the  annual total return for one year in the
period might have been greater or less  than the average for the entire  period.
When  considering  total  return  figures for  periods  shorter  than  one year,
investors should bear  in mind that  the Fund seeks  long-term appreciation  and
that  such return may not  be representative of the  Fund's return over a longer
market cycle. The  Fund may  also advertise  aggregate total  return figures  of
Advisor  Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes  in   share  prices   and  assuming   reinvestment  of   dividends   and
distributions).  Aggregate and  average total returns  may be shown  by means of
schedules, charts or graphs and may indicate various components of total  return
(i.e.,  change in value of initial investment, income dividends and capital gain
distributions).

     Investors should note  that total  return figures are  based on  historical
earnings  and are not intended to  indicate future performance. The Statement of
Additional Information describes the method used to determine the total  return.
Current  total return figures may be  obtained by calling Warburg Pincus Advisor
Funds at (800) 888-6878.


     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  with (i)  that of other  mutual funds  as
listed  in the rankings prepared by  Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell Midcap Index, the S&P  Midcap
400  Index and the S&P 500 Index, each  of which is an unmanaged index of common
stocks; or (iii) other appropriate indexes of investment securities or with data
developed by Counsellors derived  from such indexes. The  Fund may also  include
evaluations  of the Fund published by nationally recognized ranking services and
by financial  publications that  are  nationally recognized,  such as  The  Wall
Street Journal, Investor's Daily, Money, Inc., Institutional Investor, Barron's,
Fortune,  Forbes,  Business Week,  Mutual Fund  Magazine, Morningstar,  Inc. and
Financial Times.


                                       17

<PAGE>
     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. The Fund may also discuss  the continuum of risk and return  relating
to  different  investments  and the  potential  impact  of foreign  stocks  on a
portfolio otherwise composed of domestic  securities. 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 organized on January  20, 1987 under the laws of  The
Commonwealth  of  Massachusetts  and  is a  business  entity  commonly  known as
'Massachusetts business  trust.' On  February  26, 1992,  the Fund  amended  the
Agreement  and  Declaration  of  Trust  to change  the  name  of  the  Fund from
'Counsellors Capital Appreciation Fund' to 'Warburg, Pincus Capital Appreciation
Fund.' The Fund's  Agreement and Declaration  of Trust authorizes  the Board  of
Trustees  to  issue  an  unlimited  number  of  full  and  fractional  shares of
beneficial interest, $.001 par value per share, of which one billion shares  are
classified  as Series  2 Shares (the  Advisor Shares). Under  the Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one  or more additional classes by  setting or changing in  any
one  or  more  respects  their  relative  rights,  voting  powers, restrictions,
limitations  as  to  dividends,  qualifications  and  terms  and  conditions  of
redemption.  The Board  may similarly  classify or  reclassify any  class of its
shares into one or more series  and, without shareholder approval, may  increase
the number of authorized shares of the Fund.

MULTI-CLASS  STRUCTURE. The Fund  offers a separate class  of shares, the Common
Shares, directly to  individuals pursuant  to a separate  prospectus. Shares  of
each  class represent equal pro rata interests  in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,  as
described  elsewhere in  this Prospectus, except  that Advisor  Shares bear fees
payable by the Fund  to service organizations 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 borne 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 by calling Counsellors Securities at (800) 888-6878.


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  member of the Board  may be removed from office
upon the  vote  of  shareholders holding  at  least  a majority  of  the  Fund's
outstanding  shares, at  a meeting  called for that  purpose. A  meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund. John L.  Furth,
a  Trustee of the  Fund, and Lionel I.  Pincus, Chairman of  the Board and Chief
Executive Officer of EMW, may  be deemed to be  controlling persons of the  Fund


                                       18

<PAGE>

as  of August 31, 1995 because they may be deemed to possess or share investment
power over shares owned by clients of Counsellors and certain other entities.

SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement  of
its  account, as well as  a statement of its  account after any transaction that
affects its 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. 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 to Institutions
whose clients or  customers (or participants  in the case  of retirement  plans)
('Customers') are beneficial owners of Advisor Shares. Either those Institutions
or  companies  providing  certain  services  to  Customers  (together,  'Service
Organizations') will enter into account servicing agreements ('Agreements') with
the Fund pursuant  to a Distribution  Plan as described  below. Pursuant to  the
terms  of  an  Agreement, the  Service  Organization agrees  to  provide certain
distribution, shareholder servicing,  administrative and/or accounting  services
for  Customers. Distribution  services would be  marketing or  other services in
connection with the promotion and  sale of Advisor Shares. Shareholder  services
that  may  be  provided  include  responding  to  Customer  inquiries, providing
information on  Customer investments  and  providing other  shareholder  liaison
services.  Administrative and accounting services related to the sale of Advisor
Shares may  include  (i)  aggregating and  processing  purchase  and  redemption
requests  from Customers and placing net purchase and redemption orders with the
Fund's transfer agent, (ii) processing dividend payments from the Fund on behalf
of Customers and (iii) providing sub-accounting  related to the sale of  Advisor
Shares  beneficially owned by Customers or the information to the Fund necessary
for sub-accounting.  The Board  has approved  a Distribution  Plan (the  'Plan')
pursuant  to Rule 12b-1  under the 1940 Act  under which the  Fund will pay each
participating Service Organization 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  Board evaluates  the  appropriateness  of the  Plan  on  a
continuing basis and in doing so considers all relevant factors.


     Counsellors and Counsellors Securities may, from time to time, at their own
expense,  provide compensation to these institutions.  To the extent they do so,
such compensation does not  represent an additional expense  to the Fund or  its
shareholders  since it will be paid  from the assets of Counsellors, Counsellors
Securities or their affiliates.


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

     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.

                                       19
<PAGE>

Warburg Pincus Advisor Funds

Counsellors Securities Inc., distributor


                               TABLE OF CONTENTS


  THE FUND'S EXPENSES ...................................................... 2
  FINANCIAL HIGHLIGHTS ..................................................... 3
  INVESTMENT OBJECTIVE AND POLICIES ........................................ 4
  PORTFOLIO INVESTMENTS .................................................... 4
  RISK FACTORS AND SPECIAL
     CONSIDERATIONS ........................................................ 6
  PORTFOLIO TRANSACTIONS AND TURNOVER
     RATE .................................................................. 6
  CERTAIN INVESTMENT STRATEGIES ............................................ 6
  INVESTMENT GUIDELINES ................................................... 11
  MANAGEMENT OF THE FUND .................................................. 11
  HOW TO PURCHASE SHARES .................................................. 13
  HOW TO REDEEM AND EXCHANGE
     SHARES ............................................................... 14
  DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 15
  NET ASSET VALUE ......................................................... 16
  PERFORMANCE ............................................................. 17
  GENERAL INFORMATION ..................................................... 18
  SHAREHOLDER SERVICING ................................................... 19


ADCAP-1-1095


                  [LOGO]






<PAGE>1
                                          Rule 497(c)
                                          Securities Act File No. 33-12344
                                          Investment Co. Act File No. 811-5041

                      STATEMENT OF ADDITIONAL INFORMATION

                              September 29, 1995



                   WARBURG PINCUS CAPITAL APPRECIATION FUND

               P.O. Box 9030, Boston, Massachusetts  02205-9030
                     For information, call (800) 888-6878



                                   Contents
                                                          Page

Investment Objective  . . . . . . . . . . . . . . . .      2
Investment Policies . . . . . . . . . . . . . . . . .      2
Management of the Fund  . . . . . . . . . . . . . . .     20
Additional Purchase and Redemption Information  . . .     28
Exchange Privilege  . . . . . . . . . . . . . . . . .     29
Additional Information Concerning Taxes . . . . . . .     30
Determination of Performance  . . . . . . . . . . . .     33
Auditors and Counsel  . . . . . . . . . . . . . . . .     34
Miscellaneous . . . . . . . . . . . . . . . . . . . .     34
Financial Statements  . . . . . . . . . . . . . . . .     35
Appendix -- Description of Ratings  . . . . . . . . .    A-1
Report of Coopers & Lybrand L.L.P.,
  Independent Auditors  . . . . . . . . . . . . . . .    A-3


          This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg
Pincus Capital Appreciation Fund (the "Fund"), Warburg Pincus Emerging Growth
Fund, Warburg Pincus Post-Venture Capital Fund, Warburg Pincus International
Equity Fund and Warburg Pincus Japan OTC Fund, and with the Prospectus for the
Advisor Shares of the Fund, each dated September 29, 1995, 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) 257-5614.  Informa-
tion regarding the status of shareholder accounts may be obtained by calling
the Fund at (800) 888-6878 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 long-term capital
appreciation; the production of current income is incidental to this
objective.

                              INVESTMENT POLICIES

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

Additional Information on Investment Practices

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

          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 Trustees (the "Board").  These loans, if and when made, may
not exceed 20% of the Fund's total assets taken at value.  The Fund will not
lend portfolio securities to E.M. Warburg, Pincus & Co., Inc.















<PAGE>3

("EMW") or its affiliates unless it has applied for and received specific
authority to do so from the Securities and Exchange Commission (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 the primary investment objective of the Fund,
income received could be used to pay the Fund's expenses and would increase an
investor's total return.  The Fund will adhere to the following conditions
whenever its portfolio securities are loaned:  (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material
event adversely affecting the investment occurs, the Board must terminate the
loan and regain the right to vote the securities.  Loan agreements involve
certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to recover
the loaned securities or dispose of the collateral for the loan.

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












<PAGE>4

time from the interaction of many factors directly or indirectly affecting
economic and political conditions in the United States and a particular
foreign country, including economic and political developments in other
countries.  Of particular importance are rates of inflation, interest rate
levels, the balance of payments and the extent of government surpluses or
deficits in the United States and the particular foreign country, all of which
are in turn sensitive to the monetary, fiscal and trade policies pursued by
the governments of the United States and foreign countries important to
international trade and finance.  Governmental intervention may also play a
significant role.  National governments rarely voluntarily allow their
currencies to float freely in response to economic forces.  Sovereign
governments use a variety of techniques, such as intervention by a country's
central bank or imposition of regulatory controls or taxes, to affect the
exchange rates of their currencies.

          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.

          Futures Activities.  The Fund may enter into 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
interest rates and/or market conditions and increasing return.  The ability of
the Fund to trade in 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.












<PAGE>5

          The Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums 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.
There is no overall limit on the percentage of Fund assets that may be at risk
with respect to futures activities.

          Futures Contracts.  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 financial instrument (debt security) at a specified
price, date, time and place.  Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes.  A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between
the value of the index at the beginning and at the end of the contract period.
In entering into these contracts, the Fund will incur brokerage costs and be
required to make and maintain certain "margin" deposits on a mark-to-market
basis, as described below.

          One of the purposes of entering into a futures contract may be to
protect the Fund from fluctuations in value of its portfolio securities
without its necessarily buying or selling the securities.  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.  No consideration is paid or received by the Fund upon entering into a
futures contract.  Instead, the Fund will be required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt
obligations, equal to approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange on which the contract is traded,
and brokers may charge a higher amount).  This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.  The
broker will have access to amounts in the margin account if the Fund fails to
meet its contractual obligations.  Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as the 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."  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 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 for the contracts 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











<PAGE>6

made that day at a price beyond that limit.  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 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 circumstances, an
increase in the value of the portion of the Fund's securities being hedged, if
any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities being hedged will, in fact, correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures contract.

          If the Fund has hedged against the possibility of an event adversely
affecting the value of securities held in its portfolio and that event does
not occur, the Fund will lose part or all of the benefit of the increased
value of securities which it has hedged because it will have offsetting losses
in its futures positions.  Losses incurred in futures transactions and the
costs of these transactions will affect the Fund's performance.  In addition,
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.  These sales of securities could, but will not
necessarily, be at increased prices which reflect the change in interest rates
or stock indexes, as the case may be.

          Options on Futures Contracts.  The Fund may purchase and write put
and call options on 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.

          An option on an 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 an interest
rate or stock index futures contract at a specified exercise price at any time
prior to the expiration date of the option.  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.

          There are several risks relating to options on futures contracts.
The ability to establish and close out positions on such options will be
subject to the existence of a liquid market.  In addition, the purchase of put
or call options will be based upon predictions as to anticipated trends in
interest rates and securities markets by Counsellors.  This requires













<PAGE>7

different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
portfolio strategies will be successful.  Even if Counsellors' expectations
are correct, where options on futures are used for hedging purposes, there may
be an imperfect correlation between the change in the value of the options and
of the portfolio securities hedged.

          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 Counsellors deems it advantageous to
do so.  The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the com-
mitment.  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, U.S. government securities or
other liquid high-grade debt obligations or other assets that are acceptable
as collateral to the appropriate regulatory authority equal to the amount of
the commitment in a segregated account.  Normally, the custodian will set
aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment.  It may be expected that the
Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets
aside cash.  When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade.  Failure
of the seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

          Options on Securities.  In order to hedge against adverse market
shifts, the Fund may utilize up to 2% of its total assets to purchase put and
call options on stock and debt securities that are traded on U.S. exchanges,
as well as over-the-counter ("OTC") options.  In addition, the Fund may write
covered call options on up to 25% of the stock and debt securities in its
portfolio.

          The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the call 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
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 period or
at a specified time.













<PAGE>8

          The principal reason for writing covered call 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 the 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.

          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 Counsellors 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 Counsellors 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 Counsellors 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.
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.

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













<PAGE>9

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.

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

          Prior to their expirations, put and call options may be sold in
closing sale transactions (sales by the Fund, prior to the exercise of options
that it has purchased, 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.  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.  Similarly, when the Fund has purchased an option and engages in a
closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is
more or less than the premium the Fund initially paid for the original option
plus the related transaction costs.  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.

          Although the Fund will generally purchase or write only those
options for which Counsellors believes there is an active secondary market so
as to facilitate closing transactions, 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











<PAGE>10

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 Counsellors, 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.

          Options as a Hedge.  In addition to writing covered options for
other purposes, the Fund may enter into options transactions as hedges to
reduce investment risk, generally by making an investment expected to move in
the opposite direction of a portfolio position.  A hedge is designed to offset
a loss on a portfolio position with a gain on the hedged position; at the same
time, however, a properly correlated hedge will result in a gain on the
portfolio position being offset by a loss on the hedged position.  The Fund
bears the risk that the prices of the securities being hedged will not move in
the same amount as the hedge.  The Fund will engage in hedging transactions
only when deemed advisable by Counsellors.  Successful use by the Fund of
options will be subject to Counsellors' ability to predict correctly movements
in the direction of the stock underlying the option used as a hedge.  Losses
incurred in hedging transactions and the costs of these transactions will
affect the Fund's performance.

          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 corporation is then
obligated to pay the writer the exercise price of the option.  If the Fund
were to purchase a dealer option, however, it would rely on the dealer from
whom it purchased the option to perform if the option were exercised.  If the
dealer fails to honor the exercise of the option by the Fund, the Fund would
lose the premium it paid for the option and the expected benefit of the
transaction.

          Listed options generally have a continuous liquid market while
dealer options have none.  Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it.  Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option.  Although the Fund will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration.  The












<PAGE>11

inability to enter into a closing transaction may result in material losses to
the Fund.  Until the Fund, as a covered dealer 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 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.

          Stock Index Options.  The Fund may utilize up to 10% of its total
assets to purchase exchange-listed put and call options on stock indexes and
may write options on such indexes to hedge against the effects of market-wide
price movements.  A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the
index, fluctuating with changes in the market values of the stocks included in
the index.  Some stock index options are based on a broad market index such as
the 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 stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different.  Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option expressed in dollars times a specified
multiple.  The writer of the option is obligated, in return for the premium
received, to make delivery of this amount.  The writer may offset its position
in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.  The
aggregate value of the securities underlying the calls or puts on stock
indexes written by the Fund, determined as of the date the options are sold,
when added to the securities underlying the calls on securities written by the
Fund, may not exceed 25% of the Fund's net assets.

          Stock Index Options as a Hedge.  The effectiveness of purchasing or
writing stock index options as a hedging technique will depend upon the extent
to which price movements in the portion of a securities portfolio being hedged
correlate with price movements of the stock index selected.  Because the value
of an index option depends upon movements in the level of the index rather
than the price of a particular stock, 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.  Accordingly, successful use by
the Fund of options on stock indexes will













<PAGE>12

be subject to Counsellors' ability to predict correctly movements in the
direction of the stock market generally or of a particular industry.  This
requires different skills and techniques than predicting changes in the price
of individual stocks, and there can be no assurance that the use of any of
these portfolio strategies will be successful.

          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 SEC with respect to coverage of options written
by the Fund on securities and indexes and interest rate and index futures
contracts and options on these futures contracts.  These guidelines may, in
certain instances, require segregation by the Fund of cash or liquid high-
grade debt securities or other 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.  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 contract, the Fund could purchase a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held.  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.

          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 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













<PAGE>13

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 invest up to 5% of net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase),
provided that not more than 2% of net assets may be invested in warrants not
listed on a recognized U.S. or foreign stock exchange, to the extent permitted
by applicable state securities laws.  Because a warrant does not carry with it
the right to dividends or voting rights with respect to the securities which
it entitles a holder to purchase, and because it does not represent any rights
in the assets of the issuer, warrants may be considered more speculative than
certain other types of investments.  Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.

          Non-Publicly Traded and Illiquid Securities.  The Fund may not
invest more than 10% of its total assets in securities that are illiquid by
virtue of the absence of a readily available market, repurchase agreements
which have a maturity of longer than seven days and time deposits maturing in
more than seven calendar days.  Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation.  Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.

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

          In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes.  Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for
repayment.














<PAGE>14

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 144 A 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.  Counsellors 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 10% limit on the purchase of illiquid
securities unless the Board or its delegates determines the Rule 144A
Securities to be liquid.  In reaching liquidity decisions, the Board and its
delegates may consider, inter alia, the following factors:  (i) the
unregistered nature of the security; (ii) the frequency of trades and quotes
for the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer
undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).

          Borrowing.  The Fund may borrow up to 10% 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.  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.

Other Investment Limitations

          The investment limitations numbered 1 through 11 may not be changed
without the affirmative vote of the holders of a majority of 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 12 through 16
may be changed by a vote of the Board at any time.

          The Fund may not:














<PAGE>15

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

          2.  Borrow money or issue senior securities except that the Fund may
(a) borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 10% of the value of the
Fund's total assets at the time of such borrowing and (b) enter into futures
contracts; or mortgage, pledge or hypothecate any assets except in connection
with any bank borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at the
time of such borrowing.  Whenever borrowings described in (a) exceed 5% of the
value of the Fund's total assets, the Fund will not make any additional
investments (including roll-overs).  For purposes of this restriction, (a) the
deposit of assets in escrow in connection with the purchase of securities on a
when-issued or delayed-delivery basis and (b) collateral arrangements with
respect to initial or variation margin for futures contracts will not be
deemed to be pledges of the Fund's assets.

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

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

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

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

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

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














<PAGE>16

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

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

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

          12.  Invest more than 10% of the value of the Fund's total assets in
securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations.  For purposes of this limitation, (a) repurchase agreements with
maturities greater than seven days and (b) time deposits maturing in more than
seven calendar days shall be considered illiquid securities.

          13.  Purchase any security if as a result the Fund would then have
more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.

          14.  Purchase or retain securities of any company if, to the
knowledge of the Fund, any of the Fund's officers or Trustees or any officer
or director of Counsellors individually owns more than 1/2 of 1% of the
outstanding securities of such company and together they own beneficially more
than 5% of the securities.

          15.  Invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed
5% of the value of the Fund's net assets of which not more than 2% of the
Fund's net assets may be invested in warrants not listed on a recognized U.S.
or foreign stock exchange to the extent permitted by applicable state
securities laws.

          16.  Invest in oil, gas or mineral leases.

          The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, the Fund will revoke the commitment
by terminating the sale of Fund shares in the state involved.  If a percentage
restriction 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
















<PAGE>17

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 on a foreign
securities exchange will be valued on the basis of the closing value on the
date on which the valuation is made or, in the absence of sales, at the mean
between the closing bid and asked prices.  Other U.S. over-the-counter
securities, foreign over-the-counter securities and securities listed or
traded on certain foreign stock exchanges whose operations are similar to the
U.S. over-the-counter market will be valued on the basis of the bid price at
the close of business on each day, or, if market quotations for those
securities are not readily available, at fair value, as determined in good
faith pursuant to consistently applied procedures established by the Board.  A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security.  In determining the market value of portfolio investments, the Fund
may employ outside organizations (a "Pricing Service") which may use a matrix
or formula 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 any
such Pricing Service at any time.  Short-term obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Board.  The amortized cost method of valuation may also be
used with respect to debt obligations with 60 days or less remaining to
maturity.  All other securities and other assets of the Fund will be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board.  In addition, the Board or its delegates
may value a security at fair value if it determines that such security's value
determined by the methodology set forth above does not reflect its fair value.

          Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (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.  Calculation of the Fund's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation.  All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service.  If such
quotations are not available, the rate of exchange will be determined in good
faith pursuant to














<PAGE>18

consistently applied procedures established by the Board.  Events affecting
the values of portfolio securities that occur between the time their prices
are determined and the close of regular trading on the NYSE will not be
reflected in the Fund's calculation of net asset value unless the Board or its
delegates deems that the particular event would materially affect net asset
value, in which case an adjustment may be made.

Portfolio Transactions

          Counsellors 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.

          Counsellors will select specific portfolio investments and effect
transactions for the Fund.  Counsellors seeks to obtain the best net price and
the most favorable execution of orders.  In evaluating prices and executions,
Counsellors 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.  In addition, to the extent that the execution and price
offered by more than one broker or dealer are comparable, Counsellors 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, as amended) to the Fund and/or
other accounts over which Counsellors exercises investment discretion.
Research and other services received may be useful to Counsellors 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 Counsellors in carrying out its obligations to the Fund.  The fee to
Counsellors under its advisory agreement with the Fund is not reduced by
reason of its receiving any brokerage and research services.














<PAGE>19

          Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Counsellors.  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 Counsellors 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, Counsellors may aggregate
the securities to be sold or purchased for the Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.

          Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors
Securities"), if, in Counsellors' 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 Counsel-
lors Securities to comparable unaffiliated customers in similar transactions.
All transactions with affiliated brokers will comply with Rule 17e-1 under the
1940 Act.

          During the fiscal years ending October 31, 1992, October 31, 1993
and October 31, 1994, the Fund paid an aggregate of approximately $248,862,
$210,697 and $243,640, respectively, in commissions to broker-dealers for
execution of portfolio transactions.  No portfolio transactions have been
executed through Counsellors Securities since the commencement of the Fund's
operations.

          In no instance will portfolio securities be purchased from or sold
to Counsellors 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 ("Agreements") concerning the provision of distribution services or
support services to customers ("Customers") who beneficially own the Fund's
Common Stock, $.001 per share, designated Common Stock-Series 1 (the "Series 1
Shares") or Common Stock-Series 2 (the "Advisor Shares").  See the
Prospectuses, "Shareholder Servicing."

          The Fund's transactions in foreign securities 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.














<PAGE>20

          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
Counsellors, 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.


                            MANAGEMENT OF THE FUND

Officers and Board of Trustees

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

Richard N. Cooper (61)  . . .  Trustee
Room 7E47OHB                   National Intelligence Counsel;
Central Intelligence Agency    Professor at Harvard University;
930 Dolly Madison Blvd.        Director or Trustee of Circuit City
McClain, Virginia  22107       Stores, Inc. (retail electronics and
                               appliances) and Phoenix Home Life
                               Insurance Co.

Donald J. Donahue (71)  . . .  Trustee
99 Indian Field Road           Chairman of Magma Copper Company
Greenwich, Connecticut 06830   since January 1987; Director or Trustee of GEV
                               Corporation and Signet Star Reinsurance
                               Company; Chairman and Director of NAC Holdings
                               from September 1990-June 1993.




















<PAGE>21

Jack W. Fritz (68)  . . . . .  Trustee
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* (64) . . . . .  Chairman of the Board
466 Lexington Avenue           Vice Chairman and Director of EMW;
New York, New York 10017-3147  Associated with EMW since 1970; Chairman of
                               the Board or Chief Executive Officer of 15
                               other investment companies advised by
                               Counsellors; President of one other investment
                               company advised by Counsellors.

Thomas A. Melfe (63)  . . . .  Trustee
30 Rockefeller Plaza           Partner in the law firm of
New York, New York 10112       Donovan Leisure Newton & Irvine; Director of
                               Municipal Fund for New York Investors, Inc.

Alexander B. Trowbridge (66)   Trustee
1155 Connecticut Avenue, N.W.  President of Trowbridge Partners, Inc.
Suite 700                      (business consulting) from January 1990-
Washington, DC 20036           January 1994; President of the National
                               Association of Manufacturers from 1980-1990;
                               Director or Trustee of New England Mutual Life
                               Insurance Co., ICOS Corporation
                               (biopharmaceuticals), P.H.H. Corporation
                               (fleet auto management; housing and plant
                               relocation service), WMX Technologies Inc.
                               (solid and hazardous waste collection and
                               disposal), The Rouse Company (real estate
                               development), SunResorts International Ltd.
                               (hotel and real estate management), Harris
                               Corp. (electronics and communications
                               equipment), The Gillette Co. (personal care
                               products) and Sun Company Inc. (petroleum
                               refining and marketing).

George U. Wyper (39)  . . . .  Co-President and Co-Portfolio
466 Lexington Avenue           Manager of the Fund
New York, NY 10017-3147        Managing Director of Counsellors; Associated
                               with Counsellors since 1994; Chief Investment


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


<PAGE>22

                               Officer of White River Corporation from
                               1993-1994; President and Chief Executive
                               Officer of Hanover Advisors from 1993-1994;
                               Chief Investment Officer of Fund American
                               Enterprises from 1990-1993; Director of Fixed
                               Income Investments of Fireman's Fund Insurance
                               Company from 1987-1990.

Susan L. Black (55) . . . . .  Co-President and Co-Portfolio
466 Lexington Avenue           Manager of the Fund
New York, New York 10017-3147  Managing Director of EMW; Associated with EMW
                               since 1985.

Arnold M. Reichman (47) . . .  Executive Vice President
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; President
                               or Executive Vice President of 15 other
                               investment companies advised by Counsellors.

Eugene L. Podsiadlo (38)  . .  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 15 other investment
                               companies advised by Counsellors.

Eugene P. Grace (44)  . . . .  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 and Chief
                               Compliance Officer of Counsellors Securities;
                               Vice President and Secretary of 15 other
                               investment companies advised by Counsellors.

Stephen Distler (42)  . . . .  Vice President and
466 Lexington Avenue           Chief Financial Officer
New York, New York 10017-3147  Assistant Secretary of EMW; Associated with
                               EMW since 1984; Treasurer of Counsellors
                               Securities; Vice President, Treasurer and
                               Chief
























<PAGE>23

                               Accounting Officer or Vice President and Chief
                               Financial Officer of 15 other investment
                               companies advised by Counsellors.

Howard Conroy (41)  . . . . .  Vice President, Treasurer
466 Lexington Avenue           and Chief Accounting Officer
New York, New York 10017-3147  Associated with EMW since 1992; 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 14
                               other investment companies advised by
                               Counsellors.

Karen Amato (31)  . . . . . .  Assistant Secretary
466 Lexington Avenue           Associated with EMW since 1987;
New York, New York 10017-3147  Assistant Secretary of 15 other investment
                               companies advised by Counsellors.

       No employee of Counsellors 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 trustee of the Fund.  Each Trustee who is not a
director, trustee, officer or employee of Counsellors, PFPC or any of their
affiliates receives an annual fee of $1,000, and $250 for each meeting of the
Board attended by him for his services as Trustee and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.









































<PAGE>24

Trustees' Compensation
(for the fiscal year ended October 31, 1994)
<TABLE>
<CAPTION>


                                                                    Total                          Total Compensation from
                                                              Compensation from                    all Investment Companies
                  Name of Trustee                                    Fund                          Managed by Counsellors*
                  ---------------                             -----------------                    ------------------------
 <S>                                                <C>                                    <C>

 John L. Furth                                                      None**                                  None**
 Richard N. Cooper                                                  $2,000                                 $36,500
 Donald J. Donahue                                                  $2,000                                 $36,500
 Jack W. Fritz                                                      $2,000                                 $36,500
 Thomas A. Melfe                                                    $2,000                                 $36,500
 Alexander B. Trowbridge                                            $2,000                                 $36,500

</TABLE>


- ------------------------
*  Each Trustee serves as a Director or Trustee of 15 other investment
   companies advised by Counsellors.

**     Mr. Furth is considered to be an interested person of the Fund and
       Counsellors, as defined under Section 2(a)(19) of the 1940 Act, and,
       accordingly, receives no compensation from the Fund or any other
       investment company managed by Counsellors.

       Mr. George U. Wyper is co-president and co-portfolio manager of the
Fund.  From 1987 until 1990 Mr. Wyper was the director of fixed income
investments at Fireman's Fund Insurance Company, and from 1990 until 1993 he
was chief investment officer of Fund American Enterprises, Inc.  Mr. Wyper was
chief investment officer of White River Corporation and president of Hanover
Advisers, Inc. from 1993 until he joined Counsellors in August 1994 as a
managing director of EMW.  Mr. Wyper earned a B.S. degree in economics from
the Wharton School of Business of the University of Pennsylvania and a Masters
of Management from Yale University.

       Ms. Susan L. Black is co-president and co-portfolio manager of the Fund
and is currently a managing director of EMW as well as the director of
research and a senior portfolio manager of the Institutional Growth Equity
product.  From 1961 until 1973, Ms. Black was employed by Argus Research,
first as a securities analyst, then as Director of Research.  From 1973 until
1977 and from 1978 until 1979 Ms. Black was a Vice President of Research at
Drexel Burnham Lambert.  From 1977 until 1978 Ms. Black was a Vice President
of Research at Donaldson, Lufkin & Jenrette.  From 1979 until 1985 Ms. Black
was a partner at Century Capital Associates.  Ms. Black joined EMW in 1985.
Ms. Black received a B.A. degree from Mount Holyoke College.

       As of August 31, 1995, Trustees and officers of the Fund as a group
owned of record 21,495 of the Fund's outstanding Common Shares.  As of the
same date, Mr. Furth may be deemed to have beneficially owned 80.56% of the
Fund's outstanding Common








<PAGE>25

Shares, including shares owned by clients for which Counsellors has investment
discretion. Mr. Furth disclaims ownership of these shares and does not intend
to exercise voting rights with respect to these shares.  No Trustee or officer
owned of record any Advisor Shares.

Investment Adviser and Co-Administrators

       Counsellors serves as investment adviser to the Fund, Counsellors Funds
Service, Inc. ("Counsellors Service") serves as a co-administrator to the Fund
and PFPC serves as a co-administrator to the Fund pursuant to separate written
agreements (the "Advisory Agreement," the "Counsellors Service Co-
Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively).  The services provided by, and the fees payable by the Fund to,
Counsellors 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
Counsellors, Counsellors Service and PFPC in the proportion that its assets
bear to the aggregate assets of the Fund at the time of calculation.  Prior to
March 1, 1994, PFPC served as administrator to the fund and Counsellors
Service served as administrative services agent to the Fund pursuant to
separate written agreements.

       Counsellors agrees that if, in any fiscal year, the expenses borne by
the Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or
qualified for sale to the public, it will reimburse the Fund to the extent
required by such regulations.  Unless otherwise required by law, such
reimbursement would be accrued and paid on a monthly basis.  At the date of
this Statement of Additional Information, the most restrictive annual expense
limitation applicable to the Fund is 2.5% of the first $30 million of the
average net assets of the Fund, 2% of the next $70 million of the average net
assets of the Fund and 1.5% of the remaining average net assets of the Fund.

       The advisory fee payable by the Fund is calculated at an annual rate
based on a percentage of the Fund's average daily net assets.  See the
Prospectuses, "Management of the Fund."  During the fiscal year ending October
31, 1992, Counsellors voluntarily waived $5,692 of the $831,104 in investment
advisory fees earned under the Advisory Agreement.  During the fiscal year
ending October 31, 1993, Counsellors received $1,004,938, the full amount due
it under the Advisory Agreement.  During the fiscal year ending October 31,
1994, Counsellors voluntarily waived $11,179 of the $1,172,857 in investment
advisory fees earned under the Advisory Agreement.  During the fiscal years
ending October 31, 1992, October 31, 1993 and October 31, 1994, PFPC earned
$118,933, $143,562 and $167,551, respectively, in administration or, in the
case of the most recent fiscal year, co-administration fees.  During the
fiscal years ending October 31, 1992, October 31, 1993 and October 31, 1994,
Counsellors Service earned $64,001, $77,440 and $133,255, respectively, in
administrative services fees or, in the case of the most recent fiscal year,
co-administration fees.
















<PAGE>26

Organization of the Fund

       The Fund has been organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated January 20, 1987, as amended from time to time (the
"Trust Agreement").  On February 26, 1992 the Fund amended the Trust Agreement
to change the name of the Fund from "Counsellors Capital Appreciation Fund" to
"Warburg, Pincus Capital Appreciation Fund."  The Trust Agreement authorizes
the Board to issue three billion full and fractional shares of common stock,
$.001 par value per share.  Common Stock ("Common Shares"), Common Stock-
Series 1 and Advisor Shares have been authorized by the Trust Agreement,
although only Common Shares and Advisor Shares have been issued by the Fund.
When matters are submitted for shareholder vote, each shareholder will have
one vote for each share owned and proportionate, fractional votes for
fractional shares held.  Shareholders generally vote in the aggregate, except
with respect to (i) matters affecting only the shares of a particular class,
in which case only the shares of the affected class would be entitled to vote,
or (ii) when the 1940 Act requires that shares of the classes be voted
separately.  There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders.
The Trustees will call a meeting for any purpose when requested to do so in
writing by shareholders of record of not less than 10% of the Fund's
outstanding shares.

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

       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 Trustees can elect all Trustees.  Shares are transferable
but have no preemptive, conversion or subscription rights.

Custodian and Transfer Agent

       PNC Bank, National Association ("PNC") is custodian of the Fund's
assets pursuant to a custodian agreement (the "Custodian Agreement").  Under
the Custodian Agreement, PNC (i) maintains a separate account or accounts in
the name of the Fund, (ii)












<PAGE>27

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 on account of the
Fund's portfolio securities and (v) makes periodic reports to the Board
concerning the Fund's custodial arrangements.  PNC is authorized to select one
or more banks or trust companies to serve as sub-custodian on behalf of the
Fund, provided that PNC remains responsible for the performance of all its
duties under the Custodian Agreement and holds the Fund harmless from the acts
and omissions of any sub-custodian.  PNC is an indirect wholly owned
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101.

       State Street Bank and Trust Company ("State Street") serves 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.  The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110.  State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility for most
shareholder servicing functions.  BFDS's principal business address is 2
Heritage Drive, Boston, Massachusetts 02171.

Distribution and Shareholder Servicing

       The Fund has entered into a distribution agreement with an institution
(the "Service Organization") pursuant to which support services are provided
to the holders of Advisor Shares in consideration of the Fund's payment, out
of the assets attributable to the Advisor Shares, of .50%, on an annualized
basis (a .25% annual service fee and a .25% annual distribution fee), of the
average daily net assets of the Advisor Shares held of record.  See the
Advisor Shares Prospectus, "Shareholder Servicing."  The Fund's Advisor Shares
paid the Service Organization $53,002 in such fees for the year ending October
31, 1994.  The Fund may, in the future, enter into additional Agreements with
institutions ("Institutions") to perform certain distribution, shareholder
servicing, administrative and accounting services for their Customers who are
beneficial owners of Advisor Shares.  See the Prospectuses, "Shareholder
Servicing."  The Fund's Agreements with Institutions with respect to Advisor
Shares will be governed by a distribution plan (the "Distribution Plan").  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














<PAGE>28

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 arrangements.  A
Customer of an Institution should read the relevant Prospectus and 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.

       The Distribution Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Board, including
a majority of the Trustees who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the
Distribution Plan ("Independent Trustees").  Any material amendment of the
Distribution Plan would require the approval of the Board in the manner
described above.  The Distribution Plan may not be amended to increase
materially the amount to be spent under it without shareholder approval of the
Advisor Shares.  The Distribution Plan may be terminated at any time, without
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the Advisor Shares of the
Fund.


                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 property.  If a redemption is
paid wholly or partly in securities or other property, a shareholder would
incur transaction costs in disposing of the redemption















<PAGE>29

proceeds.  The Fund intends to comply with Rule 18f-1 promulgated under the
1940 Act with respect to redemptions in kind.

       Automatic Cash Withdrawal Plan.  An automatic cash withdrawal plan (the
"Plan") is available to shareholders who wish to receive specific amounts of
cash periodically.  Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment.  To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it.  Withdrawal payments should not be considered as income from
investment in the Fund.  All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.


                              EXCHANGE PRIVILEGE

       An exchange privilege with certain other funds advised by Counsellors
is available to investors in the Fund.  The funds into which exchanges can be
made by holders of Common Shares currently are the Common Shares of Warburg
Pincus Cash Reserve Fund, Warburg Pincus New York Tax Exempt Fund, Warburg
Pincus New York Intermediate Municipal Fund, Warburg Pincus Tax Free Fund,
Warburg Pincus Intermediate Maturity Government Fund, Warburg Pincus Fixed
Income Fund, Warburg Pincus Short-Term Tax-Advantaged Bond Fund, Warburg
Pincus Global Fixed Income Fund, Warburg Pincus Balanced Fund, Warburg Pincus
Growth & Income Fund, Warburg Pincus Emerging Growth Fund, Warburg Pincus
Post-Venture Capital Fund, Warburg Pincus International Equity Fund, Warburg
Pincus Emerging Markets Fund and Warburg Pincus Japan OTC Fund.  Common Share-
holders of the Fund may exchange all or part of their shares for Common Shares
of these or other mutual funds organized by Counsellors in the future on the
basis of their relative net asset values per share at the time of exchange.
Exchanges of Advisor Shares may currently be made with Advisor Shares of
Warburg Pincus Balanced Fund, Warburg Pincus Emerging Growth Fund, Warburg
Pincus International Equity Fund, Fund and Warburg Pincus Growth & Income Fund
at their relative net asset values at time of the exchange.

       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.


















<PAGE>30

       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.  Counsellors 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 has qualified and intends to continue 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 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












<PAGE>31

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.

       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.  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.

       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.











<PAGE>32

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 dis-
tributions and (ii) the proceeds of any sales or repurchases of shares of the
Fund.  An individual's taxpayer identification number is his social security
number.  Corporate shareholders and other shareholders specified in the Code
are or may be exempt from backup withholding.  The backup withholding tax is
not an additional tax and may be credited against a taxpayer's federal income
tax liability.  Dividends and distributions also may be subject to state and
local taxes depending on each shareholder's particular situation.

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.














<PAGE>33

                         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.  With respect to the Fund's Common Shares, the
Fund's average annual total return for the six-month period ended April 30,
1995 was 13.26%, the average annual total return for the one-year period
ending October 31, 1994 was 1.65%, the average annual total return for the
five-year period commencing October 31, 1989 and ending October 31, 1994 was
9.27% (8.06% without waivers) and the average annual total return for the
period commencing August 12, 1987 (commencement of operations) and ending
October 31, 1994 was 9.15% (8.14% without waivers).  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 Advisor Shares average
annual total return for the six-month period ended April 30, 1995 was 12.70%,
the average annual total return for the one-year period ending October 31,
1994 was 1.23% and the average annual total return for the period commencing
April 4, 1991 (initial issuance) and ending October 31, 1994 was 9.26% (7.57%
without waivers).

       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.  With respect to the Fund's Common Shares, the
Fund's actual total return for the calendar year and for the three-month
period ended on December 31, 1994 was -2.86% and -3.28%, respectively.  With
respect to the Advisor Shares, the Fund's actual total return for the calendar
year and for the three-month period ending on December 31, 1994 was -3.36% and
- -3.36%, respectively.  Investors should note that this performance may not be
representative of the Fund's total return in longer market cycles.

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

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










<PAGE>34

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.

       From time to time, the Fund may advertise evaluations of a class of
Fund shares published by nationally recognized financial publications, such as
Morningstar, Inc. or Lipper Analytical Services, Inc.  Morningstar, Inc. rates
funds in broad categories based on risk/reward analyses over various time
periods.


                             AUDITORS AND COUNSEL

       Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent auditors for the Fund.  The financial statements for the fiscal
years ended October 31, 1993 and October 31, 1994 that appear in this
Statement of Additional Information have been audited by Coopers & Lybrand,
whose report thereon appears elsewhere herein and have been included herein in
reliance upon the report of such firm of independent auditors given upon their
authority as experts in accounting and auditing.

       The financial statements for the periods beginning with commencement of
the Fund through October 31, 1992 have been audited by Ernst & Young LLP
("Ernst & Young"), independent auditors, as set forth in their report and have
been included in reliance on such report and upon the authority of such firm
as experts in accounting and auditing.  Ernst & Young's address is 787 7th
Avenue, New York, New York  10019.

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


                                 MISCELLANEOUS

       As of August 31, 1995, the name, address and percentage of ownership of
each person (other than Mr. Furth, see "Management of the Fund") that owns of
record 5% or more of the Fund's outstanding shares were as follows:

Common Shares

       Northern Trust Company, FBO Mattel Corp., P.O. Box 2956, Chicago, IL
60690 -- 8.88%.  Mr. Lionel I. Pincus, Chairman of the Board and Chief
Executive Officer of EMW, may be deemed to have beneficially owned 80.89% of
the Common Shares outstanding, including shares owned by clients for which
Counsellors has investment discretion and by companies that EMW may be deemed
to control.  Mr. Pincus disclaims

















<PAGE>35

ownership of these shares and does not intend to exercise voting rights with
respect to these shares.

Advisor Shares

       Connecticut General Life Ins. Co. on behalf of its separate accounts
55E 55F 55G c/o Melissa Spencer, M110, Cigna Corp., P.O. Box 2975, Hartford,
CT  06104-2975 -- 100%.


                             FINANCIAL STATEMENTS

       The Fund's financial statements for the fiscal year ending October 31,
1994 (audited) and for the period ended April 30, 1995 (unaudited) follow the
Report of Independent Auditors.



















































<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 they are 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.

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















<PAGE>A-2

       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.

       Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa".  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.

























<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Boards of Directors, Trustees and Shareholders of
  Warburg Pincus Equity Funds:

     We  have audited the accompanying statements of net assets of the following
Warburg Pincus Funds  (consisting of  Warburg Pincus  Capital Appreciation  Fund
('Capital  Appreciation Fund'),  Warburg Pincus Emerging  Growth Fund ('Emerging
Growth Fund')  and  Warburg  Pincus International  Equity  Fund  ('International
Equity Fund') and the accompanying statement of assets and liabilities including
the  schedule of investments of Warburg Pincus  Japan OTC Fund (with the Capital
Appreciation Fund,  Emerging  Growth Fund  and  International Equity  Fund,  the
'Warburg  Pincus  Equity  Funds')  as  of  October  31,  1994,  and  the related
statements of operations for the year (or period) then ended, and the statements
of changes in net assets and the financial highlights for each of the two  years
(or  period) in the period then  ended. These financial statements and financial
highlights are the responsibility of  the Funds' management. Our  responsibility
is  to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of the Warburg Pincus Equity Funds
for each of the three years in the period ended October 31, 1992, except for the
Warburg Pincus Japan OTC Fund, which commenced operations on September 30, 1994,
were audited by other auditors, whose report dated December 15, 1992,  expressed
an unqualified opinion.

     We  conducted  our audits  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  statements  and financial
highlights are free of material misstatement. An audit includes examining, on  a
test  basis, evidence  supporting the amounts  and disclosures  in the financial
statements. Our  procedures  included confirmation  of  securities owned  as  of
October  31, 1994  by correspondence with  the custodians and  brokers. 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  audits provide  a reasonable  basis for our
opinion.

     In our opinion, the financial statements and financial highlights  referred
to  above present  fairly, in all  material respects, the  financial position of
each of the Warburg Pincus Equity Funds as of October 31, 1994, and the  results
of  their operations  for the year  (or period)  then ended, and  the changes in
their net assets and their financial highlights for the two years (or period) in
the  period  then  ended,  in  conformity  with  generally  accepted  accounting
principles.

Coopers & Lybrand L.L.P.



2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 12, 1994

40
- ------------------------------------------------------------------------------

<PAGE>
- ------------------------------------------------------------------------------
 WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
October 31, 1994
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                            Shares      Value
                                                                           ---------  ---------
 <S>                                                                        <C>       <C>
COMMON STOCK (97.4%)

BASIC INDUSTRIES

Chemicals (2.0%)
 Great Lakes Chemical Corp.                                                   25,600  $1,504,000
 Hercules, Inc.                                                               15,800   1,844,650
                                                                                       ---------
                                                                                       3,348,650
                                                                                       ---------
Conglomerates (2.0%)
 Thermo Electron Corp. +                                                      75,000   3,421,875
                                                                                       ---------

Metals & Mining (2.6%)
 Allegheny Ludlum Corp.                                                      161,000   3,199,875
 Freeport McMoran, Inc.                                                       64,000   1,176,000
                                                                                       ---------
                                                                                       4,375,875
                                                                                       ---------
Real Estate (0.9%)
 Host Marriott Corp. +                                                       144,000   1,530,000
                                                                                       ---------

CAPITAL GOODS

Capital Equipment (2.4%)
 Allied Signal, Inc.                                                          65,200   2,257,550
 Stewart & Stevenson Services, Inc.                                           46,000   1,771,000
                                                                                       ---------
                                                                                       4,028,550
                                                                                       ---------
Computers (2.1%)
 Informix Corp. +                                                             55,500   1,526,250
 Microsoft Corp. +                                                            30,400   1,915,200
                                                                                       ---------
                                                                                       3,441,450
                                                                                       ---------
Distribution (3.2%)
 Alco Standard Corp.                                                          40,700   2,319,900
 Premier Industrial Corp.                                                    116,400   2,997,300
                                                                                       ---------
                                                                                       5,317,200
                                                                                       ---------
Electronics (7.9%)
 Intel Corp.                                                                  42,300   2,627,888
 Linear Technology Corp.                                                      36,500   1,752,000
 Molex, Inc.                                                                 107,475   4,782,638
 Motorola, Inc.                                                               38,800   2,284,350
 Xilinx, Inc. +                                                               30,400   1,767,000
                                                                                       ---------
                                                                                      13,213,876
                                                                                      ----------
Office Equipment & Supplies (3.2%)
 Indigo +                                                                     40,000     670,000
 Xerox Corp.                                                                  45,800   4,694,500
                                                                                       ---------
                                                                                       5,364,500
                                                                                       ---------
 </TABLE>
                           See Accompanying Notes to Financial Statements.
                                                                             9
- ------------------------------------------------------------------------------

 <PAGE>
- ------------------------------------------------------------------------------
 WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                            Shares      Value
                                                                           ---------  ---------
<S>                                                                         <C>       <C>
COMMON STOCK (CONT'D)
CONSUMER

Business Services (6.0%)
 Block (H & R), Inc.                                                          51,600  $2,289,750
 First Data Corp.                                                             42,500   2,130,313
 Manpower, Inc.                                                               81,000   2,359,125
 Olsten Corp. Class B                                                         89,600   3,214,400
                                                                                       ---------
                                                                                       9,993,588
                                                                                       ---------
Consumer Durables (5.4%)
 Automotive Industries Holdings, Inc. Class A +                               55,000   1,333,750
 Shaw Industries, Inc.                                                        85,200   1,246,050
 Singer Co.                                                                  126,500   3,968,938
 Sony Corp. ADR                                                               40,600   2,451,225
                                                                                       ---------
                                                                                       8,999,963
                                                                                       ---------
Consumer Non-Durables (2.6%)
 Duracell International, Inc.                                                 37,700   1,625,813
 Scott Paper Co.                                                              41,600   2,750,800
                                                                                       ---------
                                                                                       4,376,613
                                                                                       ---------
Food, Beverage & Tobacco (1.0%)
 Tyson Foods, Inc. Class A                                                    74,700   1,736,775
                                                                                       ---------

Healthcare (4.3%)
 Columbia/HCA Healthcare Corp.                                                 2,000      83,250
 Health Care & Retirement Corp. +                                             84,400   2,268,250
 PacifiCare Health Systems, Inc. Class B +                                    40,400   2,949,200
 United Healthcare Corp.                                                      35,600   1,877,900
                                                                                       ---------
                                                                                       7,178,600
                                                                                       ---------
Leisure & Entertainment (3.8%)
 Acclaim Entertainment, Inc. +                                                70,000   1,216,250
 Circus Circus Enterprises, Inc. +                                            59,300   1,319,425
 Disney (Walt) Co.                                                            96,100   3,783,938
                                                                                       ---------
                                                                                       6,319,613
                                                                                       ---------
Retail (4.1%)
 Federated Department Stores, Inc. +                                          59,700   1,238,775
 Tandy Corp.                                                                  70,900   3,137,325
 Toys R US, Inc. +                                                            64,200   2,471,700
                                                                                       ---------
                                                                                       6,874,800
                                                                                       ---------
ENERGY AND RELATED

Energy (8.9%)
 Apache Corp.                                                                 54,500   1,532,813
 Associated Natural Gas Corp.                                                110,000   4,193,750
 Louisiana Land & Exploration Co.                                             35,500   1,610,813
 Noble Affiliates, Inc.                                                      125,500   3,765,000
 Nuevo Energy Co. +                                                          115,300   2,579,838
 Western Gas Resources, Inc.                                                  67,500   1,316,250
                                                                                       ---------
                                                                                      14,998,464
                                                                                      ----------
</TABLE>

                           See Accompanying Notes to Financial Statements.
10
- ------------------------------------------------------------------------------

 <PAGE>
- ------------------------------------------------------------------------------
 WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- ------------------------------------------------------------------------------
 <TABLE>
<CAPTION>

                                                                            Shares      Value
                                                                           ---------  ---------
<S>                                                                         <C>       <C>
COMMON STOCK (CONT'D)
Oil Services (1.5%)
 Noble Drilling Corp. +                                                      337,600  $2,489,800
                                                                                      ----------
FINANCE

Banks & Savings & Loans (2.7%)
 First Fidelity Bancorp                                                       41,800   1,881,000
 Grupo Financiero Bancomer SA de CV ADR +                                     34,300     784,643
 Norwest Corp.                                                                75,200   1,842,400
                                                                                       ---------
                                                                                       4,508,043
                                                                                       ---------
Financial Services (7.6%)
 Federal Home Loan Mortgage Corp.                                             55,700   3,035,650
 Fund American Enterprises Holdings, Inc. +                                   27,134   1,916,339
 Mid Ocean Ltd. +                                                             58,800   1,411,200
 Reinsurance Group of America, Inc.                                           35,600     792,100
 TIG Holdings, Inc.                                                           92,200   1,774,850
 Travelers, Inc.                                                              51,866   1,802,343
 USF&G Corp.                                                                 150,000   2,043,750
                                                                                       ---------
                                                                                      12,776,232
                                                                                      ----------
MEDIA

Communications & Media (8.1%)
 Bell CableMedia, PLC ADR +                                                   17,200     404,200
 Comcast Corp. Class A                                                        26,600     442,225
 Comcast Corp. Class A Special                                               129,550   2,121,381
 Infinity Broadcasting Corp. Class A +                                        67,500   2,050,313
 News Corp. Ltd. ADR                                                          32,500   1,588,437
 Tele-Communications, Inc. Class A +                                         176,832   4,000,824
 Turner Broadcasting System, Inc. Class B                                     75,900   1,347,225
 Viacom, Inc. Class B                                                         41,800   1,648,550
                                                                                       ---------
                                                                                      13,603,155
                                                                                      ----------
Publishing (3.1%)
 Harcourt General, Inc.                                                      138,600   5,128,200
                                                                                       ---------

Telecommunications & Equipment (11.4%)
 AirTouch Communications Inc. +                                              131,400   3,925,575
 DSC Communications Corp. +                                                   53,300   1,638,975
 Intermedia Communications of Florida, Inc. +                                140,000   1,522,500
 LIN Broadcasting Corp. +                                                     10,500   1,449,000
 Paging Network, Inc. +                                                      115,950   3,913,313
 Telefonos de Mexico SA de CV ADR Class L                                     20,000   1,102,500
 Telephone & Data Systems, Inc.                                               77,200   3,821,400
 Vodafone Group PLC ADR                                                       50,700   1,761,824
                                                                                       ---------
                                                                                      19,135,087
                                                                                      ----------
</TABLE>

                           See Accompanying Notes to Financial Statements.
                                                                            11
- ------------------------------------------------------------------------------

 <PAGE>
- ------------------------------------------------------------------------------
 WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- ------------------------------------------------------------------------------
 <TABLE>
<CAPTION>

                                                                            Shares      Value
                                                                           ---------  ---------
 <S>                                                                         <C>      <C>
COMMON STOCK (CONT'D)
MISCELLANEOUS

Transportation (0.6%)
 American Freightways Corp. +                                                 50,000   $1,062,500
                                                                                       ----------

TOTAL COMMON STOCK (Cost $133,253,428)                                                163,196,409
                                                                                      -----------
                                                                              Par
                                                                           ---------

SHORT-TERM INVESTMENTS (2.4%)

 Repurchase agreement with PNC Securities Corp. dated 10/31/94 at 4.30%
 to be repurchased at $3,967,474 on 11/01/94. (Collateralized by
 $4,055,000 U.S.
 Treasury Bill dated 09/15/94 at 4.99%, due 03/16/95, with a market
 value of
 $3,971,873.) (Cost $3,967,000)                                          $3,967,000   3,967,000
                                                                                    -----------

TOTAL INVESTMENTS AT VALUE (99.8%)(Cost $137,220,428*)                              167,163,409

OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%)                                            351,084
                                                                                    -----------
NET ASSETS (100.0%) (applicable to 11,150,080 Common Shares and 574,503
 Series 2 Shares)                                                                  $167,514,493
                                                                                   ------------
                                                                                   ------------
NET ASSET VALUE, offering and redemption price per Common Share
 ($159,345,984[div]11,150,080)                                                           $14.29
NET ASSET VALUE, offering and redemption price per Series 2 Share                        ------
 ($8,168,509[div]574,503)                                                                ------
                                                                                         $14.22
                                                                                         ------
                                                                                         ------
</TABLE>
+ Non-income producing security.
* Also cost for Federal income tax purposes.

                           See Accompanying Notes to Financial Statements.
12
- -----------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                               Warburg Pincus     Warburg Pincus      Warburg Pincus     Warburg Pincus
                                            Capital Appreciation  Emerging Growth  International Equity    Japan OTC
                                                    Fund               Fund                Fund              Fund*
                                            --------------------  ---------------  --------------------  --------------
<S>                                         <C>                   <C>              <C>                   <C>
INVESTMENT INCOME:
     Dividends                                  $  1,956,407        $   739,797        $ 15,187,073        $        0
     Interest                                        239,527            876,658           2,739,415            15,656
     Foreign taxes withheld                           (1,168)           (24,340)         (1,836,587)                0
                                            --------------------  ---------------  --------------------  --------------
          Total investment income                  2,194,766          1,592,115          16,089,901            15,656
                                            --------------------  ---------------  --------------------  --------------
EXPENSES:
     Investment advisory                           1,172,857          2,234,376           9,879,319            13,176
     Administrative services                         300,806            451,159           1,722,729             8,138
     Audit                                            24,264             27,121              65,628            15,000
     Custodian/Sub-custodian                          50,291             90,040           1,017,575             1,054
     Directors/Trustees                               10,000             10,000              11,000             1,250
     Distribution                                          0                  0                   0             2,635
     Insurance                                        15,532             15,918              32,972                 0
     Legal                                            25,034             31,983              47,493                 0
     Organizational                                        0                  0               4,756             3,011
     Printing                                         29,531             42,588              94,447             1,000
     Registration                                     28,348             77,436             580,302            14,597
     Shareholder servicing                            53,002            226,626             593,276                 0
     Transfer agent                                   79,364            131,476             675,657             3,000
     Miscellaneous                                    32,670             32,446              53,814                 0
                                            --------------------  ---------------  --------------------  --------------
                                                   1,821,699          3,371,169          14,778,968            62,861
     Less: fees waived and expenses
       reimbursed                                    (11,179)          (100,408)                  0           (52,320)
                                            --------------------  ---------------  --------------------  --------------
          Total expenses                           1,810,520          3,270,761          14,778,968            10,541
                                            --------------------  ---------------  --------------------  --------------
            Net investment income (loss)             384,246         (1,678,646)          1,310,933             5,115
                                            --------------------  ---------------  --------------------  --------------

NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
  INVESTMENTS AND FOREIGN CURRENCY RELATED
  ITEMS:

     Net realized gain (loss) from security
       transactions                               11,173,174         (5,721,525)         48,091,665                 0
     Net realized loss from foreign currency
       related items                                       0                  0          (2,772,944)         (294,437)
     Net increase (decrease) in unrealized
       appreciation from investments and
       foreign currency related items             (9,106,613)        10,930,919          82,484,415           (35,099)
                                            --------------------  ---------------  --------------------  --------------
            Net realized and unrealized gain
               (loss) from investments and
               foreign currency related
               items                               2,066,561          5,209,394         127,803,136          (329,536)
                                            --------------------  ---------------  --------------------  --------------
            Net increase (decrease) in net
               assets from operations           $  2,450,807        $ 3,530,748        $129,114,069        $ (324,421)
                                            --------------------  ---------------  --------------------  --------------
                                            --------------------  ---------------  --------------------  --------------
</TABLE>
* For the period September 30, 1994 (Commencement of Operations) through
  October 31, 1994.

                           See Accompanying Notes to Financial Statements.
                                                                              27
- --------------------------------------------------------------------------------


<PAGE>
- ------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                             Warburg Pincus            Warburg Pincus
                                          Capital Appreciation        Emerging Growth
                                                  Fund                      Fund
                                        ------------------------  ------------------------
                                           For the Year Ended        For the Year Ended
                                              October 31,               October 31,
                                           1994         1993         1994           1993
                                         -----------  -----------  -----------  -----------
<S>                                      <C>           <C>         <C>             <C>
FROM OPERATIONS:
   Net investment income (loss)           $ 384,246     $ 401,157   ($1,678,646)     $(902,442)
   Net realized gain (loss) from
    security transactions                11,173,174    13,675,715    (5,721,525)    12,312,484
   Net realized loss from foreign
    currency related items                        0             0             0              0
   Net change in unrealized
    appreciation (depreciation) from
    investments and foreign currency
    related items                        (9,106,613)   14,209,067    10,930,919     26,564,947
                                        -----------   -----------   -----------    -----------
      Net increase (decrease) in net
        assets resulting from
        operations                        2,450,807    28,285,939     3,530,748     37,974,989
                                        -----------   -----------   -----------    -----------
FROM DISTRIBUTIONS:
   Dividends from net investment
    income:
      Common shares                        (419,337)     (459,634)            0              0
      Series 2 shares                       (27,724)          (95)            0              0
   Distributions in excess of net
    investment income:
      Common shares                               0             0             0              0
      Series 2 shares                             0             0             0              0
   Distributions from capital gains:
      Common shares                     (12,899,141)   (6,877,271)  (10,576,150)    (2,054,285)
      Series 2 shares                      (852,608)     (102,444)   (1,639,316)      (132,545)
                                        -----------   -----------   -----------    -----------
      NET DECREASE FROM DISTRIBUTIONS   (14,198,810)   (7,439,444)  (12,215,466)    (2,186,830)
                                        -----------    -----------  -----------    -----------
From Capital Share Transactions:
   Proceeds from sale of shares          45,617,531    46,439,011   180,813,270     89,478,924
   Reinvested dividends                  13,809,167     7,199,391    12,758,387      2,166,694
   Net asset value of shares redeemed   (49,851,500)  (24,352,588)  (71,767,717)   (40,840,041)
                                        -----------   -----------   -----------    -----------
      Net increase in net assets from
        capital share transactions        9,575,198    29,285,814   121,803,940     50,805,577
                                        -----------   -----------   -----------    -----------
      Net increase (decrease) in net
        assets                           (2,172,805)   50,132,309   113,119,222     86,593,736
NET ASSETS:
   Beginning of period                  169,687,298   119,554,989   191,553,536    104,959,800
                                        -----------   -----------  -----------    ------------
   End of period                       $167,514,493  $169,687,298  $304,672,758   $191,553,536
                                       ------------ -------------  ------------   ------------
                                       ------------ -------------  ------------   ------------
</TABLE>

28
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                           Warburg Pincus
                                             Japan OTC
                                                Fund
                Warburg Pincus             ---------------
             International Equity          For the Period
                     Fund                September 30, 1994
            ------------------------       (Commencement of
        For the Year Ended October 31,    Operations) through
              1994             1993         October 31, 1994
           -----------     -----------     ----------------
<S>        <C>             <C>                 <C>

           $1,310,933       $ 638,986           $    5,115

           48,091,665       1,176,172                    0

           (2,772,944)        (48,647)            (294,437)



           82,484,415      63,734,670              (35,099)
           -----------    -----------        -------------


          129,114,069      65,501,181             (324,421)
          -----------     -----------        -------------



           (1,764,380)       (242,119)                   0
             (218,961)         (9,224)                   0


             (223,659)              0                    0
                    0               0                    0

           (1,047,367)       (995,091)                   0
             (129,979)        (16,719)                   0
           -----------    -----------        -------------
           (3,384,346)     (1,263,153)                   0
           -----------    -----------        -------------

        1,430,739,923     283,608,350           20,287,158
            2,950,772       1,184,585                    0
         (249,050,078)    (29,360,993)            (185,101)
        -------------     -----------        -------------

        1,184,640,617     255,431,942           20,102,057
        -------------     -----------        -------------

        1,310,370,340     319,669,970           19,777,636

          422,905,163     103,235,193              101,000
          -----------    ------------        -------------
       $1,733,275,503    $422,905,163          $19,878,636
       -------------     ------------        -------------
       -------------     ------------        -------------
 </TABLE>
                           See Accompanying Notes to Financial Statements.
                                                                            29
- ------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                           Common Shares                        Series 2 Shares
                                            -------------------------------------------    -------------------------
<S>                                         <C>       <C>      <C>      <C>      <C>       <C>      <C>      <C>
                                                                                              For the Year Ended
                                                  For the Year Ended October 31,                  October 31,
                                            -------------------------------------------    -------------------------
                                             1994      1993     1992     1991     1990      1994     1993      1992
                                            ------    ------   ------   ------   ------    ------   ------   -------
NET ASSET VALUE, BEGINNING OF PERIOD       $15.32    $13.30   $12.16    $9.78   $11.48    $15.28   $13.28    $12.16
                                            ------    ------   ------   ------   ------    ------   ------   -------
    Income from Investment Operations:
    Net Investment Income (Loss)              .04       .05      .04      .15      .20       .05      .00      (.01)
    Net Gain (Loss) on Securities (both
      realized and unrealized)                .17      2.78     1.21     2.41    (1.28)      .10     2.76      1.20
                                            ------    ------   ------   ------   ------    ------   ------   -------
        Total from Investment Operations      .21      2.83     1.25     2.56    (1.08)      .15     2.76      1.19
                                            ------    ------   ------   ------   ------    ------   ------   -------
    Less Distributions:
    Dividends from net investment income     (.05)     (.05)    (.06)    (.18)    (.21)     (.02)     .00      (.02)
    Distributions from capital gains        (1.19)     (.76)    (.05)     .00     (.41)    (1.19)    (.76)     (.05)
                                           -------   -------   ------   ------   ------   -------  -------  --------
        Total Distributions                 (1.24)     (.81)    (.11)    (.18)    (.62)    (1.21)    (.76)     (.07)
                                           -------   -------  -------   ------   ------   -------  -------  --------
NET ASSET VALUE, END OF PERIOD             $14.29    $15.32   $13.30   $12.16    $9.78    $14.22   $15.28    $13.28
                                           -------   -------  -------  -------   ------   -------  -------  --------
                                           -------   -------  -------  -------   ------   -------  -------  --------

Total Return                                 1.65%    22.19%   10.40%   26.39%  (10.11%)    1.23%   21.64%    9.83%

RATIOS/SUPPLEMENTAL DATA:

Net Assets, End of Period (000s)         $159,346  $159,251 $117,900 $115,191  $76,537    $8,169  $10,437   $1,655

Ratios to average daily net assets:
    Operating expenses                       1.05%     1.01%    1.06%    1.08%    1.04%     1.55%    1.51%    1.56%
    Net investment income (loss)              .26%      .30%     .41%    1.27%    2.07%     (.24%)   (.25%)   (.11%)
    Decrease reflected in above expense
      ratios due to waivers/reimbursements    .01%      .00%     .01%     .00%     .01%      .01%     .00%     .01%

Portfolio Turnover Rate                     51.87%    48.26%   55.83%   39.50%   37.10%    51.87%   48.26%   55.83%

<CAPTION>

                                             Series 2 Shares
                                            ----------------
<S>                                         <C>
                                              April 4, 1991
                                                 (Initial
                                                Issuance)
                                                 through
                                             October 31, 1991
                                             ----------------
NET ASSET VALUE, BEGINNING OF PERIOD              $12.04
                                                  ------
    Income from Investment Operations:
    Net Investment Income (Loss)                     .05
    Net Gain (Loss) on Securities (both
      realized and unrealized)                       .13
                                                  ------
        Total from Investment Operations             .18
                                                  ------
    Less Distributions:
    Dividends from net investment income            (.06)
    Distributions from capital gains                 .00
                                                  ------
        Total Distributions                         (.06)
                                                  ------
NET ASSET VALUE, END OF PERIOD                    $12.16
                                                  ------
                                                  ------
Total Return                                        2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)                    $443
Ratios to average daily net assets:
    Operating expenses                              1.63%*
    Net investment income (loss)                     .25%*
    Decrease reflected in above expense
      ratios due to waivers/reimbursements           .01%*
Portfolio Turnover Rate                            39.50%
</TABLE>

* Annualized

                See Accompanying Notes to Financial Statements.

TAX STATUS OF 1994 DIVIDENDS (Unaudited)

Dividends  paid by the Fund  taxable as ordinary income  were as follows: Common
Shares -- $.28 per  share; Series 2  Shares -- $.25  per share; ordinary  income
dividends qualifying for the dividends received deduction available to corporate
shareholders: Common Shares -- 56.76%; Series 2 Shares -- 64.71%.

Long-term  capital gain dividends in  the amount of $.96  per share were paid on
both Common and Series 2 Shares.

Because the Fund's fiscal year is not  the calendar year, amounts to be used  by
calendar  year  taxpayers on  their  Federal return  will  be reflected  on Form
1099-DIV and will be mailed in January 1995.

30
- --------------------------------------------------------------------------------


<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

     The  Warburg Pincus  Equity Funds are  comprised of  Warburg Pincus Capital
Appreciation  Fund  (the  'Capital   Appreciation  Fund')  and  Warburg   Pincus
International Equity Fund (the 'International Equity Fund') which are registered
under  the  Investment Company  Act of  1940,  as amended  (the '1940  Act'), as
diversified,  open-end  management  investment  companies,  and  Warburg  Pincus
Emerging  Growth Fund (the 'Emerging Growth  Fund') and Warburg Pincus Japan OTC
Fund (the 'Japan  OTC Fund,' together  with the Capital  Appreciation Fund,  the
International  Equity Fund and the Emerging  Growth Fund, the 'Funds') which are
registered under the 1940 Act as non-diversified, open-end management investment
companies.

     Investment  objectives  for   each  Fund  are   as  follows:  the   Capital
Appreciation  Fund, the  International Equity Fund  and the Japan  OTC Fund seek
long-term capital appreciation; the Emerging  Growth Fund seeks maximum  capital
appreciation.

     The  net asset value  of each Fund is  determined daily as  of the close of
regular trading on  the New  York Stock  Exchange. Each  Fund's investments  are
valued  at market value,  which is currently determined  using the last reported
sales price.  If no  sales are  reported,  investments are  valued at  the  last
reported  bid price. In  the absence of  a quoted market  value, investments are
valued at fair  value as  determined by  or under  the direction  of the  Fund's
governing  Board.  Short-term investments  that mature  in 60  days or  less are
valued on the basis of amortized cost, which approximates market value.

     The books  and  records  of  the Funds  are  maintained  in  U.S.  dollars.
Transactions  denominated  in foreign  currencies  are recorded  at  the current
prevailing exchange rates.  All assets  and liabilities  denominated in  foreign
currencies  are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes  in
the  exchange rate during the reporting period  and realized gains and losses on
the settlement of foreign currency transactions  are reported in the results  of
operations  for the  current period.  The Funds do  not isolate  that portion of
gains and losses on investments in equity securities which are due to changes in
the foreign exchange rate from that which is due to changes in market prices  of
equity securities.

     Security  transactions are accounted for on  trade date. Interest income is
recorded on the accrual basis. Dividends  are recorded on the ex-dividend  date.
Income,  expenses  (excluding class-specific  expenses)  and realized/unrealized
gains/losses are allocated proportionately  to each class  of shares based  upon
the relative net asset value of outstanding shares. The cost of investments sold
is  determined by use  of the specific identification  method for both financial
reporting and income tax purposes.

     Dividends from net investment income are declared and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, to the  extent that a net  realized capital gain can  be
reduced by a capital loss carryover, such gain will not be distributed.

     Each  Fund intends to continue to comply with the special provisions of the
Internal Revenue Code available to investment companies and therefore no Federal
income tax provision is required.

     Costs incurred by the  Japan OTC Fund in  connection with its  organization
have  been deferred and are being amortized over a period of five years from the
date the Japan OTC Fund commenced its operations.

34
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------

     Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical  repurchase agreement,  each Fund acquires  an underlying  security
subject  to  an  obligation  of  the seller  to  repurchase.  The  value  of the
underlying security will be maintained at an amount at least equal to the  total
amount  of the purchase obligation, including interest. The collateral is in the
Fund's possession.

     As of November 1, 1993,  or inception, in the case  of the Japan OTC  Fund,
each  Fund  implemented  AICPA  Statement  of  Position  93-2  -- Determination,
Disclosure and Financial  Statement Presentation  of Income,  Capital Gain,  and
Return  of  Capital  Distributions  by Investment  Companies.  Adoption  of this
standard results  in  the  reclassification  to  paid-in  capital  of  permanent
differences between tax and financial reporting of net investment income and net
realized  gain (loss). The change has had  no material effect on paid-in capital
or other components of the net assets of any of the Funds at November 1, 1993 or
inception, as  the case  may be.  Distributions to  shareholders and  net  asset
values were not affected by this change.

2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR

     Warburg,   Pincus  Counsellors,   Inc.  ('Counsellors'),   a  wholly  owned
subsidiary of Warburg, Pincus Counsellors  G.P. ('Counsellors G.P.'), serves  as
each   Fund's  investment   adviser.  For  its   investment  advisory  services,
Counsellors receives the following fees based  on each Fund's average daily  net
assets:

<TABLE>
<CAPTION>
              FUND                             ANNUAL RATE
- ---------------------------------   ----------------------------------

<S>                                 <C>
Capital Appreciation                  .70% of average daily net assets
Emerging Growth                       .90% of average daily net assets
International Equity                 1.00% of average daily net assets
Japan OTC                            1.25% of average daily net assets
</TABLE>

     For  the period or  year ended October 31,  1994, investment advisory fees,
waivers and reimbursements were as follows:

<TABLE>
<CAPTION>
                                                 GROSS                          NET            EXPENSE
                   FUND                       ADVISORY FEE     WAIVER       ADVISORY FEE     REIMBURSEMENTS
- -------------------------------------------   ------------    ---------    --------------    --------------

<S>                                           <C>             <C>          <C>               <C>
Capital Appreciation                           $1,172,857     $ (11,179)     $1,161,678               0
Emerging Growth                                 2,234,376      (100,408)      2,133,968               0
International Equity                            9,879,319             0       9,879,319               0
Japan OTC                                          13,176       (13,176)              0        $(39,144)
</TABLE>

     SPARX  Investment  &   Research,  USA,   Inc.  ('SPARX   USA')  serves   as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Counsellors pays SPARX USA a fee at an annual rate of .625% of the average daily
net  assets of the Japan  OTC Fund. No compensation is  payable by the Japan OTC
Fund to SPARX USA for its sub-investment advisory services.

                                                                              35
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------

     Counsellors Funds  Service, Inc.  ('CFSI'), a  wholly owned  subsidiary  of
Counsellors, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank   Corp.  ('PNC'),   serve  as   each  Fund's   co-administrators.  For  its
administrative services, CFSI currently receives  a fee calculated at an  annual
rate  of .10% of  each Fund's average daily  net assets. For  the period or year
ended October 31,  1994, administrative  services fees  earned by  CFSI were  as
follows:

<TABLE>
<CAPTION>
                   FUND                           CO-ADMINISTRATION FEE
- -------------------------------------------   ------------------------------
<S>                                           <C>
Capital Appreciation                                     $133,255
Emerging Growth                                           202,895
International Equity                                      871,165
Japan OTC                                                   1,054
</TABLE>

     Counsellors  Securities  Inc. ('CSI'),  also a  wholly owned  subsidiary of
Counsellors, serves as each  Fund's distributor. No  compensation is payable  by
the  Capital Appreciation  Fund, the Emerging  Growth Fund  or the International
Equity Fund to  CSI for  distribution services. For  distribution services  with
respect  to the Common Shares of  the Japan OTC Fund, CSI  receives a fee at the
annual  rate  of  .25%  of  the  Japan  OTC  Fund's  average  daily  net  assets
attributable  to  the Common  Shares;  no compensation  is  payable to  CSI with
respect to the Fund's Series  2 Shares. For the  period ended October 31,  1994,
CSI earned $2,635 in distribution fees.

3. INVESTMENTS IN SECURITIES

     For  the period  or year  ended October  31, 1994,  purchases and  sales of
investment securities (excluding short-term investments) were as follows:

<TABLE>
<CAPTION>
                           FUND                                 PURCHASES          SALES
- -----------------------------------------------------------   --------------    ------------
<S>                                                           <C>               <C>
Capital Appreciation                                          $   89,218,905    $ 82,854,233
Emerging Growth                                                  245,154,617     138,723,249
International Equity                                           1,224,880,044     155,267,110
Japan OTC                                                         13,713,446               0
</TABLE>

     At October 31, 1994, the  net unrealized appreciation from investments  for
those  securities  having  an  excess  of value  over  cost  and  net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:

<TABLE>
<CAPTION>
                                                                             NET UNREALIZED
                                         UNREALIZED        UNREALIZED         APPRECIATION
               FUND                     APPRECIATION      DEPRECIATION       (DEPRECIATION)
- -----------------------------------     ------------      -------------      --------------
<S>                                     <C>               <C>                <C>
Capital Appreciation                    $ 34,034,231      $  (4,091,250)      $ 29,942,981
Emerging Growth                           59,051,417         (8,336,497)        50,714,920
International Equity                     198,971,180        (57,952,506)       141,018,674
Japan OTC                                    254,382           (299,413)           (45,031)
</TABLE>

36
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------

4. FORWARD FOREIGN CURRENCY CONTRACTS

     The International Equity Fund and the Japan OTC Fund may enter into forward
currency contracts for the purchase or sale of a specific foreign currency at  a
fixed price on a future date. Risks may arise upon entering into these contracts
from  the  potential inability  of  counterparties to  meet  the terms  of their
contracts and from unanticipated  movements in the value  of a foreign  currency
relative  to  the  U.S. dollar.  Each  Fund  will enter  into  forward contracts
primarily for hedging purposes. The  forward currency contracts are adjusted  by
the  daily exchange rate of the underlying  currency and any gains or losses are
recorded for  financial  statement purposes  as  unrealized until  the  contract
settlement date.

     At  October 31,  1994, the  Japan OTC Fund  had the  following open forward
foreign currency contract and had recorded an unrealized gain of $11,591:

<TABLE>
<CAPTION>
SETTLEMENT          CURRENCY                      CURRENCY
  DATE               BOUGHT                         SOLD
- ---------    -----------------------     --------------------------

<S>          <C>                         <C>
11/30/94     14,000,000 U.S. Dollars     1,351,700,000 Japanese Yen
</TABLE>

5. SERIES 2 SHARES

     The Emerging Growth Fund, the International  Equity Fund and the Japan  OTC
Fund  are each authorized to  issue three billion full  and fractional shares of
capital stock,  $.001 par  value per  share,  of which  one billion  shares  are
designated Series 2 Shares. The Capital Appreciation Fund is authorized to issue
an  unlimited number of full and fractional shares of beneficial interest, $.001
par value per  share, of which  one billion  shares are classified  as Series  2
Shares.  Series 2 Shares are  identical to Common Shares  in all respects except
that Series 2  Shares are  sold to institutions  ('Service Organizations')  that
perform   certain   distribution,  shareholder   servicing,   accounting  and/or
administrative services for their customers who are beneficial owners of  Series
2  Shares. Series 2  Shares bear the  fees paid pursuant  to a distribution plan
adopted by each Fund in an amount not  to exceed .75 of 1.00% (on an  annualized
basis)  of  the  average  daily  net  asset value  of  the  shares  held  by the
institutions for  the benefit  of their  customers and  enjoy certain  exclusive
voting rights on matters relating to those fees.

     With respect to Series 2 Shares, Service Organizations earned the following
shareholder servicing fees for the year ended October 31, 1994:

<TABLE>
<CAPTION>
                     FUND                         SHAREHOLDER SERVICING FEES
- -----------------------------------------------   --------------------------

<S>                                               <C>
Capital Appreciation                                       $ 53,002
Emerging Growth                                             226,626
International Equity                                        593,276
</TABLE>

                                                                              37
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
 WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------

     Transactions in shares of each Fund were as follows:

<TABLE>
<CAPTION>
                               CAPITAL APPRECIATION FUND                               EMERGING GROWTH FUND
                        Common Shares            Series 2 Shares              Common Shares            Series 2 Shares
                   ------------------------  -----------------------    -------------------------  ------------------------
                            For the Year Ended October 31,                        For the Year Ended October 31,
                   -------------------------------------------------    ---------------------------------------------------
                      1994         1993         1994         1993           1994         1993         1994         1993
                   -----------  -----------  -----------  ----------    ------------  -----------  -----------  -----------

<S>                <C>          <C>          <C>          <C>           <C>           <C>          <C>          <C>
Shares sold          2,958,494    2,705,720      290,193     588,424       6,133,751    3,295,313    2,233,737      871,054
Shares issued to
  shareholders on
  reinvestment of
  dividends            920,210      535,112       61,526       7,739         506,720      101,352       80,473        6,644
Shares redeemed     (3,126,497)  (1,710,437)    (460,020)    (38,003)     (2,859,413)  (1,870,167)    (517,898)     (67,545)
                   -----------  -----------  -----------  ----------    ------------  -----------  -----------  -----------
Net increase
  (decrease) in
  shares
  outstanding          752,207    1,530,395     (108,301)    558,160       3,781,058    1,526,498    1,796,312      810,153
                   -----------  -----------  -----------  ----------    ------------  -----------  -----------  -----------
                   -----------  -----------  -----------  ----------    ------------  -----------  -----------  -----------
Proceeds from sale
  of shares        $41,570,590  $38,018,578  $ 4,046,941  $8,420,433    $132,922,995  $71,149,417  $47,890,275  $18,329,507
Reinvested
  dividends         12,945,690    7,096,852      863,477     102,539      11,015,146    2,034,149    1,743,241      132,545
Net asset value of
  shares redeemed  (43,449,501) (23,821,721)  (6,401,999)   (530,867)    (61,126,667) (39,393,274) (10,641,050)  (1,446,767)
                   -----------  -----------  -----------  ----------    ------------  -----------  -----------  -----------
Net increase
  (decrease) from
  capital share
  transactions     $11,066,779  $21,293,709  $(1,491,581) $7,992,105    $ 82,811,474  $33,790,292  $38,992,466  $17,015,285
                   -----------  -----------  -----------  ----------    ------------  -----------  -----------  -----------
                   -----------  -----------  -----------  ----------    ------------  -----------  -----------  -----------
</TABLE>

6. NET ASSETS
     Net Assets at October 31, 1994, consisted of the following:

<TABLE>
<CAPTION>
                                      CAPITAL APPRECIATION FUND                          EMERGING GROWTH FUND
                             Common Shares  Series 2 Shares     Total        Common Shares  Series 2 Shares     Total
                             -------------  ---------------  ------------    -------------  ---------------  ------------

<S>                          <C>            <C>              <C>             <C>            <C>              <C>
Capital contributed, net     $118,516,377     $ 8,060,714    $126,577,091    $199,119,705     $60,627,302    $259,747,007
Accumulated net investment
  income (loss)                         0               0               0               0               0               0
Accumulated net realized
  gain (loss) from security
  transactions                 10,795,522         198,899      10,994,421      (3,706,511 )    (2,122,042)     (5,828,553)
Net unrealized appreciation
  (depreciation) from
  investments and foreign
  currency related items       30,034,085         (91,104)     29,942,981      45,250,539       5,503,765      50,754,304
                             -------------  ---------------  ------------    -------------  ---------------  ------------
Net assets                   $159,345,984     $ 8,168,509    $167,514,493    $240,663,733     $64,009,025    $304,672,758
                             -------------  ---------------  ------------    -------------  ---------------  ------------
                             -------------  ---------------  ------------    -------------  ---------------  ------------
</TABLE>

7. CAPITAL LOSS CARRYOVER

     At  October 31, 1994, the Emerging Growth Fund has a capital loss carryover
of $5,789,170 expiring in  2002 to offset possible  future capital gains of  the
Fund.

38
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                             JAPAN OTC FUND
                                                                          Common        Series 2
                         INTERNATIONAL EQUITY FUND                        Shares        Shares
                  Common Shares               Series 2 Shares         -------------  ---------------
          ----------------------------  -------------------------            For the Period
                      For the Year Ended October 31,                      September 30, 1994
          -------------------------------------------------------     (Commencement of Operations)
               1994           1993          1994         1993           through October 31, 1994
          --------------  ------------  ------------  -----------    ------------------------------

<S>       <C>             <C>           <C>           <C>            <C>            <C>
              64,218,907    15,914,077     7,956,088    2,510,712       2,025,697              15
                 147,031        89,544         6,879        1,957               0               0
             (11,861,720)   (2,060,764)     (795,406)     (16,861)        (18,605)              0
          --------------  ------------  ------------  -----------    -------------  ---------------
              52,504,218    13,942,857     7,167,561    2,495,808       2,007,092              15
          --------------  ------------  ------------  -----------    -------------  ---------------
          --------------  ------------  ------------  -----------    -------------  ---------------
          $1,275,306,263  $244,888,526  $155,433,660  $38,719,824     $20,287,008     $       150
               2,820,903     1,158,643       129,869       25,942               0               0
            (233,614,600)  (29,121,414)  (15,435,478)    (239,579)       (185,101)              0
          --------------  ------------  ------------  -----------    -------------  ---------------
          $1,044,512,566  $216,925,755  $140,128,051  $38,506,187     $20,101,907     $       150
          --------------  ------------  ------------  -----------    -------------  ---------------
          --------------  ------------  ------------  -----------    -------------  ---------------
</TABLE>

<TABLE>
<CAPTION>
                     INTERNATIONAL EQUITY FUND                             JAPAN OTC FUND
          Common Shares   Series 2 Shares      Total         Common Shares  Series 2 Shares     Total
          --------------  ---------------  --------------    -------------  ---------------  -----------

<S>       <C>             <C>              <C>               <C>            <C>              <C>
          $1,368,158,592   $ 180,212,108   $1,548,370,700     $19,924,176       $ 1,150      $19,925,326
              4,309,014          429,089        4,738,103               0             0                0
             34,680,906        4,327,914       39,008,820         (11,574)          (17)         (11,591)
            126,723,436       14,434,444      141,157,880         (35,099)            0          (35,099)
          --------------  ---------------  --------------    -------------      -------      -----------
          $1,533,871,948   $ 199,403,555   $1,733,275,503     $19,877,503       $ 1,133      $19,878,636
          --------------  ---------------  --------------    -------------      -------      -----------
          --------------  ---------------  --------------    -------------      -------      -----------
</TABLE>

                                                                              39
- --------------------------------------------------------------------------------

<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
April 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       Shares           Value
                                                                      ---------       ---------
<S>                                                                   <C>             <C>
COMMON STOCK (97.4%)

BASIC INDUSTRIES

Chemicals (5.6%)
 Avery Dennison Corp.                                                    77,900     $ 3,164,688
 Grace & Co., W.R.                                                       20,000       1,072,500
 Hercules, Inc.                                                          90,000       4,488,750
 Praxair, Inc.                                                           76,800       1,824,000
                                                                                      ---------
                                                                                     10,549,938
                                                                                      ---------
Conglomerates (2.0%)
 Thermo Electron Corp. +                                                 69,600       3,749,700
                                                                                      ---------

CAPITAL GOODS

Capital Equipment (7.4%)
 Clark Equipment Co.                                                    165,000      14,107,500
                                                                                      ---------
Computers (6.2%)
 Alliant Techsystems Inc.                                                70,000       2,581,250
 Informix Corp. +                                                        56,100       2,208,932
 Parametric Technology Corp.                                             79,500       3,776,250
 Platinum Technology, Inc. +                                             33,000         660,000
 Synopsys, Inc. +                                                        48,100       2,609,425
                                                                                      ---------
                                                                                     11,835,857
                                                                                      ---------
Distribution (2.7%)
 Alco Standard Corp.                                                     71,400       5,060,475
                                                                                      ---------
Electronics (5.6%)
 Cabletron Systems, Inc.                                                 49,000       2,327,500
 Linear Technology Corp.                                                 70,000       4,182,500
 Molex, Inc.                                                             41,543       1,568,248
 Xilinx, Inc. +                                                          33,400       2,563,450
                                                                                      ---------
                                                                                     10,641,698
                                                                                      ---------
CONSUMER

Agriculture (1.2%)
 Pioneer Hi-Bred International Inc.                                      62,900       2,358,750
                                                                                      ---------

Business Services (7.1%)
 Block (H & R), Inc.                                                     42,800       1,802,950
 First Data Corp.                                                        56,400       3,172,500
 Manpower, Inc.                                                          81,000       2,703,375
 Olsten Corp. Class B                                                   104,400       3,562,650
 Omnicom Group Inc.                                                      40,800       2,269,500
                                                                                      ---------
                                                                                     13,510,975
                                                                                      ---------
Consumer Non-Durables (6.6%)
 Premark International, Inc.                                             52,000       2,509,000
 Reebok International, Ltd.                                             185,000       5,781,250
 Scott Paper Co.                                                         48,600       4,331,475
                                                                                      ---------
                                                                                     12,621,725
                                                                                      ---------
</TABLE>

                See Accompanying Notes to Financial Statements.
                                                                             5
- ------------------------------------------------------------------------------

<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       Shares           Value
                                                                      ---------       ---------
<S>                                                                   <C>             <C>
COMMON STOCK (CONT'D)
Leisure & Entertainment (2.6%)
 Carnival Cruise Lines Inc.                                              33,400     $   830,825
 Disney (Walt) Co.                                                       73,500       4,070,063
                                                                                      ---------
                                                                                      4,900,888
                                                                                      ---------
Retail (1.7%)
 Tandy Corp.                                                             35,000       1,732,500
 Toys R Us, Inc. +                                                       60,000       1,515,000
                                                                                      ---------
                                                                                      3,247,500
                                                                                      ---------
ENERGY AND RELATED

Energy (2.9%)
 Noble Affiliates, Inc.                                                 125,500       3,388,500
 Nuevo Energy Co. +                                                     115,300       2,205,113
                                                                                      ---------
                                                                                      5,593,613
                                                                                      ---------
Healthcare (8.9%)
 Bard, Inc. C.R.                                                         77,500       2,257,188
 Becton Dickinson & Co.                                                  50,000       2,787,500
 Health Care & Retirement Corp. +                                        84,400       2,384,300
 Health Management Association                                           75,000       2,175,000
 McKesson Corp.                                                         100,000       3,962,500
 PacifiCare Health Systems, Inc. Class B +                               50,000       3,100,000
                                                                                      ---------
                                                                                     16,666,488
                                                                                      ----------
FINANCE
Banks & Savings & Loans (11.0%)
 Corestate Financial Corp.                                              125,000       4,078,125
 First Fidelity Bancorp                                                  41,800       2,016,850
 Midlantic Corp.                                                         50,000       1,825,000
 PNC Financial Corp.                                                    234,500       5,891,813
 Wells Fargo & Co.                                                       42,500       7,049,688
                                                                                      ---------
                                                                                     20,861,476
                                                                                      ---------
Financial Services (5.9%)
 Federal Home Loan Mortgage Corp.                                        55,700       3,634,425
 Fund American Enterprises Holdings, Inc. +                              12,196         879,637
 John Nuveen Co. Class A                                                 72,100       1,613,238
 Mercury Finance Co.                                                     40,000         605,000
 Travelers, Inc.                                                        110,000       4,551,250
                                                                                      ---------
                                                                                     11,283,550
                                                                                      ---------
MEDIA

Communications & Media (10.6%)
 Bell Cablemedia, PLC ADR +                                              60,000         997,500
 Evergreen Media Corp.                                                   49,000         912,625
 Gannett, Inc.                                                          100,000       5,262,500
 Gaylord Entertainment Co.                                              110,000       2,598,750
 Infinity Broadcasting Corp. Class A +                                   67,500       2,877,188
 LIN Television Corp. +                                                  30,250       1,089,000
 Multimedia Inc.                                                         75,000       2,821,875
</TABLE>

               See Accompanying Notes to Financial Statements.
6
- ------------------------------------------------------------------------------

<PAGE>

- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       Shares           Value
                                                                      ---------       ---------
<S>                                                                   <C>           <C>
COMMON STOCK (CONT'D)
 News Corp. Ltd. ADR                                                     65,000     $ 1,267,500
 Viacom, Inc. Class B +                                                  51,800       2,376,325
                                                                                      ---------
                                                                                     20,203,263
                                                                                      ---------
Publishing (4.6%)
 Harcourt General, Inc.                                                 105,700       4,320,488
 Houghton Mifflin Co.                                                    50,000       2,406,250
 Wiley (John) & Sons Inc.                                                36,300       2,032,800
                                                                                      ---------
                                                                                      8,759,538
                                                                                      ---------
Telecommunications & Equipment (3.7%)
 Intermedia Communications of Florida, Inc. +                            50,000         525,000
 Picturetel Corp.                                                        41,600       1,773,200
 Tellabs, Inc. +                                                         35,000       2,415,000
 Vodafone Group PLC ADR                                                  70,700       2,253,563
                                                                                      ---------
                                                                                      6,966,763
                                                                                      ---------
MISCELLANEOUS

Automobiles (1.1%)
 Chrysler Corporation Holding Company                                    50,000       2,156,250
                                                                                      ---------

TOTAL COMMON STOCK (Cost $151,520,797)                                              185,075,947
                                                                                      ---------

PREFERRED STOCK (0.5%)


Communications & Media (0.5%)
 News Corp. ADR + (Cost $621,032)                                        52,500         945,000
                                                                                      ---------
                                                                        Par
                                                                     ---------

SHORT-TERM INVESTMENTS (2.4%)

 Repurchase agreement with State Street Bank & Trust Co.
 dated 04/28/95 at 5.87%  to be repurchased at $4,548,224
 on 05/01/95. (Collateralized by  $4,605,000 U.S. Treasury
 Note at 6.25%, due 08/31/96, with a market value of
 $4,639,538.) (Cost $4,546,000)                                      $4,546,000       4,546,000
                                                                                   ------------

TOTAL INVESTMENTS AT VALUE (100.3%) (Cost $156,687,829*)                            190,566,947

LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%)                                           (492,437)
                                                                                   ------------
NET ASSETS (100.0%) (applicable to 12,852,921 Common Shares
and 641,227 Advisor Shares**)                                                      $190,074,510
                                                                                   ------------
                                                                                   ------------
NET ASSET VALUE, offering and redemption price per Common
Share ($181,108,676[div]12,852,921)                                                      $14.09
                                                                                   ------------
                                                                                   ------------

NET ASSET VALUE, offering and redemption price per Advisor
Share** ($8,965,834[div]641,227)                                                         $13.98
                                                                                   ------------
                                                                                   ------------

</TABLE>

 + Non-income producing security.
 * Also cost for Federal income tax purposes.
** Advisor Shares refer to Series 2 Shares herein and in the prospectus.

                See Accompanying Notes to Financial Statements.
                                                                             7
- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                               Warburg Pincus     Warburg Pincus      Warburg Pincus     Warburg Pincus
                                            Capital Appreciation  Emerging Growth  International Equity    Japan OTC
                                                    Fund               Fund                Fund               Fund
                                            --------------------  ---------------  --------------------  --------------
<S>                                         <C>                   <C>              <C>                   <C>
INVESTMENT INCOME:
     Dividends                                  $    866,566        $   385,287       $   16,884,622      $     92,394
     Interest                                        417,191            777,120            6,035,578            52,639
     Foreign taxes withheld                           (2,423)                 0           (2,632,413)          (13,859)
                                            --------------------  ---------------  --------------------  --------------
          Total investment income                  1,281,334          1,162,407           20,287,787           131,174
                                            --------------------  ---------------  --------------------  --------------
EXPENSES:
     Investment advisory                             572,180          1,428,874            8,871,020           141,840
     Administrative services                         163,480            317,528            1,516,613            53,847
     Audit                                            11,486             11,348               25,098             9,837
     Custodian/Sub-custodian                          26,453             56,264              900,807            22,943
     Directors/Trustees                                4,960              4,960                4,960             3,720
     Distribution                                          0                  0                    0            28,368
     Insurance                                         7,467              7,935               20,767             2,266
     Legal                                            13,889             13,785               24,437            12,397
     Organizational                                        0                  0                    0            19,066
     Printing                                         12,853             16,604               39,399             7,690
     Registration                                     16,018             43,913              292,491            24,613
     Shareholder servicing                            20,418            188,426              532,559                 0
     Transfer agent                                   37,099             60,883              532,321            41,327
     Miscellaneous                                    17,498             15,667               38,126             3,712
                                            --------------------  ---------------  --------------------  --------------
                                                     903,801          2,166,187           12,798,598           371,626
     Less: fees waived and expenses
       reimbursed                                          0                  0                    0          (258,152)
                                            --------------------  ---------------  --------------------  --------------
          Total expenses                             903,801          2,166,187           12,798,598           113,474
                                            --------------------  ---------------  --------------------  --------------
            Net investment income (loss)             377,533         (1,003,780)           7,489,189            17,700
                                            --------------------  ---------------  --------------------  --------------

NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
  INVESTMENTS AND FOREIGN CURRENCY RELATED ITEMS:

     Net realized gain (loss) from security
       transactions                                6,497,435         14,451,273          (53,266,705)       (1,943,522)
     Net realized gain (loss) from foreign
       currency related items                              0                  0            3,272,321        (3,394,945)
     Net increase (decrease) in unrealized
       appreciation from investments and
       foreign currency related items              3,936,137         11,679,784         (110,594,381)           70,023
                                            --------------------  ---------------  --------------------  --------------
            Net realized and unrealized gain
               (loss) from investments and
               foreign currency related
               items                              10,433,572         26,131,057         (160,588,765)       (5,268,444)
                                            --------------------  ---------------  --------------------  --------------
            Net increase (decrease) in net
               assets from operations           $ 10,811,105        $25,127,277       $ (153,099,576)     $ (5,250,744)
                                            --------------------  ---------------  --------------------  --------------
                                            --------------------  ---------------  --------------------  --------------
</TABLE>

                  See Accompanying Notes to Financial Statements.
                                                                              21
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                Warburg Pincus                        Warburg Pincus
                                                             Capital Appreciation                     Emerging Growth
                                                                     Fund                                  Fund
                                                      -----------------------------------   -----------------------------------
                                                          For the                               For the
                                                      Six Months Ended       For the        Six Months Ended       For the
                                                       April 30, 1995       Year Ended       April 30, 1995       Year Ended
                                                        (Unaudited)      October 31, 1994     (Unaudited)      October 31, 1994
                                                      ----------------   ----------------   ----------------   ----------------

<S>                                                   <C>                <C>                <C>                <C>
FROM OPERATIONS:
    Net investment income (loss)                        $    377,533       $    384,246       $ (1,003,780)      $ (1,678,646)
    Net realized gain (loss) from security
      transactions                                         6,497,435         11,173,174         14,451,273         (5,721,525)
    Net realized gain (loss) from foreign currency
      related items                                                0                  0                  0                  0
    Net change in unrealized appreciation
      (depreciation) from investments and foreign
      currency related items                               3,936,137         (9,106,613)        11,679,784         10,930,919
                                                      ----------------   ----------------   ----------------   ----------------
        Net increase (decrease) in net assets
          resulting from operations                       10,811,105          2,450,807         25,127,277          3,530,748
                                                      ----------------   ----------------   ----------------   ----------------
FROM DISTRIBUTIONS:
    Dividends from net investment income:
        Common shares                                              0           (419,337)                 0                  0
        Advisor shares                                             0            (27,724)                 0                  0
    Distributions in excess of net investment
      income:
        Common shares                                              0                  0                  0                  0
        Advisor shares                                             0                  0                  0                  0
    Distributions from capital gains:
        Common shares                                    (10,460,742)       (12,899,141)                 0        (10,576,150)
        Advisor shares                                      (575,892)          (852,608)                 0         (1,639,316)
                                                      ----------------   ----------------   ----------------   ----------------
        Net decrease from distributions                  (11,036,634)       (14,198,810)                 0        (12,215,466)
                                                      ----------------   ----------------   ----------------   ----------------
FROM CAPITAL SHARE TRANSACTIONS:
    Proceeds from sale of shares                          39,742,671         45,617,531        111,724,784        180,813,270
    Reinvested dividends                                  10,763,492         13,809,167            347,867         12,758,387
    Net asset value of shares redeemed                   (27,720,617)       (49,851,500)       (54,921,210)       (71,767,717)
                                                      ----------------   ----------------   ----------------   ----------------
        Net increase in net assets from capital
          share transactions                              22,785,546          9,575,198         57,151,441        121,803,940
                                                      ----------------   ----------------   ----------------   ----------------
        Net increase (decrease) in net assets             22,560,017         (2,172,805)        82,278,718        113,119,222
NET ASSETS:
    Beginning of period                                  167,514,493        169,687,298        304,672,758        191,553,536
                                                      ----------------   ----------------   ----------------   ----------------
    End of period                                       $190,074,510       $167,514,493       $386,951,476       $304,672,758
                                                      ----------------   ----------------   ----------------   ----------------
                                                      ----------------   ----------------   ----------------   ----------------
</TABLE>

                 See Accompanying Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                    Warburg Pincus                           Warburg Pincus
                 International Equity                           Japan OTC
                         Fund                                     Fund
         ------------------------------------    ---------------------------------------
                                                                       For the Period
             For the                                 For the         September 30, 1994
         Six Months Ended        For the         Six Months Ended     (Commencement of
          April 30, 1995        Year Ended        April 30, 1995     Operations) through
           (Unaudited)       October 31, 1994      (Unaudited)        October 31, 1994
         ----------------    ----------------    ----------------    -------------------

         <S>                 <C>                 <C>                 <C>
          $    7,489,189      $    1,310,933       $     17,700          $     5,115
             (53,266,705)         48,091,665         (1,943,522)                   0
               3,272,321          (2,772,944)        (3,394,945)            (294,437)
            (110,594,381)         82,484,415             70,023              (35,099)
         ----------------    ----------------    ----------------    -------------------
            (153,099,576)        129,114,069         (5,250,744)            (324,421)
         ----------------    ----------------    ----------------    -------------------
              (5,808,212)         (1,764,380)                 0                    0
                (332,184)           (218,961)                 0                    0
                       0            (223,659)                 0                    0
                       0                   0                  0                    0
             (42,332,078)         (1,047,367)                 0                    0
              (5,756,403)           (129,979)                 0                    0
         ----------------    ----------------    ----------------    -------------------
             (54,228,877)         (3,384,346)                 0                    0
         ----------------    ----------------    ----------------    -------------------
             826,097,889       1,430,739,923         17,783,234           20,287,158
              49,503,945           2,950,772                  0                    0
            (345,979,679)       (249,050,078)        (5,837,595)            (185,101)
         ----------------    ----------------    ----------------    -------------------
             529,622,155       1,184,640,617         11,945,639           20,102,057
         ----------------    ----------------    ----------------    -------------------
             322,293,702       1,310,370,340          6,694,895           19,777,636
           1,733,275,503         422,905,163         19,878,636              101,000
         ----------------    ----------------    ----------------    -------------------
          $2,055,569,205      $1,733,275,503       $ 26,573,531          $19,878,636
         ----------------    ----------------    ----------------    -------------------
         ----------------    ----------------    ----------------    -------------------
</TABLE>

                                                                              23
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    Common Shares
                                          -----------------------------------------------------------------
                                          For the Six
                                            Months
                                             Ended
                                           April 30,               For the Year Ended October 31,
                                             1995         -------------------------------------------------
                                          (Unaudited)      1994       1993       1992       1991      1990
                                          -----------     ------     ------     ------     ------    ------
<S>                                       <C>             <C>        <C>        <C>        <C>       <C>
NET ASSET VALUE, BEGINNING OF PERIOD         $14.29       $15.32     $13.30     $12.16      $9.78    $11.48
                                          -----------     ------     ------     ------     ------    ------
  Income From Investment Operations:
  Net Investment Income (Loss)                  .03          .04        .05        .04        .15       .20
  Net Gain (Loss) from Securities (both
    realized and unrealized)                    .75          .17       2.78       1.21       2.41     (1.28)
                                          -----------     ------     ------     ------     ------    ------
    Total From Investment Operations            .78          .21       2.83       1.25       2.56     (1.08)
                                          -----------     ------     ------     ------     ------    ------
  Less Distributions:
  Dividends from net investment income          .00         (.05)      (.05)      (.06)      (.18)     (.21)
  Distributions from capital gains             (.98)       (1.19)      (.76)      (.05)       .00      (.41)
                                          -----------     ------     ------     ------     ------    ------
    Total Distributions                        (.98)       (1.24)      (.81)      (.11)      (.18)     (.62)
                                          -----------     ------     ------     ------     ------    ------
NET ASSET VALUE, END OF PERIOD               $14.09       $14.29     $15.32     $13.30     $12.16     $9.78
                                          -----------     ------     ------     ------     ------    ------
                                          -----------     ------     ------     ------     ------    ------

Total Return                                  13.25%*       1.65%     22.19%     10.40%     26.39%   (10.11%)

RATIOS/SUPPLEMENTAL DATA:

Net Assets, End of Period (000s)           $181,109       $159,346   $159,251   $117,900   $115,191  $76,537

Ratios to average daily net assets:
  Operating expenses                           1.08%*       1.05%      1.01%      1.06%      1.08%     1.04%
  Net investment income (loss)                  .49%*        .26%       .30%       .41%      1.27%     2.07%
  Decrease reflected in above expense
    ratios due to waivers/reimbursements        .00%         .01%       .00%       .01%       .00%      .01%
Portfolio turnover rate                      153.53%*      51.87%     48.26%     55.83%     39.50%    37.10%

<CAPTION>
                                                                     Advisor Shares
                                           ------------------------------------------------------------------
                                                                                             For the Period
                                           For the Six                                       April 4, 1991
                                           Months Ended      For the Year Ended October    (Initial Issuance)
                                            April 30,                   31,                     Through
                                               1995         ----------------------------      October 31,
                                           (Unaudited)       1994        1993      1992           1991
                                           ------------     ------      ------    ------   ------------------
<S>                                        <C>              <C>         <C>       <C>      <C>
NET ASSET VALUE, BEGINNING OF PERIOD           $14.22       $15.28      $13.28    $12.16         $12.04
                                               ------       ------      ------    ------         ------
  Income From Investment Operations:
  Net Investment Income (Loss)                    .00          .05         .00      (.01)           .05
  Net Gain (Loss) from Securities (both
    realized and unrealized)                      .74          .10        2.76      1.20            .13
                                               ------       ------      ------    ------         ------
    Total From Investment Operations              .74          .15        2.76      1.19            .18
                                               ------       ------      ------    ------         ------
  Less Distributions:
  Dividends from net investment income            .00         (.02)        .00      (.02)          (.06)
  Distributions from capital gains               (.98)       (1.19)       (.76)     (.05)           .00
                                               ------       ------      ------    ------         ------
    Total Distributions                          (.98)       (1.21)       (.76)     (.07)          (.06)
                                               ------       ------      ------    ------         ------
NET ASSET VALUE, END OF PERIOD                 $13.98       $14.22      $15.28    $13.28         $12.16
                                               ------       ------      ------    ------         ------
                                               ------       ------      ------    ------         ------
Total Return                                    12.70%*       1.23%      21.64%     9.83%          2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)               $8,966       $8,169      $10,437   $1,655           $443
Ratios to average daily net assets:
  Operating expenses                             1.58%*       1.55%       1.51%     1.56%          1.63%*
  Net investment income (loss)                   (.01%)*      (.24%)      (.25%)    (.11%)          .25%*
  Decrease reflected in above expense
    ratios due to waivers/reimbursements          .00%         .01%        .00%      .01%           .01%*
Portfolio turnover rate                        153.53%*      51.87%      48.26%    55.83%         39.50%
</TABLE>

* Annualized

                See Accompanying Notes to Financial Statements.
24
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

     The  Warburg Pincus  Equity Funds are  comprised of  Warburg Pincus Capital
Appreciation  Fund  (the  'Capital   Appreciation  Fund')  and  Warburg   Pincus
International Equity Fund (the 'International Equity Fund') which are registered
under  the  Investment Company  Act of  1940,  as amended  (the '1940  Act'), as
diversified,  open-end  management  investment  companies,  and  Warburg  Pincus
Emerging  Growth Fund (the 'Emerging Growth  Fund') and Warburg Pincus Japan OTC
Fund (the 'Japan  OTC Fund,' together  with the Capital  Appreciation Fund,  the
International  Equity Fund and the Emerging  Growth Fund, the 'Funds') which are
registered under the 1940 Act as non-diversified, open-end management investment
companies.

     Investment  objectives  for   each  Fund  are   as  follows:  the   Capital
Appreciation  Fund, the  International Equity Fund  and the Japan  OTC Fund seek
long-term capital appreciation; the Emerging  Growth Fund seeks maximum  capital
appreciation.

     The  net asset value  of each Fund is  determined daily as  of the close of
regular trading on  the New  York Stock  Exchange. Each  Fund's investments  are
generally  valued at market value, which  is currently determined using the last
reported sales price. If  no sales are reported,  investments are valued at  the
last  reported bid price.  In the absence of  market quotations, investments are
generally valued at fair value  as determined by or  under the direction of  the
Fund's  governing Board. Short-term  investments that mature in  60 days or less
are valued on the basis of amortized cost, which attempts to approximate  market
value.

     The  books  and  records  of  the Funds  are  maintained  in  U.S. dollars.
Transactions denominated  in  foreign currencies  are  recorded at  the  current
prevailing  exchange rates.  All assets  and liabilities  denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate.
Translation gains or losses resulting from  changes in the exchange rate  during
the  reporting period and realized gains and losses on the settlement of foreign
currency transactions are reported in the results of operations for the  current
period. The Funds do not isolate that portion of gains and losses on investments
in  equity securities which are due to changes in the foreign exchange rate from
that which are due to changes in market prices of equity securities.

     Security transactions are accounted for  on trade date. Interest income  is
recorded  on the accrual basis. Dividends  are recorded on the ex-dividend date.
Income, expenses  (excluding  class-specific expenses)  and  realized/unrealized
gains/losses  are allocated proportionately  to each class  of shares based upon
the relative net asset value of outstanding shares. The cost of investments sold
is determined by use  of the specific identification  method for both  financial
reporting and income tax purposes.

     Dividends from net investment income are declared and paid semiannually for
all  Funds. Distributions  of net realized  capital gains, if  any, are declared
annually. However, to the extent that a net realized capital gain can be reduced
by a  capital loss  carryover, such  gain will  not be  distributed. Income  and
capital  gain distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.

     Each Fund intends to continue to comply with the special provisions of  the
Internal Revenue Code available to investment companies and therefore no Federal
income tax provision is required.

28
- --------------------------------------------------------------------------------
 <PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------

     Costs  incurred by the  Japan OTC Fund in  connection with its organization
have been deferred and are being amortized over a period of five years from  the
date the Japan OTC Fund commenced its operations.

     Each Fund may enter into repurchase agreement transactions. Under the terms
of  a  typical  repurchase agreement,  a  Fund acquires  an  underlying security
subject to  an  obligation  of  the  seller to  repurchase.  The  value  of  the
underlying security collateral will be maintained at an amount at least equal to
the  total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.

2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR

     Warburg,  Pincus  Counsellors,   Inc.  ('Counsellors'),   a  wholly   owned
subsidiary  of Warburg, Pincus Counsellors  G.P. ('Counsellors G.P.'), serves as
each  Fund's  investment   adviser.  For  its   investment  advisory   services,
Counsellors  receives the following fees based  on each Fund's average daily net
assets:

<TABLE>
<CAPTION>
              FUND                             ANNUAL RATE
- ---------------------------------   ----------------------------------
<S>                                 <C>
Capital Appreciation                  .70% of average daily net assets
Emerging Growth                       .90% of average daily net assets
International Equity                 1.00% of average daily net assets
Japan OTC                            1.25% of average daily net assets
</TABLE>

     For the six months ended April 30, 1995, investment advisory fees,  waivers
and reimbursements were as follows:

<TABLE>
<CAPTION>
                                                GROSS                          NET            EXPENSE
                   FUND                      ADVISORY FEE      WAIVER      ADVISORY FEE    REIMBURSEMENTS
- ------------------------------------------   ------------    ----------    ------------    --------------
<S>                                          <C>             <C>           <C>             <C>
Capital Appreciation                          $  572,180     $        0     $  572,180        $      0
Emerging Growth                                1,428,874              0      1,428,874               0
International Equity                           8,871,020              0      8,871,020               0
Japan OTC                                        141,840       (141,840)             0         116,312
</TABLE>

     SPARX   Investment  &   Research,  USA,   Inc.  ('SPARX   USA')  serves  as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Counsellors pays SPARX USA a fee at an annual rate of .625% of the average daily
net assets of the Japan  OTC Fund. No compensation is  payable by the Japan  OTC
Fund to SPARX USA for its sub-investment advisory services.

     Counsellors  Funds  Service, Inc.  ('CFSI'), a  wholly owned  subsidiary of
Counsellors, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank  Corp.  ('PNC'),   serve  as   each  Fund's   co-administrators.  For   its
administrative  services, CFSI  receives a fee  calculated at an  annual rate of
 .10% of each Fund's average daily net assets. For the six months ended April 30,
1995, administrative services fees earned by CFSI were as follows:

<TABLE>
<CAPTION>
                   FUND                           CO-ADMINISTRATION FEE
- -------------------------------------------   ------------------------------
<S>                                           <C>
Capital Appreciation                                     $ 81,740
Emerging Growth                                           158,764
International Equity                                      887,102
Japan OTC                                                  11,347
</TABLE>

                                                                              29
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------

     For the  six months  ended  April 30,  1995, administrative  services  fees
earned by PFPC were as follows:

<TABLE>
<CAPTION>
                   FUND                           CO-ADMINISTRATION FEE
- -------------------------------------------   ------------------------------
<S>                                           <C>
Capital Appreciation                                     $ 81,740
Emerging Growth                                           158,764
International Equity                                      629,511
Japan OTC                                                  42,500
</TABLE>

     Counsellors  Securities  Inc. ('CSI'),  also a  wholly owned  subsidiary of
Counsellors, serves as each  Fund's distributor. No  compensation is payable  by
the  Capital Appreciation  Fund, the Emerging  Growth Fund  or the International
Equity Fund to  CSI for  distribution services. For  distribution services  with
respect  to the Common  Shares of the Japan  OTC Fund, CSI receives  a fee at an
annual  rate  of  .25%  of  the  Japan  OTC  Fund's  average  daily  net  assets
attributable  to  the Common  Shares;  no compensation  is  payable to  CSI with
respect to the Fund's Advisor Shares. For  the six months ended April 30,  1995,
CSI earned $28,368 in distribution fees.

3. INVESTMENTS IN SECURITIES

     For  the six months ended April 30, 1995, purchases and sales of investment
securities (excluding short-term investments) were as follows:

<TABLE>
<CAPTION>
                            FUND                                 PURCHASES         SALES
- -------------------------------------------------------------   ------------    ------------
<S>                                                             <C>             <C>
Capital Appreciation                                            $132,677,612    $117,699,248
Emerging Growth                                                  191,272,370     144,738,127
International Equity                                             550,909,981     176,630,818
Japan OTC                                                         23,632,862      13,544,562
</TABLE>

     At April 30,  1995, the  net unrealized appreciation  from investments  for
those  securities  having  an  excess  of value  over  cost  and  net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:

<TABLE>
<CAPTION>
                                                                            NET UNREALIZED
                                       UNREALIZED         UNREALIZED         APPRECIATION
              FUND                    APPRECIATION       DEPRECIATION       (DEPRECIATION)
- ---------------------------------     ------------      --------------      --------------
<S>                                   <C>               <C>                 <C>
Capital Appreciation                  $ 35,905,406      $   (2,026,288)      $ 33,879,118
Emerging Growth                         69,461,748          (7,067,044)        62,394,704
International Equity                   174,273,357        (142,868,247)        31,405,110
Japan OTC                                1,197,112          (1,147,261)            49,851
</TABLE>

4. FORWARD FOREIGN CURRENCY CONTRACTS

     The International Equity Fund and the Japan OTC Fund may enter into forward
currency contracts for the purchase or sale of a specific foreign currency at  a
fixed price on a future date. Risks may arise upon entering into these contracts
from    the    potential    inability   of    counterparties    to    meet   the

30
- --------------------------------------------------------------------------------
 <PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
terms of their  contracts and  from unanticipated movements  in the  value of  a
foreign  currency relative to the U.S. dollar.  Each Fund may enter into forward
contracts for  hedging purposes  or to  increase income  and total  return.  The
forward  currency  contracts are  adjusted  by the  daily  exchange rate  of the
underlying currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date.

     At April 30,  1995, the International  Equity Fund had  the following  open
forward currency contract and had recorded an unrealized loss of $1,662,070:

<TABLE>
<CAPTION>
SETTLEMENT             CURRENCY                     CURRENCY
   DATE                 BOUGHT                        SOLD
- ----------     ------------------------    ---------------------------

<S>            <C>                         <C>
06/21/95       55,000,000 U.S. Dollars     4,725,050,000 Japanese Yen
</TABLE>

     At  April  30, 1995,  the Japan  OTC  Fund had  the following  open forward
currency contract and had recorded an unrealized gain of $13,751:

<TABLE>
<CAPTION>
SETTLEMENT             CURRENCY                     CURRENCY
   DATE                 BOUGHT                        SOLD
- ----------     ------------------------    ---------------------------

<S>            <C>                         <C>
05/31/95       23,000,000 U.S. Dollars     1,922,340,000 Japanese Yen
</TABLE>

5. CAPITAL SHARE TRANSACTIONS; ADVISOR SHARES

     The Emerging Growth Fund, the International  Equity Fund and the Japan  OTC
Fund  are each authorized to  issue three billion full  and fractional shares of
capital stock,  $.001 par  value per  share,  of which  one billion  shares  are
designated  Advisor Shares. The Capital Appreciation Fund is authorized to issue
an unlimited number of full and fractional shares of beneficial interest,  $.001
par  value per  share, of  which one  billion shares  are classified  as Advisor
Shares. Advisor Shares  are identical to  Common Shares in  all respects  except
that  Advisor  Shares are  sold to  institutions ('Service  Organizations') that
perform  certain   distribution,   shareholder  servicing,   accounting   and/or
administrative services for their customers who are beneficial owners of Advisor
Shares.  Advisor  Shares bear  the  fees paid  pursuant  to a  distribution plan
adopted by each Fund in an amount not to exceed .75% (on an annualized basis) of
the  average  daily  net  asset  value  of  the  shares  held  by  the   Service
Organizations  for the  benefit of their  customers and  enjoy certain exclusive
voting rights on matters relating to those fees.

     With respect to Advisor Shares, Service Organizations earned the  following
shareholder servicing fees for the six months ended April 30, 1995:

<TABLE>
<CAPTION>
                     FUND                         SHAREHOLDER SERVICING FEES
- -----------------------------------------------   --------------------------

<S>                                               <C>
Capital Appreciation                                       $ 20,418
Emerging Growth                                             188,426
International Equity                                        532,559
</TABLE>

                                                                              31
- --------------------------------------------------------------------------------
 <PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------

     Transactions in shares of each Fund were as follows:

<TABLE>
<CAPTION>
                               CAPITAL APPRECIATION FUND                                    EMERGING GROWTH FUND
                       Common Shares               Advisor Shares                Common Shares               Advisor Shares
                 --------------------------  --------------------------    --------------------------  --------------------------
                 For the Six                 For the Six                   For the Six                 For the Six
                 Months Ended    For the     Months Ended    For the       Months Ended    For the     Months Ended    For the
                  April 30,     Year Ended    April 30,     Year Ended      April 30,     Year Ended    April 30,     Year Ended
                     1995      October 31,       1995      October 31,         1995      October 31,       1995      October 31,
                 (Unaudited)       1994      (Unaudited)       1994        (Unaudited)       1994      (Unaudited)       1994
                 ------------  ------------  ------------  ------------    ------------  ------------  ------------  ------------

<S>              <C>           <C>           <C>           <C>             <C>           <C>           <C>           <C>
Shares sold        2,912,613     2,958,494        78,480       290,193       3,619,699     6,133,751     1,394,795     2,233,737
Shares issued to
 shareholders on
 reinvestment of
 dividends           818,282       920,210        46,554        61,526          15,653       506,720             0        80,473
Shares redeemed   (2,028,054)   (3,126,497)      (58,310)     (460,020)     (2,361,976)   (2,859,413)     (162,815)     (517,898)
                 ------------  ------------  ------------  ------------    ------------  ------------  ------------  ------------
Net increase
 (decrease) in
 shares
 outstanding       1,702,841       752,207        66,724      (108,301)      1,273,376     3,781,058     1,231,980     1,796,312
                 ------------  ------------  ------------  ------------    ------------  ------------  ------------  ------------
                 ------------  ------------  ------------  ------------    ------------  ------------  ------------  ------------
Proceeds from
 sale of shares  $38,700,495   $41,570,590    $1,042,176   $ 4,046,941     $81,131,951   $132,922,995  $30,592,833   $47,890,275
Reinvested
 dividends        10,187,616    12,945,690       575,876       863,477         347,867    11,015,146             0     1,743,241
Net asset value
 of shares
 redeemed        (26,954,367)  (43,449,501)     (766,250)   (6,401,999)    (51,476,215)  (61,126,667)   (3,444,995)  (10,641,050)
                 ------------  ------------  ------------  ------------    ------------  ------------  ------------  ------------
Net increase
 (decrease) from
 capital share
 transactions    $21,933,744   $11,066,779    $  851,802   $(1,491,581)    $30,003,603   $82,811,474   $27,147,838   $38,992,466
                 ------------  ------------  ------------  ------------    ------------  ------------  ------------  ------------
                 ------------  ------------  ------------  ------------    ------------  ------------  ------------  ------------
</TABLE>

6. NET ASSETS

     Net Assets at April 30, 1995, consisted of the following:

<TABLE>
<CAPTION>
                                              CAPITAL APPRECIATION FUND                        EMERGING GROWTH FUND
                                     Common Shares  Advisor Shares     Total        Common Shares  Advisor Shares     Total
                                     -------------  --------------  ------------    -------------  --------------  ------------

<S>                                  <C>            <C>             <C>             <C>            <C>             <C>
Capital contributed, net             $140,449,920     $8,912,717    $149,362,637    $228,499,590    $ 87,395,078   $315,894,668
Accumulated net investment
  income (loss)                           377,867           (334)        377,533               0               0              0
Accumulated net realized
  gain (loss) from security
  transactions                          6,503,951        (48,729)      6,455,222       7,352,467       1,270,253      8,622,720
Net unrealized appreciation
  (depreciation) from
  investments and foreign
  currency related items               33,776,938        102,180      33,879,118      53,373,929       9,060,159     62,434,088
                                     -------------  --------------  ------------    -------------  --------------  ------------
Net assets                           $181,108,676     $8,965,834    $190,074,510    $289,225,986    $ 97,725,490   $386,951,476
                                     -------------  --------------  ------------    -------------  --------------  ------------
                                     -------------  --------------  ------------    -------------  --------------  ------------
</TABLE>

32
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                          INTERNATIONAL EQUITY FUND
                 Common Shares                 Advisor Shares
         -----------------------------   ---------------------------
         For the Six                     For the Six
         Months Ended      For the       Months Ended     For the
          April 30,       Year Ended      April 30,      Year Ended
             1995        October 31,         1995       October 31,
         (Unaudited)         1994        (Unaudited)        1994
         ------------   --------------   ------------   ------------
         <S>            <C>              <C>            <C>
          41,252,304        64,218,907     4,502,485       7,956,088



           2,339,190           147,031       329,647           6,879
         (19,160,200)      (11,861,720)     (224,062)       (795,406)
         ------------   --------------   ------------   ------------



          24,431,294        52,504,218     4,608,070       7,167,561
         ------------   --------------   ------------   ------------
         ------------   --------------   ------------   ------------

         $745,654,489   $1,275,306,263   $80,443,400    $155,433,660

          43,415,366         2,820,903     6,088,579         129,869

         (341,896,486)    (233,614,600)   (4,083,193)    (15,435,478)
         ------------   --------------   ------------   ------------



         $447,173,369   $1,044,512,566   $82,448,786    $140,128,051
         ------------   --------------   ------------   ------------
         ------------   --------------   ------------   ------------

<CAPTION>
                                         JAPAN OTC FUND
                       Common Shares                        Advisor Shares
            -----------------------------------   ----------------------------------
                              For the Period                       For the Period
             For the Six    September 30, 1994    For the Six    September 30, 1994
            Months Ended     (Commencement of     Months Ended    (Commencement of
              April 30,     Operations) Through    April 30,     Operations) Through
                1995            October 31,           1995           October 31,
             (Unaudited)           1994           (Unaudited)           1994
            -------------   -------------------   ------------   -------------------
           <S>              <C>                   <C>            <C>
               2,027,520          2,025,697             0                  15



                       0                  0             0                   0
                (657,861)           (18,605)            0                   0
            -------------        ----------             -                 ---



               1,369,659          2,007,092             0                  15
            -------------        ----------             -                 ---
            -------------        ----------             -                 ---
            $ 17,783,234        $20,287,008            $0               $ 150

                       0                  0             0                   0

              (5,837,595)          (185,101)            0                   0
            -------------        ----------             -                 ---
            $ 11,945,639        $20,101,907            $0               $ 150
            -------------        ----------             -                 ---
            -------------        ----------             -                 ---
</TABLE>

<TABLE>
<CAPTION>
                    INTERNATIONAL EQUITY FUND                             JAPAN OTC FUND
          Common Shares   Advisor Shares      Total         Common Shares  Advisor Shares     Total
          --------------  --------------  --------------    -------------  --------------  -----------
          <S>             <C>             <C>               <C>            <C>             <C>
          $1,815,331,961   $262,660,894   $2,077,992,855     $28,492,692       $1,028      $28,493,720

              8,381,424         977,793        9,359,217               0            0                0


            (54,458,264)     (7,888,102)     (62,346,366)     (1,955,020)         (93)      (1,955,113)



             27,448,056       3,115,443       30,563,499          34,958          (34)          34,924
          --------------  --------------  --------------    -------------      ------      -----------
          $1,796,703,177   $258,866,028   $2,055,569,205     $26,572,630       $  901      $26,573,531
          --------------  --------------  --------------    -------------      ------      -----------
          --------------  --------------  --------------    -------------      ------      -----------
</TABLE>

                                                                              33
- --------------------------------------------------------------------------------

                           STATEMENT OF DIFFERENCES
     The divided by symbol will be expressed as ....................... [div]











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