<PAGE>
<PAGE>
As filed with the U.S. Securities and Exchange Commission
on February 20, 1997
Securities Act File No. 33-12344
Investment Company Act File No. 811-5041
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 18 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT of 1940 [x]
Amendment No. 21 [x]
(Check appropriate box or boxes)
Warburg, Pincus Capital Appreciation Fund
...............................................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
...................................... ....................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Capital Appreciation Fund
466 Lexington Avenue
New York, New York 10017-3147
...............................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>
<PAGE>
It is proposed that this filing will become effective (check appropriate box):
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a \
previously filed post-effective amendment.
-----------------------
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933, as amended, pursuant to Section (a)(1) of Rule 24f-2
under the Investment Company Act of 1940, as amended (the "1940 Act"), and to
the number or amount presently registered is added an indefinite number or
amount of such securities. The Rule 24f-2 Notice for Registrant's fiscal year
ended October 31, 1996 was filed on December 27, 1996.
<PAGE>
<PAGE>
WARBURG, PINCUS CAPITAL APPRECIATION FUND
FORM N-1A
CROSS REFERENCE SHEET
-----------------------
Heading for the
Part A Common Shares and the
Item No. Advisor Shares Prospectuses*
- -------
1. Cover Page Cover Page
2. Synopsis The Funds' Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Investment Objectives and
Policies; Portfolio Investments; Risk
Factors and Special Considerations;
Certain Investment Strategies;
Investment Guidelines; General
Information
5. Management of the Fund Management of the Funds
6. Capital Stock and Other
Securities General Information
7. Purchase of Securities Being
Offered How to Open an Account; How to
Purchase Shares; Net Asset Value
8. Redemption or Repurchase How to Redeem and Exchange Shares
9. Legal Proceedings Not applicable
Part B Heading in Statement of
Item No. Additional Information
- --------- ---------------------------
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and
History Management of the Fund; Notes to
Financial Statements; See
Prospectuses--"General Information"
13. Investment Objectives and
Policies Investment Objective; Investment
Policies
14. Management of the
Registrant Management of the Fund
- -----------------
* With respect to the Advisor Prospectus, all references to "the Funds" in
this cross reference sheet should be read as "the Fund."
<PAGE>
<PAGE>
15. Control Persons and
Principal Holders of Securities Management of
the Fund; Miscellaneous; See
Prospectuses--"General Information"
16. Investment Advisory and Other
Services Management of the Fund; See
Prospectuses--"Management of the
Funds"
17. Brokerage Allocation Investment Policies; See
Prospectus--"Portfolio Transactions
and Turnover Rate"
18. Capital Stock and Other Securities Management of the
Fund--Organization of the Fund;
See Prospectuses--"General
Information"
19. Purchase, Redemption and Pricing of
Securities Being Offered Additional Purchase and Redemption
Information; See Prospectuses--"How
to Open an Account", "How to Purchase
Shares", "How to Redeem and Exchange
Shares" and "Net Asset Value"
20. Tax Status Additional Information Concerning
Taxes; See Prospectuses-- "Dividends,
Distributions and Taxes"
21. Underwriters Investment Policies--Portfolio
Transactions; See Prospectuses--
"Management of the Funds" and
"Shareholder Servicing"
22. Calculation of Performance
Data Determination of Performance
23. Financial Statements Report of Independent Accountants;
Financial Statements
Part C
- -------
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement
-2-
<PAGE>
<PAGE>
PROSPECTUS
February 20, 1997
WARBURG PINCUS
CAPITAL APPRECIATION FUND
WARBURG PINCUS
EMERGING GROWTH FUND
WARBURG PINCUS
SMALL COMPANY VALUE FUND
[Warburg Pincus Funds Logo]
<PAGE>
<PAGE>
PROSPECTUS February 20, 1997
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Three 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 domestic companies with
emerging or renewed growth potential.
WARBURG PINCUS SMALL COMPANY VALUE FUND seeks long-term capital appreciation by
investing primarily in a portfolio of equity securities of small capitalization
companies.
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. FundsNetwork'tm' Program; Jack White & Company, Inc.;
and Waterhouse Securities, Inc.
LOW MINIMUM INVESTMENT
________________________________________________________________________________
The minimum initial investment in each Fund is $2,500 ($500 for an IRA or
Uniform Transfers to Minors Act account) and the minimum subsequent investment
is $100. Through the Automatic Monthly Investment Plan, subsequent investment
minimums may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the 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 has been filed with the Securities and Exchange Commission (the 'SEC') in a
document entitled 'Statement of Additional Information.' The SEC maintains a Web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Funds.
The Statement of Additional Information is also available upon request and
without charge by calling Warburg Pincus Funds at (800) 927-2874. Information
regarding the status of shareholder accounts may be obtained by calling Warburg
Pincus Funds at (800) 927-2874. The Statement of Additional Information, as
amended or supplemented from time to time, bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
THE FUNDS' EXPENSES
________________________________________________________________________________
Each of Warburg, Pincus Capital Appreciation Fund, Emerging Growth Fund and
Small Company Value Fund (the 'Funds') currently offers two separate classes of
shares: Common Shares and Advisor Shares. For a description of Advisor Shares
see 'General Information.' Common Shares of the Small Company Value Fund pay the
Fund's distributor a 12b-1 fee. See 'Management of the Funds -- Distributor.'
<TABLE>
<CAPTION>
Capital Emerging Small Company
Appreciation Growth Value
Fund Fund Fund
------------ -------- -------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........... 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees................................. .70% .90% .93%
12b-1 Fees...................................... 0 0 .25%
Other Expenses.................................. .33% .37% .57
----- --- ---
Total Fund Operating Expenses (after fee
waivers)...................................... 1.03% 1.27% 1.75%`D'
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 $ 13 $ 18
3 years........................................ $ 33 $ 40 $ 55
5 years........................................ $ 57 $ 70 $ 95
10 years........................................ $126 $153 $206
</TABLE>
- --------------------------------------------------------------------------------
`D' Absent the waiver of fees by the Small Company Value Fund's investment
adviser and co-administrator Management Fees of the Fund would equal 1.00%,
Other Expenses would equal .94% and Total Fund Operating Expenses would
equal 2.19%. The investment adviser and co-administrator are under no
obligation to continue these waivers.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in a Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, each Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of the Small Company Value Fund may pay more than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc. (the 'NASD').
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
________________________________________________________________________________
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information regarding each Fund for the four fiscal years or
period ended October 31, 1996 has been derived from information audited by
Coopers & Lybrand L.L.P., independent accountants, whose report dated December
18, 1996 is incorporated by reference into in the Statement of Additional
Information. For the Capital Appreciation and Emerging Growth Funds, the
information for the fiscal year ended October 31, 1992 has been audited by Ernst
& Young LLP, whose report was unqualified. Further information about the
performance of the Funds is contained in the Funds' annual report, dated October
31, 1996, copies of which may be obtained without charge by calling Warburg
Pincus Funds at (800) 927-2874.
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
For the
Period
August 17,
1987
(Commencement
of
Operations)
For the Year Ended October 31, through
------------------------------------------------------------------------------------- October 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $16.39 $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........... .08 .04 .04 .05 .04 .15 .20 .19 .17 .04
Net Gains (Loss)
from Securities
(both realized
and
unrealized)...... 3.53 3.08 .17 2.78 1.21 2.41 (1.28) 2.15 1.70 (2.30)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total from
Investment
Operations....... 3.61 3.12 .21 2.83 1.25 2.56 (1.08) 2.34 1.87 (2.26)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Less Distributions
Dividends (from net
investment
income).......... (.01) (.04) (.05) (.05) (.06) (.18) (.21) (.19) (.14) .00
Distributions (from
capital gains)... (2.04) (.98) (1.19) (.76) (.05) .00 (.41) (.14) .00 .00
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total
Distributions.... (2.05) (1.02) (1.24) (.81) (.11) (.18) (.62) (.33) (.14) .00
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Net Asset Value, End
of Period.......... $17.95 $16.39 $14.29 $15.32 $13.30 $12.16 $ 9.78 $11.48 $9.47 $ 7.74
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total Return........ 24.67% 24.05% 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)...... $407,707 $235,712 $159,346 $159,251 $117,900 $115,191 $76,537 $56,952 $29,351 $17,917
Ratios to Average
Daily Net Assets:
Operating
expenses......... 1.03% 1.12% 1.05% 1.01% 1.06% 1.08% 1.04% 1.10% 1.07% 1.00%*
Net investment
income........... .59% .31% .26% .30% .41% 1.27% 2.07% 1.90% 2.00% 1.88%*
Decrease reflected
in above
operating expense
ratios due to
waivers/
reimbursements... .01% .00% .01% .00% .01% .00% .01% .08% .91% .84%*
Portfolio Turnover
Rate............... 170.69% 146.09% 51.87% 48.26% 55.83% 39.50% 37.10% 36.56% 33.16% 20.00%
Average Commission
Rate#.............. $.0595 -- -- -- -- -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<PAGE>
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
For the Period
January 21,
1988
(Commencement
of Operations)
For the Year Ended October 31, through
------------------------------------------------------------------------------------ October 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $29.97 $22.38 $23.74 $18.28 $16.97 $10.83 $13.58 $11.21 $10.00
------ ------ ------ ------ ------ ------ ------ ------ -----
Income from Investment
Operations
Net Investment Income
(Loss)................ (.02) (.05) (.06) (.10) (.03) .05 .13 .16 .07
Net Gains (Loss) from
Securities (both
realized and
unrealized)........... 4.60 7.64 .06 5.93 1.71 6.16 (2.32) 2.51 1.18
------ ------ ------ ------ ------ ------ ------ ------ -----
Total from Investment
Operations............ 4.58 7.59 .00 5.83 1.68 6.21 (2.19) 2.67 1.25
------ ------ ------ ------ ------ ------ ------ ------ -----
Less Distributions
Dividends (from net
investment income).... .00 .00 .00 .00 (.01) (.07) (.18) (.12) (.04)
Distributions (from
capital gains)........ (1.75) .00 (1.36) (.37) (.36) .00 (.38) (.18) .00
------ ------ ------ ------ ------ ------ ------ ------ -----
Total Distributions..... (1.75) .00 (1.36) (.37) (.37) (.07) (.56) (.30) (.04)
------ ------ ------ ------ ------ ------ ------ ------ -----
Net Asset Value, End of
Period.................. $32.80 $29.97 $22.38 $23.74 $18.28 $16.97 $10.83 $13.58 $11.21
------ ------ ------ ------ ------ ------ ------ ------ -----
------ ------ ------ ------ ------ ------ ------ ------ -----
Total Return............. 16.14% 33.91% .16% 32.28% 9.87% 57.57% (16.90%) 24.20% 16.34%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s).................. $1,104,684 $487,537 $240,664 $165,525 $99,562 $42,061 $23,075 $26,685 $10,439
Ratios to Average Daily
Net Assets:
Operating expenses...... 1.27% 1.26% 1.22% 1.23% 1.24% 1.25% 1.25% 1.25% 1.25%*
Net investment income
(loss)................ (.63)% (.58%) (.58%) (.60%) (.25%) .32% 1.05% 1.38% 1.10%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements... .01% .00% .04% .00% .08% .47% .42% .78% 3.36%*
Portfolio Turnover
Rate.................... 65.77% 84.82% 60.38% 68.35% 63.35% 97.69% 107.30% 100.18% 82.21%
Average Commission Rate# $.0567 -- -- -- -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
SMALL COMPANY VALUE FUND
<TABLE>
<CAPTION>
For the Period
December 29, 1995
(Commencement of
Operations) through
October 31, 1996
--------------------
<S> <C>
Net Asset Value, Beginning of Period.......................................... $ 10.00
------
Income from Investment Operations
Net Investment Loss.......................................................... (.02)
Net Gain on Securities (both realized and unrealized)........................ 4.40
------
Total from Investment Operations........................................... 4.38
------
Less Distributions
Dividends (from net investment income)....................................... .00
Distributions (from capital gains)........................................... .00
------
Total Distributions........................................................ .00
------
Net Asset Value, End of Period................................................ $ 14.38
------
------
Total Return.................................................................. 43.80%`D'
Ratios/Supplemental Data:
Net Assets, End of Period (000s).............................................. $ 84,045
Ratios to Average Daily Net Assets:
Operating expenses........................................................... 1.75%*
Net investment loss.......................................................... (.43%)*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements..................................................... .44%*
Portfolio Turnover Rate....................................................... 43.14%*`D'
Average Commission Rate# $.0570
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized.
* Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
4
<PAGE>
<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 'Portfolio Investments'
and '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 primarily 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 (collectively, 'equity securities'). Depositary receipts relating to
equity securities will also be considered equity securities for purposes of this
investment policy.
Warburg, Pincus Counsellors, Inc., the Funds' investment adviser ('Warburg'),
will attempt to identify sectors of the market and companies within market
sectors that it believes will outperform the overall market. Warburg 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.
The Fund seeks to invest in companies that Warburg believes can be purchased
at a reasonable price for their projected growth, analyzing such factors as
growth rate, including revenue, earnings and unit sales; cash flow; return on
equity; debt/equity ratio; and owner management. Warburg also seeks to identify
growth opportunities and sustainable growth prospects, such as a dynamic of
change or the development of proprietary products and services.
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.
Emerging growth companies generally stand to benefit from new products or
services, technological developments or changes in management and other
5
<PAGE>
<PAGE>
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.
SMALL COMPANY VALUE FUND
The Small Company Value Fund seeks long-term capital appreciation. The Fund
is a diversified management investment company that pursues its investment
objective by investing primarily in a portfolio of equity securities of small
capitalization companies that Warburg considers to be relatively undervalued.
Current income is a secondary consideration in selecting portfolio investments.
Under normal market conditions the Fund will invest at least 65% of its total
assets in common stocks, preferred stocks, debt securities convertible into
common stocks, warrants and other rights of small companies (i.e., companies
having stock market capitalizations of $1 billion or less at the time of initial
purchase).
Warburg will determine whether a company is undervalued based on a variety of
measures, including price/earnings ratio, price/book ratio, price/cash flow
ratio, earnings growth and debt/capital ratio. Other relevant factors, including
a company's asset value, franchise value and quality of management, will also be
considered. The Fund will invest primarily in companies whose securities are
traded on U.S. stock exchanges or in the U.S. over-the-counter market, but may
invest up to 20% of its assets in foreign securities.
PORTFOLIO INVESTMENTS
________________________________________________________________________________
DEBT SECURITIES. Each Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) and, in
the case of the Capital Appreciation and Emerging Growth Funds, 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 Warburg. Because the market value
of debt obligations can be expected to vary inversely to changes in prevailing
interest rates, investing in debt obligations may provide an opportunity for
capital appreciation when interest rates are expected to decline. The success of
such a strategy is dependent upon Warburg's ability to accurately forecast
changes in interest rates. The market value of debt obligations may also be
expected to vary depending upon, among other factors, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions. A security will be deemed to be investment grade if it is
rated within the four highest grades by Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Ratings Services ('S&P') or, if unrated, is
6
<PAGE>
<PAGE>
determined to be of comparable quality by Warburg. Bonds rated in the fourth
highest grade may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of such securities, although Warburg
will consider such event in its determination of whether the Fund should
continue to hold the securities.
When Warburg believes that a defensive posture is warranted, each Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and for temporary
defensive purposes may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Funds may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement, a
Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period
7
<PAGE>
<PAGE>
in which the Fund seeks to assert this right. Warburg, acting under the
supervision of the Fund's Board of Directors or Board of Trustees (the
'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 Warburg 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, Warburg or the Funds'
co-administrator, PFPC Inc. ('PFPC'). 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. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether a Fund should continue to hold the securities.
WARRANTS. Each Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase newly created equity issues of the company issuing the warrants, or
a related company, at a fixed price either on a date certain or during a set
period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
________________________________________________________________________________
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to each Fund's investments, see 'Portfolio
8
<PAGE>
<PAGE>
Investments' beginning at page 6 and 'Certain Investment Strategies' beginning
at page 11.
EMERGING GROWTH AND SMALL COMPANIES. Because the Emerging Growth and Small
Company Value Funds may invest in securities of emerging growth and small-sized
companies, these investments may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile. 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. 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. 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, 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 a 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.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to 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 addition to an adequate trading
market, the Boards will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Funds to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board of each Fund will carefully monitor
any investments by the Fund in Rule 144A Securities. The Boards may adopt
guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A
9
<PAGE>
<PAGE>
Securities, although each Board will retain ultimate responsibility for any
determination regarding liquidity.
Non-publicly traded securities (including interests in Rule 144A Securities)
may involve a high degree of business and financial risk and may result in
substantial losses. These securities may be less liquid than publicly traded
securities, and a Fund may take longer to liquidate these positions than would
be the case for publicly traded securities. Although these securities may be
resold in privately negotiated transactions, the prices realized on such sales
could be less than those originally paid by the Fund. Further, companies whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements applicable to companies whose securities
are publicly traded. A Fund's investment in illiquid securities is subject to
the risk that should the Fund desire to sell any of these securities when a
ready buyer is not available at a price that is deemed to be representative of
their value, the value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Emerging Growth Fund is classified as a non-
diversified investment company under the 1940 Act, which means that the 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. The 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, the 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 the 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.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
________________________________________________________________________________
A Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the relevant Fund. A Fund will not
consider portfolio turnover rate a limiting factor in making
10
<PAGE>
<PAGE>
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 a Fund are
placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ('Counsellors Securities'). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the 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, (ii) lending portfolio securities and (iii) in the case of the
Small Company Value Fund, entering into reverse repurchase agreements and dollar
rolls. Detailed information concerning each Fund's strategies and related risks
is contained below and in the Statement of Additional Information.
STRATEGIES AVAILABLE TO ALL FUNDS
FOREIGN SECURITIES. Each 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 Funds,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would
11
<PAGE>
<PAGE>
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. Certain of the above risks may
be involved with American Depositary Receipts ('ADRs') and European Depositary
Receipts ('EDRs'), instruments that evidence ownership of underlying securities
issued by a foreign corporation. ADRs and EDRs may not necessarily be
denominated in the same currency as the securities whose ownership they
represent. ADRs are typically issued by a U.S. bank or trust company and EDRs
(sometimes referred to as Continental Depositary Receipts) are issued in Europe,
typically by non-U.S. banks and trust companies.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg,
each Fund may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the Fund's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE A FUND'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect a Fund's net asset value and performance. Therefore, an
investment in a Fund may involve a greater risk than an investment in other
mutual funds that do not utilize these strategies. The Funds' use of these
strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the NASD and by the Code.
Securities and Stock Index Options. Each Fund may write covered call and, in
the case of the Small Company Value Fund, put options on up to 25% of the net
asset value of the stock and debt securities in its portfolio and will realize
fees (referred to as 'premiums') for granting the rights evidenced by the
options. The Capital Appreciation Fund and the Emerging Growth Fund may each
utilize up to 2% of its assets to purchase U.S. exchange-traded and over-
the-counter ('OTC') options; the Small Company Value Fund may utilize up to 10%
of its assets to purchase options on stocks and debt securities that are traded
on U.S. and foreign exchanges, as well as OTC options. The purchaser of a put
option on a security has the right to compel the purchase by the writer of the
underlying security, while the purchaser of a call option on a security has the
right to purchase the underlying security from the writer. In
12
<PAGE>
<PAGE>
addition to purchasing and writing options on securities, each Fund may also
utilize up to 10% of its total assets to purchase exchange-listed and OTC put
and call options on stock indexes, and may also write such options. A stock
index measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Funds will conduct their currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of
13
<PAGE>
<PAGE>
settlement or other governmental actions or unexpected events. The Capital
Appreciation and Emerging Growth Funds will only engage in currency exchange
transactions for hedging purposes.
Hedging Considerations. The Funds may engage in options, futures and currency
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options, futures contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. A Fund will engage in
hedging transactions only when deemed advisable by Warburg, and successful use
of hedging transactions will depend on Warburg's ability to correctly predict
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities, indexes and currencies; currency, interest rate and
stock index futures contracts and options on these futures contracts; and
forward currency contracts. The use of these strategies may require that the
Fund maintain cash or liquid securities in a segregated account with its
custodian or a designated sub-custodian to the extent the Fund's obligations
with respect to these strategies are not otherwise 'covered' through ownership
of the underlying security, financial instrument or currency or by other
portfolio positions or by other means consistent with applicable regulatory
policies. Segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. As a result, there is a possibility that segregation of a large percentage
of the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
STRATEGY AVAILABLE TO THE SMALL COMPANY VALUE FUND
SHORT SALES AGAINST THE BOX. The Fund may enter into a short sale of
securities such that when the short position is open the Fund owns an equal
amount of the securities sold short or owns preferred stocks or debt
14
<PAGE>
<PAGE>
securities, convertible or exchangeable without payment of further
consideration, into an equal number of securities sold short. This kind of short
sale, which is referred to as one 'against the box,' may be entered into by the
Fund to, for example, lock in a sale price for a security the Fund does not wish
to sell immediately or to postpone a gain or loss for federal income tax
purposes. The Fund will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or convertible or exchangeable
preferred stocks or debt securities in connection with short sales against the
box. Not more than 10% of the Fund's net assets (taken at current value) may be
held as collateral for short sales against the box at any one time. The extent
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
________________________________________________________________________________
Each 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 ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. Each Fund may borrow from banks for temporary or emergency
purposes, such as meeting anticipated redemption requests, provided that reverse
repurchase agreements and any other borrowing by the Fund may not exceed 10% of
its total assets (30% in the case of the Small Company Value Fund), and may
pledge up to 10% of its assets in connection with borrowings (to the extent
necessary to secure permitted borrowings in the case of the Small Company Value
Fund). 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 the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
________________________________________________________________________________
INVESTMENT ADVISER. Each Fund employs Warburg as its investment adviser.
Warburg, subject to the control of each Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Funds in accordance with
each Fund's investment objective and stated investment policies. Warburg makes
investment decisions for each Fund and places orders to purchase or sell
securities on behalf of each such Fund. Warburg
15
<PAGE>
<PAGE>
also employs a support staff of management personnel to provide services to the
Funds and furnishes each Fund with office space, furnishings and equipment.
For the services provided by Warburg, the Capital Appreciation Fund, the
Emerging Growth Fund and the Small Company Value Fund pay Warburg a fee
calculated at an annual rate of .70%, .90% and 1.00%, respectively, of the
Fund's average daily net assets. Warburg and each Fund's co-administrators may
voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be borne by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of January 31,
1997, Warburg managed approximately $17.9 billion of assets, including
approximately $10.7 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership, which itself is controlled by
Warburg, Pincus & Co. ('WP&Co.'), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS. 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 Warburg, which he joined in August 1994, before which time
he was chief investment officer of White River Corporation and president of
Hanover Advisors, 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 Warburg and has been with Warburg since 1985.
The co-portfolio managers of the Emerging Growth Fund are Elizabeth B. Dater,
Stephen J. Lurito and Medha Vora. Ms. Dater and Mr. Lurito are 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 Warburg and has been a portfolio manager of Warburg since 1978. Mr. Lurito
has been a portfolio manager of the Emerging Growth Fund since 1990. He is a
managing director of Warburg and has been with Warburg since 1987, before which
time he was a research analyst at Sanford C. Bernstein & Company, Inc. Ms. Vora,
a senior vice president at Warburg, has been a portfolio manager of the Fund
since February 1997. Prior to joining Warburg in January 1997, Ms. Vora was a
vice president at Chase Asset Management from April 1996 to December 1996 and a
senior vice president at the Trust Company of the West from 1993 to 1996.
16
<PAGE>
<PAGE>
She was a senior analyst at the Prudential Special Situations Fund, L.P. from
1991 to 1993.
Mr. Wyper is the portfolio manager of the Small Company Value Fund. Kyle F.
Frey, a senior vice president of Warburg, is associate portfolio manager and
research analyst of the Fund. Mr. Frey has been with Warburg since 1989, before
which time he was with Goldman, Sachs & Co.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the governing Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and monitoring and developing compliance procedures
for the 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.
Each Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation each Fund pays PFPC a
fee calculated at an annual rate of .10% of the Fund's first $500 million in
average daily net assets, .075% of the next $1 billion in assets and .05% of
assets exceeding $1.5 billion, exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
assets of the Capital Appreciation Fund and the Emerging Growth Fund. PNC also
serves as custodian of the Small Company Value Fund's U.S. assets, and Fiduciary
Trust Company International ('Fiduciary') serves as custodian of the Fund's
non-U.S. assets. Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its
principal business address is 1600 Market Street, Philadelphia, Pennsylvania
19103. Fiduciary's principal business address is Two World Trade Center, New
York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts 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.
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.
17
<PAGE>
<PAGE>
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Capital Appreciation or Emerging Growth 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 the Small
Company Value Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the '12b-1 Plan') adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the Common Shares, (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of the Fund and (iii)
sub-transfer agency services, subaccounting services or administrative services
related to the sale of the Common Shares, all as set forth in the 12b-1 Plan.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
expenses actually incurred by Counsellors Securities and the payments may exceed
distribution expenses actually incurred. The Board of the Small Company Value
Fund evaluates the appropriateness of the 12b-1 Plan on a continuing basis and
in doing so considers all relevant factors, including expenses borne by
Counsellors Securities and amounts received under the 12b-1 Plan.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to its Board. The Boards set broad
policies for each Fund and choose its officers. A list of the Directors/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.
HOW TO OPEN AN ACCOUNT
________________________________________________________________________________
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 927-2874 An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
18
<PAGE>
<PAGE>
RETIREMENT PLANS AND UTMA ACCOUNTS. For information (i) 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
(ii) about opening a Uniform Transfers to Minors Act ('UTMA') account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874 or write to
Warburg Pincus Funds at the address set forth above. Investors should consult
their own tax advisers about the establishment of retirement plans and UTMA
accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874.
HOW TO PURCHASE SHARES
________________________________________________________________________________
Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire. 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 below. For retirement plans and UTMA accounts, the minimum
initial investment is $500. The Fund reserves the right to change the initial
and subsequent investment minimum requirements at any time. In addition, each
Fund may, in its sole discretion, waive the initial and subsequent investment
minimum requirements with respect to investors who are employees of Warburg or
its affiliates or persons with whom Warburg has entered into an investment
advisory agreement. Existing investors will be given 15 days' notice by mail of
any increase in investment minimum requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined below. Wire
payments for initial and subsequent investments should be preceded by an order
placed with a Fund and should clearly indicate the investor's account number and
the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in a Fund are
not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to a Fund or Warburg Pincus Funds (in U.S. currency)
should be sent along with the completed account application to Warburg Pincus
Funds through its distributor, Counsellors Securities, at the address set forth
above. Checks payable to the investor and endorsed to the order of the Fund or
Warburg Pincus Funds will not be accepted as payment and will be returned to the
sender. If payment is received in proper form by the close of regular trading on
the New York Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) on
a day that the Fund calculates its net asset value (a 'business day'), the
purchase will be made at the Fund's net asset value calculated at the end of
that day. If payment is received after the close of regular trading on the NYSE,
the purchase will be effected at the Fund's net asset value determined for the
next business day after payment
19
<PAGE>
<PAGE>
has been received. Checks or money orders that are not in proper form or that
are not accompanied or preceded by a complete account application will be
returned to the sender. Shares purchased by check or money order are entitled to
receive dividends and distributions beginning on the day after payment has been
received. Checks or money orders in payment for shares of more than one Warburg
Pincus Fund should be made payable to Warburg Pincus Funds and should be
accompanied by a breakdown of amounts to be invested in each fund. If a check
used for purchase does not clear, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase Common Shares in the Fund by wiring
funds from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 927-2874. Federal funds may be wired to
Counsellors Securities using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[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 NYSE
and payment by wire is received on the same day in proper form in accordance
with instructions set forth above, the shares will be priced according to the
net asset value of the Fund on that day and are entitled to dividends and
distributions beginning on that day. If payment by wire is received in proper
form by the close of the NYSE without a prior telephone order, the purchase will
be priced according to the net asset value of the Fund on that day and is
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received after
the close of regular trading on the NYSE, the payment will be held uninvested
until the order is effected at the close of business on the next business day.
Payment for orders that are not accepted will be returned to the prospective
investor after prompt inquiry. If a telephone order is placed and payment by
wire is not received on the same day, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of each Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSourceTM Program;
Fidelity Brokerage Services, Inc. Funds-Network'tm'
20
<PAGE>
<PAGE>
Program; Jack White & Company, Inc.; and Waterhouse Securities, Inc. Generally,
these programs do not require customers to pay a transaction fee in connection
with purchases or redemptions. Each Fund is also available through certain
broker-dealers, financial institutions and other industry professionals
(including the programs described above, collectively, 'Service Organizations').
Certain features of each Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived by Service Organizations. Service Organizations may impose transaction or
administrative charges or other direct fees, which charges or fees would not be
imposed if Fund shares are purchased directly from the Fund. Therefore, a client
or customer should contact the Service Organization acting on his behalf
concerning the fees (if any) charged in connection with a purchase or redemption
of Fund shares and should read this Prospectus in light of the terms governing
his accounts with the Service Organization. Service Organizations will be
responsible for promptly transmitting client or customer purchase and redemption
orders to the Fund in accordance with their agreements with the fund and with
clients or customers.
Service Organizations that have entered into agreements with the Fund or its
agent may enter confirmed purchase orders on behalf of clients and customers,
with payment to follow no later than the Fund's pricing on the following
business day. If payment is not received by such time, the Service Organization
could be held liable for resulting fees or losses.
For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
Organizations and certain recordkeeping organizations a fee of up to .35% (the
'Service Fee') of the average annual value of accounts with the Fund maintained
by such Service Organizations or recordkeepers. A portion of the Service Fee may
be borne by the Fund as a transfer agency fee. In addition, a Service
Organization or recordkeeper may directly or indirectly pay a portion of its
Service Fee to the Fund's custodian or transfer agent for costs related to
accounts of its clients or customers. The Service Fee payable to any one Service
Organization or recordkeeper is determined based upon a number of factors,
including the nature and quality of services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Service Organization or recordkeeper.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders
to authorize 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
21
<PAGE>
<PAGE>
initial investment minimum for the Fund prior to or concurrent with the start of
any Automatic Investment Program. Please refer to an account application for
further information, or contact Warburg Pincus Funds at (800) 927-2874 for
information or to modify or terminate the program. Investors should allow a
period of up to 30 days in order to implement an Automatic Investment Program.
The failure to provide complete information could result in further delays.
GENERAL. Each Fund reserves the right to reject any specific purchase order.
A Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gains
distributions.
HOW TO REDEEM AND EXCHANGE SHARES
________________________________________________________________________________
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for redemption should be sent to Warburg
Pincus Funds at the address indicated above under 'How to Open an Account.' An
investor should be sure that the redemption request identifies the Fund, the
number of shares to be redeemed and the investor's account number. In order to
change the bank account or address designated to receive the redemption
proceeds, the investor must send a written request (with signature guarantee of
all investors listed on the account when such a change is made in conjunction
with a redemption request) to Warburg Pincus Funds. Each mail redemption request
must be signed by the registered owner(s) (or his legal representative(s))
exactly as the shares are registered. If an investor has applied for the
telephone redemption feature on his account application, he may redeem his
shares by calling Warburg Pincus Funds at (800) 927-2874. An investor making a
telephone withdrawal should state (i) the name of the Fund, (ii) the account
number of the Fund, (iii) the name of the investor(s) appearing on the Fund's
records, (iv) the amount to be withdrawn and (v) the name of the person
requesting the redemption.
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
22
<PAGE>
<PAGE>
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 or through the
Automatic Investment Program before the funds or check clear, payments of the
redemption proceeds will be delayed for five days (for funds received through
the Automatic Investment Program) or 10 days (for check purchases) from the date
of purchase. Investors should consider purchasing shares using a certified or
bank check or money order if they anticipate an immediate need for redemption
proceeds.
If a redemption order is received by a Fund or its agent, prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be mailed or wired to an investor on
the next business day following the date a redemption order is effected. If,
however, in the judgment of Warburg, immediate payment would adversely affect a
Fund, each Fund reserves the right to pay the redemption proceeds within seven
days after the redemption order is effected. Furthermore, each Fund may suspend
the right of redemption or postpone the date of payment upon redemption (as well
as suspend or postpone the recordation of an exchange of shares) for such
periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less than
$2,000 ($250 in the case of a retirement plan or 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.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither 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,
23
<PAGE>
<PAGE>
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)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for
Common Shares of another Fund or for Common Shares of another Warburg Pincus
Fund at their respective net asset values. Exchanges may be effected by mail or
by telephone in the manner described under 'Redemption of Shares' above. If an
exchange request is received by Warburg Pincus Funds or its agent prior to the
close of regular trading on the NYSE, the exchange will be made at each Fund's
net asset value determined at the end of that business day. Exchanges may be
effected without a sales charge but must satisfy the minimum dollar amount
necessary for new purchases. 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 GLOBAL FIXED INCOME FUND -- a bond fund investing in a portfolio
consisting of investment grade fixed-income securities of
24
<PAGE>
<PAGE>
governmental and corporate issuers denominated in various currencies, including
U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term growth
of capital and income and a reasonable current return;
WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking capital
appreciation by investing in undervalued companies and market sectors;
WARBURG PINCUS SMALL COMPANY GROWTH FUND -- an equity fund seeking capital
growth by investing in equity securities of small-sized domestic companies;
WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity securities of
U.S. and foreign issuers in their post-venture capital stage of development;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.
25
<PAGE>
<PAGE>
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
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs 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) 927-2874.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be 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
26
<PAGE>
<PAGE>
to a tax-exempt investor. A Fund's dividends may qualify for the dividends
received deduction for corporations to the extent they are derived from
dividends attributable to certain types of stock issued by U.S. domestic
corporations.
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.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
________________________________________________________________________________
The Funds quote the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund may advertise the average annual total return of its Common
Shares over various periods of time. These total return figures
27
<PAGE>
<PAGE>
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. 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 Funds at
(800) 927-2874.
In reports or other communications to investors or in advertising material, a
Fund may describe general economic and market conditions affecting the Fund and
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 and the Small Company Value Fund, with
the Russell 2000 Small Stock Index, the T. Rowe Price New Horizons Fund Index
and the S&P 500 Index; or (iii) other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. A Fund
may include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Barron's, Business Week, Financial Times, Forbes, Fortune, Inc., Institutional
Investor, Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund
Magazine, SmartMoney and The Wall Street Journal.
28
<PAGE>
<PAGE>
In reports or other communications to investors or in advertising, each Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. Each Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign stocks on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, each Fund may from
time to time compare the expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
GENERAL INFORMATION
________________________________________________________________________________
ORGANIZATION. 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 its Agreement and Declaration of Trust to change its name from
'Counsellors Capital Appreciation Fund' to 'Warburg, Pincus Capital Appreciation
Fund.' The Emerging Growth Fund was incorporated on November 12, 1987 under the
laws of the State of Maryland under the name 'Counsellors Emerging Growth Fund,
Inc.' On October 27, 1995 the Fund amended its charter to change its name to
'Warburg, Pincus Emerging Growth Fund, Inc.' The Small Company Value Fund was
incorporated on October 23, 1995 under the laws of the State of Maryland under
the name 'Warburg, Pincus Small Company Value Fund, Inc.'
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 an unlimited number are
designated Common Shares and an unlimited number are designated Advisor Shares.
The charter of each of the Emerging Growth Fund and the Small Company Value Fund
authorizes the Board to issue three billion full and fractional shares of
capital stock, $.001 par value per share, of which one billion shares are
designated Common Shares and two billion are designated 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 Board of a Fund may similarly classify or
reclassify any class
29
<PAGE>
<PAGE>
of its shares into one or more series and, without shareholder approval, may
increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the
Advisor Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries. Shares of each class represent equal pro
rata interests in the respective Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Advisor Shares from their investment professional or
by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be 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. 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. Any Director of the Emerging Growth Fund or the
Small Company Value Fund may be removed from office upon the vote of
shareholders holding at least a majority of the relevant Fund's outstanding
shares, at a meeting called for that purpose. A meeting will be called for the
purpose of voting on the removal of a Board member at the written request of
holders of 10% of the outstanding shares of a Fund. Lionel I. Pincus may be
deemed to be a controlling person of the Capital Appreciation and the Small
Company Value Funds because he may be deemed to possess or share investment
power over shares owned by clients of Warburg.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by a Fund, as well as
certain statistical characteristics of the Fund, may be obtained by calling
Warburg Pincus Funds at (800) 927-2874.
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
30
<PAGE>
<PAGE>
for a misstatement, inaccuracy or omission in this Prospectus with regard to
another Fund.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE COMMON SHARES
OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
31
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 5
Portfolio Investments................................................... 6
Risk Factors and Special Considerations................................. 8
Portfolio Transactions and Turnover Rate................................ 10
Certain Investment Strategies........................................... 11
Investment Guidelines................................................... 15
Management of the Funds................................................. 15
How to Open an Account.................................................. 18
How to Purchase Shares.................................................. 19
How to Redeem and Exchange Shares....................................... 22
Dividends, Distributions and Taxes...................................... 26
Net Asset Value......................................................... 27
Performance............................................................. 27
General Information..................................................... 29
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-927-2874
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPDSF-1-0297
<PAGE>
<PAGE>
PROSPECTUS
Warburg Pincus Advisor Funds February 20, 1997
Capital Appreciation Fund
[Logo]
Investments
<PAGE>
<PAGE>
PROSPECTUS February 20, 1997
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG PINCUS 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 Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Fund,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' Individual investors may
purchase Advisor Shares only through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of .50% per annum, which is the economic equivalent of a
sales charge. The Fund's Common Shares are available for purchase by individuals
directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund has been filed with the Securities and Exchange Commission (the 'SEC') in a
document entitled 'Statement of Additional Information.' The SEC maintains a Web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is also available upon request and without
charge by calling the Fund at (800) 369-2728. Information regarding the status
of shareholder accounts may also be obtained by calling the Fund at the same
number. The Statement of Additional Information, as amended or supplemented from
time to time, bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
THE FUND'S EXPENSES
- --------------------------------------------------------------------------------
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information.' Because of the higher fees paid by
Advisor Shares, the total return on such shares can be expected to be lower than
the total return on Common Shares.
<TABLE>
<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)
Management Fees............................................................. .70%
12b-1 Fees.................................................................. .50%*
Other Expenses.............................................................. .33%
---
Total Fund Operating Expenses............................................... 1.53%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year...................................................................... $ 16
3 years..................................................................... $ 48
5 years..................................................................... $ 83
10 years.................................................................... $182
</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. 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>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The information regarding the Fund for the four fiscal years ended October
31, 1996 has been derived from information audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report dated December 18, 1996 is incorporated by
reference into the Fund's Statement of Additional Information. The information
for the fiscal year ended October 31, 1992 has been audited by Ernst & Young
LLP, whose report was unqualified. Further information about the performance of
the Fund is contained in the annual report, dated October 31, 1996, copies of
which may be obtained without charge by calling the Fund at (800) 369-2728.
<TABLE>
<CAPTION>
For the Period
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
----------------------------------------------------- through
1996 1995 1994 1993 1992 October 31, 1991
------- ------- ------ ------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 16.26 $ 14.22 $15.28 $ 13.28 $12.16 $12.04
------- ------- ------ ------- ------ -----
Income from Investment
Operations
Net Investment Income (Loss)... .02 .00 (.08) .00 (.01) .05
Net Gains (Loss) from
Securities (both realized and
unrealized).................. 3.49 3.02 .23 2.76 1.20 .13
------- ------- ------ ------- ------ -----
Total from Investment
Operations................... 3.51 3.02 .15 2.76 1.19 .18
------- ------- ------ ------- ------ -----
Less Distributions
Dividends (from net investment
income)...................... .00 .00 (.02) .00 (.02) (.06)
Distributions (from capital
gains)....................... (2.04) (.98) (1.19) (.76) (.05) .00
------- ------- ------ ------- ------ -----
Total Distributions............ (2.04) (.98) (1.21) (.76) (.07) (.06)
------- ------- ------ ------- ------ -----
Net Asset Value, End of
Period......................... $ 17.73 $ 16.26 $14.22 $ 15.28 $13.28 $12.16
------- ------- ------ ------- ------ -----
------- ------- ------ ------- ------ -----
Total Return.................... 24.15% 23.41% 1.23% 21.64% 9.83% 2.66%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)....................... $23,440 $11,594 $8,169 $10,437 $1,655 $ 443
Ratios to Average Daily Net
Assets:
Operating expenses............. 1.53% 1.62% 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss)... .09% (.18%) (.24%) (.25%) (.11%) .25%*
Decrease reflected in above
operating expense ratios due
to waivers/ reimbursements... .00% .00% .01% .00% .01% .01%*
Portfolio Turnover Rate......... 170.69% 146.09% 51.87% 48.26% 55.83% 39.50%
Average Commission Rate #....... $.0595 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<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 'Portfolio Investments' and 'Certain Investment
Strategies' for descriptions of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
investment objective by investing primarily 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 (collectively, 'equity securities'). Depositary
receipts relating to equity securities will also be considered equity securities
for purposes of this investment policy.
Warburg, Pincus Counsellors, Inc., the Fund's investment adviser ('Warburg'),
will attempt to identify sectors of the market and companies within market
sectors that it believes will outperform the overall market. Warburg 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.
The Fund seeks to invest in companies that Warburg believes can be purchased
at a reasonable price for their projected growth, analyzing such factors as
growth rate, including revenue, earnings and unit sales; cash flow; return on
equity; debt/equity ratio; and owner management. Warburg also seeks to identify
growth opportunities and sustainable growth prospects, such as a dynamic of
change or the development of proprietary products and services.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) 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 Warburg.
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital appreciation when interest rates are expected
to decline. The success of such a strategy is dependent upon Warburg's ability
to accurately forecast changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic
4
<PAGE>
<PAGE>
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 Services ('S&P') or, if unrated, is determined to be
of comparable quality by Warburg. Bonds rated in the fourth highest grade may
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. 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, although Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
circumstances, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) or medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loans and similar institutions) that are
high quality investments or, if unrated, deemed by Warburg to be high quality
investments; commercial paper rated no lower than A-2 by S&P or Prime-2 by
Moody's or the equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its
5
<PAGE>
<PAGE>
obligations or becomes bankrupt and the Fund is delayed or prevented from
exercising its right to dispose of the collateral securities, including the risk
of a possible decline in the value of the underlying securities during the
period in which the Fund seeks to assert this right. Warburg, acting under the
supervision of the Fund's Board of 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 Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
WARRANTS. The Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase newly created equity issues of the company issuing the warrants, or
a related company, at a fixed price either on a date certain or during a set
period.
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
6
<PAGE>
<PAGE>
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' beginning at page 8.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board will carefully monitor any investments by the Fund in Rule 144A
Securities. The Board may adopt guidelines and delegate to Warburg the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board will retain ultimate responsibility for any determination
regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may be less
liquid than publicly traded securities. These securities may be less liquid than
publicly traded securities, and the Fund may take longer to liquidate these
positions than would be the case for publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized 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 Fund desire to sell
any of these securities when a ready buyer is not available at a price that is
deemed to be representative of their value, the value of the Fund's net assets
could be adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
7
<PAGE>
<PAGE>
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
The Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the Fund. The Fund will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies. High portfolio turnover
rates (100% or more) may result in dealer mark ups or underwriting commissions
as well as other transaction costs, including correspondingly higher brokerage
commissions. In addition, short-term gains realized from portfolio turnover may
be taxable to shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in the
Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery and (ii) lending portfolio securities. Detailed information
concerning the Fund's strategies and related risks is contained below and in the
Statement of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of foreign issuers. 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
8
<PAGE>
<PAGE>
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. Certain of the above risks may
be involved with American Depositary Receipts ('ADRs') and European Depositary
Receipts ('EDRs'), instruments that evidence ownership of underlying securities
issued by a foreign corporation. ADRs and EDRs may not necessarily be
denominated in the same currency as the securities whose ownership they
represent. ADRs are typically issued by a U.S. bank or trust company and EDRs
(sometimes referred to as Continental Depositary Receipts) are issued in Europe,
typically by non-U.S. banks and trust companies.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE FUND'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities exchanges
and the NASD and by the Internal Revenue Code of 1986, as amended (the 'Code').
Securities and Stock Index Options. The Fund may write covered call options
on up to 25% of the net asset value of the stock and debt securities in its
portfolio and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. The Fund may also utilize up to 2% of its
assets to purchase put and call options on stocks and debt securities that are
9
<PAGE>
<PAGE>
traded on U.S. exchanges, as well as over-the-counter ('OTC') options. The
purchaser of a put option on a security has the right to compel the purchase by
the writer of the underlying security, while the purchaser of a call option on a
security has the right to purchase the underlying security from the writer. In
addition to purchasing and writing options on securities, the Fund may also
utilize up to 10% of its total assets to purchase exchange-listed and OTC put
and call options on stock indexes, and may also write such options. The Fund's
transactions in OTC stock index options will be for hedging purposes only. A
stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date
10
<PAGE>
<PAGE>
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events. The Fund will only engage in currency
exchange transactions for hedging purposes.
Hedging Considerations. The Fund may engage in options, futures and currency
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options, futures contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. The Fund will engage in
hedging transactions only when deemed advisable by Warburg, and successful use
of hedging transactions will depend on Warburg's ability to correctly predict
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or liquid securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through ownership of the underlying
security, 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 the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
11
<PAGE>
<PAGE>
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; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
Securities. The Fund may borrow from banks for temporary or emergency purposes,
such as meeting anticipated redemption requests, provided that borrowings by the
Fund may not exceed 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 Warburg as investment adviser to the
Fund. Warburg, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Fund in accordance
with the Fund's investment objective and stated investment policies. Warburg
makes investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate of .70% of the Fund's average daily net assets. Warburg and
the Fund's co-administrators may voluntarily waive a portion of their fees from
time to time and temporarily limit the expenses to be borne by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of January 31,
1997, Warburg managed approximately $17.9 billion of assets, including
approximately $10.7 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership, which itself is controlled by
Warburg, Pincus & Co. ('WP & Co.'), also a New York general partnership. Lionel
I. Pincus, the managing partner of WP & Co., may be deemed to control both WP &
Co. and Warburg. Warburg G.P.
12
<PAGE>
<PAGE>
has no business other than being a holding company of Warburg and its
subsidiaries. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS. 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
Warburg, 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 Warburg and
has been with Warburg 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 Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of its average daily net assets.
The Fund employs PFPC 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 first $500
million in average daily net assets, .075% of the next $1 billion in assets and
.05% of assets exceeding $1.5 billion, exclusive of out-of-pocket expenses. PFPC
has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIAN. PNC Bank, National Association ('PNC') serves as custodian of the
assets of the Fund. Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its
principal business address is 1600 Market Street, Philadelphia, Pennsylvania
19103.
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,
13
<PAGE>
<PAGE>
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Fund to Counsellors Securities for distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
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.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. References in this Prospectus to
shareholders or investors are generally to Institutions as the record holders of
the Advisor Shares.
Each Institution separately determines the rules applicable to its customers
investing in the Fund, including minimum initial and subsequent investment
requirements and the procedures to be followed to effect purchases, redemptions
and exchanges of Advisor Shares. There is no minimum amount of initial or
subsequent purchases of Advisor Shares imposed on Institutions, although the
Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and sending
payment by wire. After telephoning (800) 369-2728 for instructions,
14
<PAGE>
<PAGE>
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 ('NYSE') (currently 4:00 p.m., Eastern time) and payment by wire
is received on the same day in proper form in accordance with instructions set
forth above, the shares will be priced according to the net asset value of the
Fund on that day and are entitled to dividends and distributions beginning on
that day. If payment by wire is received in proper form by the close of the NYSE
without a prior telephone order, the purchase will be priced according to the
net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations or
Institutions that have entered into agreements with the Fund or its agent may
enter confirmed purchase orders on behalf of customers, with payment to follow
no later than three business days following the day the order is effected. If
payment is not received by such time, the organization could be held liable for
resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as the initial and subsequent investment
15
<PAGE>
<PAGE>
minimums, redemption fees and certain trading restrictions, may be modified or
waived in these programs, and administrative charges may be imposed for the
services rendered. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his account with the organization.
GENERAL. The Fund reserves the right to reject any specific purchase order.
The Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gains
distributions.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that
the Fund's net asset value is calculated (see 'Net Asset Value' below). Requests
for the redemption (or exchange) of Advisor Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of the request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 369-2728. An investor making a telephone withdrawal should state
(i) the name of the Fund, (ii) the account number of the Fund, (iii) the name of
the investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn
and (v) the name of the person requesting the redemption.
After receipt of the redemption request the redemption proceeds will be wired
to the investor's bank as indicated in the account application previously filled
out by the investor. The Fund does not currently impose a service charge for
effecting wire transfers but reserves the right to do so in the future. During
periods of significant economic or market change, telephone redemptions may be
difficult to implement. If an investor is unable to contact Warburg Pincus
Advisor Funds by telephone, an investor may deliver the redemption request to
Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds, P.O. Box
9030, Boston, Massachusetts 02205-9030.
If a redemption order is received by the Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect the Fund, the
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, the Fund may
16
<PAGE>
<PAGE>
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend or postpone the recordation of an exchange of shares) for
such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund
for Advisor Shares of the other Warburg Pincus Advisor Funds at their respective
net asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds or its agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges may be effected without a sales charge. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
The exchange privilege is available to shareholders residing in any state in
which Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact the Fund at
(800) 369-2728.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in 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
the Fund at (800) 369-2728.
17
<PAGE>
<PAGE>
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Advisor Shares or whether received in cash or reinvested in
additional Advisor Shares. As a general rule, an investor's gain or loss on a
sale or redemption of its Fund shares will be a long-term capital gain or loss
if it has held its shares for more than one year and will be a short-term
capital gain or loss if it has held its shares for one year or less. However,
any loss realized upon the sale or redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain during
such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities will not result in
unrelated business taxable income to a tax-exempt investor. The Fund's dividends
may qualify for the dividends received deduction for corporations to the extent
they are derived from dividends attributable to certain types of stock issued by
U.S. domestic corporations.
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,
18
<PAGE>
<PAGE>
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
- --------------------------------------------------------------------------------
The Fund quotes the performance of 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
19
<PAGE>
<PAGE>
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 the Fund at (800)
369-2728.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund
and may compare its performance 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 Warburg 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 Barron's,
Business Week, Financial Times, Forbes, Fortune, Inc., Institutional Investor,
Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine,
SmartMoney and The Wall Street Journal.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render updates
of Fund activity, which may include a discussion of significant portfolio
holdings and analysis of holdings by industry, country, credit quality and other
characteristics. The Fund may also discuss measures of risk, the continuum of
risk and return relating to different investments and the potential impact of
foreign stocks on a portfolio otherwise composed of domestic securities.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various time periods. In addition, the Fund may from time to time compare
the expense ratio of Advisor Shares to that of investment companies with similar
objectives and policies, based on data generated by Lipper Analytical Services,
Inc. or similar investment services that monitor mutual funds.
20
<PAGE>
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fund was organized on January 20, 1987 under the laws of
The Commonwealth of Massachusetts as a 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 to issue an unlimited number of full and fractional shares
of beneficial interest, $.001 par value per share, of which an unlimited number
of shares are designated Common Shares and an unlimited number are designated
Advisor Shares. Under the Fund's charter documents, the Board has the power to
classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Trustee of the Fund may be removed from office
upon the vote of no less than two-thirds of the outstanding shares, through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose. A meeting will be called for the purpose of voting on the
removal of a Board member at the written request of holders of 10% of the
outstanding shares of the Fund. Lionel I. Pincus may be deemed to be a
controlling person of the Fund because he may be deemed to possess or share
investment power over shares owned by clients of Warburg.
21
<PAGE>
<PAGE>
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. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling the Fund at (800) 369-2728. Each Institution that is the record owner of
Advisor Shares on behalf of its customers will send a statement to those
customers periodically showing their indirect interest in Advisor Shares, as
well as providing other information about the Fund. See 'Shareholder Servicing.'
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for Customers. Distribution services
would be marketing or other services in connection with the promotion and sale
of Advisor Shares. Shareholder services that may be provided include responding
to Customer inquiries, providing information on Customer investments and
providing other shareholder liaison services. Administrative and accounting
services related to the sale of Advisor Shares may include (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the Fund's transfer agent, (ii) processing
dividend payments from the Fund on behalf of Customers and (iii) providing
sub-accounting related to the sale of Advisor Shares beneficially owned by
Customers or the information to the Fund necessary for sub-accounting. The Board
has approved a Distribution Plan (the 'Plan') pursuant to Rule 12b-1 under the
1940 Act under which each participating Service Organization will be paid, out
of the assets of the Fund (either directly by the Fund or by Counsellors
Securities on behalf of the Fund), a negotiated fee on an annual basis not to
exceed .75% (up to a .25% annual shareholder services fee and a .50% annual
distribution and/or administrative services fee) of the value of the average
daily net assets of its Customers invested in Advisor Shares. The current 12b-1
fee is .50% per annum. The Board evaluates the appropriateness of the Plan on a
continuing basis and in doing so considers all relevant factors.
To offset start-up costs and expenses associated with certain qualified
retirement plans making Advisor Shares available to plan participants,
22
<PAGE>
<PAGE>
Counsellors Securities may pay CIGNA Financial Advisors, Inc., a registered
broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.
Warburg, Counsellors Securities, Counsellors Service or any of their
affiliates may, from time to time, at their own expense, provide compensation to
Service Organizations. To the extent they do so, such compensation does not
represent an additional expense to the Fund or its shareholders. In addition
Warburg, Counsellors Securities or any of their affiliates may, from time to
time, at their own expense, pay certain Fund transfer agent fees and expenses
related to accounts of Customers. A Service Organization may use a portion of
the fees paid pursuant to the Plan to compensate the Fund's custodian or
transfer agent for costs related to accounts of Customers.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
23
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objective and Policies....................................... 4
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 6
Portfolio Transactions and Turnover Rate................................ 8
Certain Investment Strategies........................................... 8
Investment Guidelines................................................... 12
Management of the Fund.................................................. 12
How to Purchase Shares.................................................. 14
How to Redeem and Exchange Shares....................................... 16
Dividends, Distributions and Taxes...................................... 17
Net Asset Value......................................................... 18
Performance............................................................. 19
General Information..................................................... 21
Shareholder Servicing................................................... 22
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADCAP-1-0297
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 20, 1997
-------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
WARBURG PINCUS EMERGING GROWTH FUND
WARBURG PINCUS SMALL COMPANY VALUE FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG
-------------
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives.....................................................................1
Investment Policies.......................................................................2
Management of the Funds...................................................................28
Additional Purchase and Redemption Information............................................39
Exchange Privilege........................................................................40
Additional Information Concerning Taxes...................................................40
Determination of Performance..............................................................43
Independent Accountants and Counsel.......................................................45
Miscellaneous.............................................................................45
Financial Statements......................................................................47
Appendix -- Description of Ratings....................................................... A-1
</TABLE>
This combined 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 ("Capital Appreciation Fund"), Warburg
Pincus Emerging Growth Fund ("Emerging Growth Fund") and Warburg Pincus Small
Company Value Fund ("Small Company Value Fund" and collectively, the "Funds"),
and with the Prospectus for the Advisor Shares of each Fund, each dated February
20, 1997, as amended or supplemented from time to time, and is incorporated by
reference in its entirety into those Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of a
Fund should be made solely upon the information contained herein. Copies of the
Funds' Prospectuses and information regarding the Funds' current performance may
be obtained by calling the Funds at (800) 927-2874. Information regarding the
status of shareholder accounts may be obtained by calling the Funds at (800)
927-2874 or by writing to the Funds, P.O. Box 9030, Boston, Massachusetts
02205-9030.
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES
The investment objective of each of the Capital Appreciation Fund
and the Small Company Value Fund is long-term capital appreciation. The
investment objective of the Emerging Growth Fund is maximum capital
appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Funds'
investment objectives and policies in the Prospectuses.
Options, Futures and Currency Exchange Transactions
Securities Options. Each Fund may write covered call options on
stock and debt securities and may purchase U.S. exchanged-traded and over-the
counter ("OTC") put and call options.
Each Fund realizes fees (referred to as "premiums") for granting
the rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right of
its purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The principal reason for writing covered options on a security is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Fund as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a call writer retains the risk of a decline in the price of the
underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
In the case of options written by a Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
2
<PAGE>
<PAGE>
Additional risks exist with respect to certain of the securities
for which a Fund may write covered call options. For example, if the Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. Each Fund may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., each Fund's investment adviser
("Warburg"), expects that the price of the underlying security will remain flat
or decline moderately during the option period, (ii) at-the-money call options
when Warburg expects that the price of the underlying security will remain flat
or advance moderately during the option period and (iii) out-of-the-money call
options when Warburg expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. To secure its obligation to deliver the underlying security
when it writes a call option, each Fund will be required to deposit in escrow
the underlying security or other assets in accordance with the rules of the
Options Clearing Corporation (the "Clearing Corporation") and of the securities
exchange on which the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by a Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which the Fund may realize a profit or loss from the
sale. An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities exchange or
in the over-the-counter market. When a Fund has purchased an option and engages
in a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. A Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of a Fund under an option it has written
would be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as a result of the transaction. So long as the
obligation of a Fund as the writer of an
3
<PAGE>
<PAGE>
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. A Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist
to create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a Fund's ability to
terminate options positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail to
meet their obligations to the Fund. Each Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as determined
by Warburg, are considered to be investment grade. If, as a covered call option
writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. In either
case, the Fund would continue to be at market risk on the security and could
face higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that the
Funds and other clients of Warburg and certain of its affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options a Fund will be
able to purchase on a particular security.
Stock Index Options. Each Fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index, fluctuating with changes in the
market values of the stocks included in the index. Some stock index options are
based on a broad market index, such as the NYSE Composite Index, or a narrower
market index such as the Standard & Poor's 100. Indexes may also be based on a
particular industry or market segment.
4
<PAGE>
<PAGE>
Options on stock indexes are similar to options on stock except
that (i) the expiration cycles of stock index options are monthly, while those
of stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the index and the exercise
price of the option times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Stock index options may be offset by entering into closing transactions as
described above for securities options.
OTC Options. Each Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Fund were to
purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, a Fund will generally be able to realize
the value of a dealer option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when a Fund writes a dealer option,
it generally will be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the
Fund originally wrote the option. Although each Fund will seek to enter into
dealer options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option at a favorable
price at any time prior to expiration. The inability to enter into a closing
transaction may result in material losses to a Fund. Until the Fund, as a
covered OTC call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
to cover the written option until the option expires or is exercised. This
requirement may impair a Fund's ability to sell portfolio securities or, with
respect to currency options, currencies at a time when such sale might be
advantageous. In the event of insolvency of the other party, the Fund may be
unable to liquidate a dealer option.
Futures Activities. Each Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures Trading
Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered
5
<PAGE>
<PAGE>
into for "bona fide hedging" purposes as defined in CFTC regulations and other
permissible purposes including hedging against changes in the value of portfolio
securities due to anticipated changes in currency values, interest rates and/or
market conditions and increasing return.
No Fund will enter into futures contracts and related options for
which the aggregate initial margin and premiums (discussed below) required to
establish positions other than those considered to be "bona fide hedging" by the
CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. Each Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may be
at risk with respect to futures activities. The ability of a Fund to trade in
futures contracts and options on futures contracts may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to a regulated investment company.
Futures Contracts. A foreign currency futures contract provides
for the future sale by one party and the purchase by the other party of a
certain amount of a specified non-U.S. currency at a specified price, date, time
and place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
price, date, time and place. Stock indexes are capitalization weighted indexes
which reflect the market value of the stock listed on the indexes. A stock index
futures contract is an agreement to be settled by delivery of an amount of cash
equal to a specified multiplier times the difference between the value of the
index at the close of the last trading day on the contract and the price at
which the agreement is made.
No consideration is paid or received by a Fund upon entering into
a futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or liquid securities acceptable to
the broker, equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to a Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or 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." A Fund will also incur brokerage costs in connection with
entering into futures transactions.
At any time prior to the expiration of a futures contract, a Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts
6
<PAGE>
<PAGE>
(described below) may be closed out only on the exchange on which they were
entered into (or through a linked exchange). No secondary market for such
contracts exists. Although each Fund intends to enter into futures contracts
only if there is an active market for such contracts, there is no assurance that
an active market will exist at any particular time. Most futures exchanges limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit or trading may be
suspended for specified periods during the day. It is possible that futures
contract prices could move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions at an advantageous price and subjecting the Fund to substantial
losses. In such event, and in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin. In such
situations, if a Fund had insufficient cash, it might have to sell securities to
meet daily variation margin requirements at a time when it would be
disadvantageous to do so. In addition, if the transaction is entered into for
hedging purposes, in such circumstances the Fund may realize a loss on a futures
contract or option that is not offset by an increase in the value of the hedged
position. Losses incurred in futures transactions and the costs of these
transactions will affect a Fund's performance.
Options on Futures Contracts. Each Fund may purchase and write
put and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of a
Fund.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of a Fund that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Fund may incur costs in connection with conversion between various currencies.
Currency exchange transactions may be from any non-U.S. currency into U.S.
dollars or into other appropriate currencies. Each Fund will
7
<PAGE>
<PAGE>
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed upon by
the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, a Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Currency Options. Each Fund may purchase exchange-traded put and
call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
Currency Hedging. Each Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of a Fund generally accruing in connection with
the purchase or sale of its portfolio securities. Position hedging is the sale
of forward currency with respect to portfolio security positions. No Fund may
position hedge to an extent greater than the aggregate market value (at the time
of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which
a Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of securities it holds, a Fund may purchase currency put options.
If the value of the currency does decline, the Fund will have the right to sell
the currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the
8
<PAGE>
<PAGE>
U.S. dollar value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost of the
securities, the Fund may purchase call options on the particular currency. The
purchase of these options could offset, at least partially, the effects of the
adverse movements in exchange rates. The benefit to a Fund derived from
purchases of currency options, like the benefit derived from other types of
options, will be reduced by premiums and other transaction costs. Because
transactions in currency exchange are generally conducted on a principal basis,
no fees or commissions are generally involved. Currency hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Although currency hedges limit the risk of loss due to a decline in
the value of a hedged currency, at the same time, they also limit any potential
gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, a Fund may not be able to contract to sell
a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of a Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, each Fund may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.
In hedging transactions based on an index, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of a Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative movements in the hedged position and the hedge, the Fund's hedge
positions may be in a greater or lesser dollar amount than the dollar amount of
the hedged position. Such "over hedging" or "under hedging" may adversely affect
the Fund's net investment results if market
9
<PAGE>
<PAGE>
movements are not as anticipated when the hedge is established. Stock index
futures transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the stock index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in the stock index and movements in the price of
stock index futures, a correct forecast of general market trends by Warburg
still may not result in a successful hedging transaction.
Each Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to correctly predict
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect a Fund's
performance.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. As described in the Prospectuses, each Fund will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Fund on securities and indexes; and currency, interest rate and index
futures contracts and options on these futures contracts. These guidelines may,
in certain instances, require segregation by a 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 a Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by a Fund on an index
may require the Fund to own portfolio securities that correlate with the index
or to segregate assets (as described above) equal to the excess of the index
value over the exercise price on a current basis. A Fund could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Fund. If a Fund holds a futures or forward
contract, the Fund could purchase a put option on the same futures or forward
contract with a strike price as high or higher than the price of the contract
held. A Fund may enter into fully or partially offsetting transactions so that
its net position, coupled with any segregated assets (equal to any remaining
obligation), equals its net obligation. Asset coverage may be achieved by other
means when consistent with applicable regulatory policies.
10
<PAGE>
<PAGE>
Additional Information on Other Investment Practices
Foreign Investments. Each Fund may invest up to 20% of its total
assets in the securities of foreign issuers. Investors should recognize that
investing in foreign companies involves certain risks, including those discussed
below, which are not typically associated with investing in U.S. issuers.
Foreign Currency Exchange. Since a Fund may 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 a Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
foreign countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. Each Fund may use hedging
techniques with the objective of protecting against loss through the fluctuation
of the value of foreign currencies against the U.S. dollar, particularly the
forward market in foreign exchange, currency options and currency futures. See
"Currency Transactions" and "Futures Transactions" above.
Many of the foreign securities held by a Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information about
the securities and about 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 a
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. Each
Fund may invest in
11
<PAGE>
<PAGE>
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such investments
as well.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of a Fund to market and foreign exchange fluctuations brought about by
such delays, and due to the corresponding negative impact on Fund liquidity,
each Fund will avoid investing in countries which are known to experience
settlement delays which may expose the Fund to unreasonable risk of loss.
Increased Expenses. The operating expenses of a Fund, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Fund, such as custodial costs, valuation costs and communication costs,
may be higher than those costs incurred by investment companies not investing in
foreign securities.
U.S. Government Securities. Each 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. Each Fund may also invest in instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality. Because
the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a Fund will invest in obligations issued by such an
instrumentality only if Warburg determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Fund.
Securities of Other Investment Companies. Each Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, a Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. Each Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit
12
<PAGE>
<PAGE>
requirements or other criteria established by the Fund's Board of Directors/
Trustees (the "Board"). These loans, if and when made, may not exceed 20% of a
Fund's total assets taken at value. No Fund will lend portfolio securities to
affiliates of Warburg unless it has applied for and received specific authority
to do so from the SEC. Loans of portfolio securities will be collateralized by
cash, letters of credit or U.S. Government Securities, which are maintained at
all times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of a Fund.
From time to time, a Fund may return a part of the interest earned from the
investment of collateral received for securities loaned to the borrower and/or a
third party that is unaffiliated with the Fund and that is acting as a "finder."
By lending its securities, a Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. Although the
generation of income is not the primary investment objective of any of the
Funds, income received could be used to pay a Fund's expenses and would increase
an investor's total return. Each Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at least
100% cash collateral or equivalent securities of the type discussed in the
preceding paragraph from the borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities rises above the level of
such collateral; (iii) the Fund must be able to terminate the loan at any time;
(iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower, provided, however, that if a material event adversely
affecting the investment occurs, the Board must terminate the loan and regain
the right to vote the securities. Loan agreements involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon a Fund's ability to recover the loaned securities or dispose
of the collateral for the loan.
American, European and Continental Depositary Receipts. The
assets of each 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.
Warrants. Each Fund may purchase warrants issued by domestic and
foreign companies to purchase equity securities consisting of common and
preferred
13
<PAGE>
<PAGE>
stock. The equity security underlying a warrant is authorized at the time the
warrant is issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit
or loss than an equivalent investment in the underlying security, and, thus, can
be a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
Non-Publicly Traded and Illiquid Securities. No Fund may invest
more than 10% of its total assets in non-publicly traded and illiquid
securities, including 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 days. Securities
that have legal or contractual restrictions on resale but have a readily
available market are not considered illiquid for purposes of this limitation.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days without borrowing. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted
by the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional
14
<PAGE>
<PAGE>
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to a Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Board and its delegates may
consider, inter alia, the following factors: (i) the unregistered nature of the
security; (ii) the frequency of trades and quotes for the security; (iii) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security and (v) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Borrowing. Each of the Capital Appreciation Fund and the Emerging
Growth Fund may borrow up to 10% of its total assets (the Small Company Value
Fund may borrow up to 30%) 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 a Fund's total assets. Although the principal of such borrowings
will be fixed, a Fund's assets may change in value during the time the borrowing
is outstanding. Each Fund expects that some of its borrowings may be made on a
secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with a
suitable subcustodian, which may include the lender.
Other Investment Policies and Practices
Emerging Growth Fund and Small Company Value Fund
Securities of Smaller Companies and Emerging Growth Companies.
Investments in small companies involve considerations that are not applicable to
investing in securities of established, larger-capitalization issuers, including
reduced and less reliable information about issuers and markets, less stringent
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of emerging growth and smaller companies may involve greater risks
since these securities may have limited marketability and, thus, may be more
volatile.
Emerging Growth Fund
Special Situation Companies. The Emerging Growth Fund may invest
in the securities of "special situation companies" involved in an actual or
prospective acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash,
15
<PAGE>
<PAGE>
securities or other assets; a tender or exchange offer; a breakup or workout of
a holding company; or litigation which, if resolved favorably, would improve the
value of the company's stock. If the actual or prospective situation does not
materialize as anticipated, the market price of the securities of a "special
situation company" may decline significantly. The Fund believes, however, that
if Warburg analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, the Fund may achieve
maximum capital appreciation. There can be no assurance, however, that a special
situation that exists at the time the Fund makes its investment will be
consummated under the terms and within the time period contemplated.
Non-Diversified Status. The Emerging Growth Fund is classified as
non-diversified within the meaning of the 1940 Act, which means that it is not
limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. The Fund's investments will be limited, however,
in order to qualify as a "regulated investment company" for purposes of the
Code. See "Additional Information Concerning Taxes." To qualify, the Fund will
comply with certain requirements, including limiting its investments so that at
the close of each quarter of the taxable year (a) not more than 25% of the
market value of its total assets will be invested in the securities of a single
issuer, and (b) with respect to 50% of the market value of its total assets, not
more than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the will not own more than 10% of the
outstanding voting securities of a single issuer.
Small Company Value Fund
Below Investment Grade Securities. Although the Fund may invest
only in investment grade non-convertible debt securities (as described in the
Prospectuses), it may invest in below investment grade convertible debt and
preferred securities and it is not required to dispose of securities downgraded
below investment grade subsequent to acquisition by the Fund. While the market
values of medium- and lower-rated securities and unrated securities of
comparable quality tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities, the market values of certain of these
securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher-quality securities. In addition,
medium- and lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. Issuers of medium- and lower-rated
securities and unrated securities are often highly leveraged and may not have
more traditional methods of financing available to them so that their ability to
service their obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default by such issuers is significantly greater because medium- and lower-rated
securities and unrated securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
16
<PAGE>
<PAGE>
The Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Fund
anticipates that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
these securities does exist, it generally is not as liquid as the secondary
market for higher-rated securities. The lack of a liquid secondary market, as
well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and the Fund's ability to
dispose of particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund and calculating its
net asset value.
The market value of securities in medium- and lower-rated
categories is more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact
the Fund's net asset value. The Fund will rely on the judgment, analysis and
experience of Warburg in evaluating the creditworthiness of an issuer. In this
evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
its operating history, the quality of the issuer's management and regulatory
matters. Normally, medium- and lower-rated and comparable unrated securities are
not intended for short-term investment. The Fund may incur additional expenses
to the extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. Recent
adverse publicity regarding lower-rated securities may have depressed the prices
for such securities to some extent. Whether investor perceptions will continue
to have a negative effect on the price of such securities is uncertain.
Short Sales "Against the Box." In a short sale, the investor
sells a borrowed security and has a corresponding obligation to the lender to
return the identical security. The seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. If the Small Company Value Fund engages in a short sale, the
collateral for the short position will be maintained by the Fund's custodian or
qualified sub-custodian. While the short sale is open, the Fund will maintain in
a segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Fund's long position.
The Small Company Value Fund may engage in short sales against
the box for investment purposes. The Fund may also make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Fund (or a security convertible or
exchangeable for such security), or when the Fund wants to sell the security at
an attractive current price, but also wishes to defer recognition of gain or
loss for U.S. federal income tax purposes and for purposes of satisfying certain
tests applicable to regulated investment companies under the Code. In such case,
any future losses in the Fund's long position should be offset by a gain in the
short position and, conversely, any gain in the long position should be reduced
by a loss in the short position. The extent to
17
<PAGE>
<PAGE>
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Fund owns. There will be certain
additional transaction costs associated with short sales against the box, but
the Fund will endeavor to offset these costs with the income from the investment
of the cash proceeds of short sales.
Reverse Repurchase Agreements and Dollar Rolls. The Small Company
Value Fund may enter into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Reverse repurchase agreements
involve the sale of securities held by the Fund pursuant to its agreement to
repurchase them at a mutually agreed upon date, price and rate of interest. At
the time the Fund enters into a reverse repurchase agreement, it will establish
and maintain a segregated account with an approved custodian containing cash or
liquid 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 a Fund's obligation
to repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
The Small Company Value Fund also may enter into "dollar rolls,"
in which the Fund sells fixed-income securities for delivery in the current
month and simultaneously contracts to repurchase similar but not identical (same
type, coupon and maturity) securities on a specified future date. During the
roll period, the Fund would forego principal and interest paid on such
securities. The Fund would be compensated by the difference between the current
sales price and the forward price for the future purchase, as well as by the
interest earned on the cash proceeds of the initial sale. At the time the Fund
enters into a dollar roll transaction, it will place in a segregated account
maintained with an approved custodian cash or other liquid 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. Reverse repurchase agreements are considered to be borrowings under
the 1940 Act.
Other Investment Limitations
All Funds. Certain investment limitations of each Fund may not be
changed without the affirmative vote of the holders of a majority of the Fund's
outstanding shares ("Fundamental Restrictions"). Such majority is defined as the
lesser of (i) 67% or more of the shares present at the meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares. If a
percentage restriction (other than the percentage limitation set forth in No. 2
of the Capital Appreciation Fund and the percentage limitation set forth in No.
1 of each of the Emerging
18
<PAGE>
<PAGE>
Growth Fund and the Small Company Value Fund) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of a Fund's
assets will not constitute a violation of such restriction.
Capital Appreciation Fund. The investment limitations numbered 1
through 11 are Fundamental Restrictions. Investment limitations 12 through 14
may be changed by a vote of the Board at any time.
The Capital Appreciation Fund may not:
1. Purchase the securities of any issuer if as a result more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer, except that this 5% limitation does not apply to U.S. Government
Securities and except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation.
2. Borrow money or issue senior securities except that the Fund
may (a) borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 10% of the value of the Fund's
total assets at the time of such borrowing and (b) enter into futures contracts;
or mortgage, pledge or hypothecate any assets except in connection with any bank
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Fund's total assets at the time of such
borrowing. Whenever borrowings described in (a) exceed 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
19
<PAGE>
<PAGE>
by real estate, mortgages or interests therein, (b) securities of companies that
invest in or sponsor oil, gas or mineral exploration or development programs and
(c) futures contracts and related options.
7. Make short sales of securities or maintain a short position.
8. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may (a) purchase put and call options
on securities, (b) write covered call options on securities, (c) purchase and
write put and call options on stock indices and (d) enter into options on
futures contracts.
9. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange or as otherwise permitted under the 1940 Act.
10. Purchase more than 10% of the voting securities of any one
issuer, more than 10% of the securities of any class of any one issuer or more
than 10% of the outstanding debt securities of any one issuer; provided that
this limitation shall not apply to investments in U.S. government securities.
11. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin.
12. Invest more than 10% of the value of the Fund's total assets
in securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations. For purposes of this limitation, (a) repurchase agreements with
maturities greater than seven days and (b) time deposits maturing in more than
seven calendar days shall be considered illiquid securities.
13. Invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 10%
of the value of the Fund's net assets.
14. Invest in oil, gas or mineral leases.
Emerging Growth Fund. The investment limitations numbered 1
through 9 are Fundamental Restrictions. Investment limitations 10 through 13 may
be changed by a vote of the Board at any time.
The Emerging Growth Fund may not:
1. 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
20
<PAGE>
<PAGE>
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.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Fund may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.
4. 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.
5. Purchase or sell real estate, real estate investment trust
securities, real estate limited partnerships, 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.
6. Make short sales of securities or maintain a short position.
7. 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.
8. 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.
9. 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
21
<PAGE>
<PAGE>
with futures contracts or related options will not be deemed to be a purchase of
securities on margin.
10. 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, repurchase agreements with
maturities greater than seven days shall be considered illiquid securities.
11. Invest more than 10% of the value of the Fund's total assets
in time deposits maturing in more than seven calendar days.
12. Invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 10%
of the value of the Fund's net assets.
13. Invest in oil, gas or mineral leases.
Small Company Value Fund. The investment limitations numbered 1
through 10 are Fundamental Restrictions. Investment limitations 11 through 15
may be changed by a vote of the Board at any time.
The Small Company Value Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
the entry into currency transactions, options, futures contracts, options on
futures contracts, forward commitment transactions and dollar roll transactions
that are not accounted for as financings (and the segregation of assets in
connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Purchase the securities of any issuer if as a result more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer, except that this 5% limitation does not apply to U.S. government
securities and except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
22
<PAGE>
<PAGE>
5. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Make short sales of securities or maintain a short position,
except that the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and enter into short
sales "against the box."
8. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
9. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
purchase and sell currencies on a forward commitment or delayed-delivery basis
and enter into stand-by commitments.
10. Issue any senior security except as permitted in the Fund's
investment limitations.
11. 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.
12. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
13. Invest more than 10% of the Fund's net assets in securities
which may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.
14. Invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 10%
of the value of the Fund's net assets.
23
<PAGE>
<PAGE>
15. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value of
each Fund is determined for purposes of sales and redemptions. The following is
a description of the procedures used by each Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options or futures contracts will be valued
similarly. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. In determining the market value of portfolio investments, each
Fund may employ outside organizations (a "Pricing Service") which may use a
matrix, formula or other objective method that takes into consideration market
indexes, matrices, yield curves and other specific adjustments. The procedures
of Pricing Services are reviewed periodically by the officers of each Fund under
the general supervision and responsibility of the Board, which may replace a
Pricing Service at any time. Short-term obligations with maturities of 60 days
or less are valued at amortized cost, which constitutes fair value as determined
by the Board. Amortized cost involves valuing a portfolio instrument at its
initial cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The amortized cost method of valuation may
also be used with respect to other debt obligations with 60 days or less
remaining to maturity. In determining the market value of portfolio investments,
each Fund may employ outside organizations (a "Price Service") which may use a
matrix, formula or other objective method that takes into consideration market
indexes, matrices, yield curves and other specific adjustments. The procedures
of Pricing Services are reviewed periodically by the officers of each Fund under
the general supervision and responsibility of the Board, which may replace a
Pricing Service at any time. Securities, options and futures contracts for which
market quotations are not available and certain other assets of each Fund will
be valued at their fair value as determined in good faith pursuant to
consistently applied procedures established by the Board. In addition, the Board
or its delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in securities in certain foreign countries is completed
at various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which a Fund's net asset value is not calculated. As a result,
calculation of a Fund's net asset value may not take place contemporaneously
with the
24
<PAGE>
<PAGE>
determination of the prices of certain foreign portfolio securities used in such
calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the NYSE will not be reflected in a Fund's calculation of net asset value unless
the Board or its delegates deems that the particular event would materially
affect net asset value, in which case an adjustment may be made. All assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. dollar values at the prevailing rate as quoted by a Pricing Service.
If such quotations are not available, the rate of exchange will be determined in
good faith pursuant to consistently applied procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying each Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by a Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. Government Securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. Government
Securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality. No brokerage commissions are typically paid on
purchases and sales of U.S. Government Securities.
Warburg will select specific portfolio investments and effect
transactions for each Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with brokers and dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to a Fund and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research
25
<PAGE>
<PAGE>
services provided by such broker or dealer viewed in terms of either that
particular transaction or of the overall responsibilities of Warburg. Research
and other services received may be useful to Warburg in serving both the Fund
and its other clients and, conversely, research or other services obtained by
the placement of business of other clients may be useful to Warburg in carrying
out its obligations to a Fund. Research may include furnishing advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the availability
of securities or purchasers or sellers of securities; furnishing seminars,
information, analyses and reports concerning issuers, industries, securities,
trading markets and methods, legislative developments, changes in accounting
practices, economic factors and trends and portfolio strategy; access to
research analysts, corporate management personnel, industry experts, economists
and government officials; comparative performance evaluation and technical
measurement services and quotation services; and products and other services
(such as third party publications, reports and analyses, and computer and
electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
For the fiscal year ended October 31, 1996, $464,288, $142,190 and $20,838 of
total brokerage commissions was paid to brokers and dealers who provided such
research and other services for the Capital Appreciation Fund, Emerging Growth
Fund, and Small Company Value Fund, respectively. Research received from brokers
or dealers is supplemental to Warburg's own research program. The fees to
Warburg under its advisory agreement with each Fund are not reduced by reason
of its receiving any brokerage and research services.
The following table details amounts paid by each Fund in
commissions to broker-dealers for execution of portfolio transactions during the
indicated fiscal years or period ended October 31.
<TABLE>
<CAPTION>
- ------------------------------- ------------------------ -----------------------
FUND YEAR COMMISSIONS
- ------------------------------- ------------------------ -----------------------
<S> <C> <C>
Capital Appreciation 1994 $243,640
- ------------------------------- ------------------------ -----------------------
1995 $750,209
- ------------------------------- ------------------------ -----------------------
1996 $1,510,431
- ------------------------------- ------------------------ -----------------------
- ------------------------------- ------------------------ -----------------------
Emerging Growth 1994 $390,241
- ------------------------------- ------------------------ -----------------------
1995 $795,163
- ------------------------------- ------------------------ -----------------------
1996 $1,592,936
- ------------------------------- ------------------------ -----------------------
- ------------------------------- ------------------------ -----------------------
Small Company Value 1996 $144,319
- ------------------------------- ------------------------ -----------------------
</TABLE>
Capital Appreciation and Emerging Growth Funds. The increase in
commission payments in the 1995 and 1996 fiscal years was attributable to the
increased size of each Fund.
26
<PAGE>
<PAGE>
The table below shows the amount of outstanding repurchase
agreements that each Fund had, as of October 31, 1996, with State Street Bank
and Trust Company ("State Street"), one of the regular broker-dealers of each
Fund.
<TABLE>
<S> <C>
-------------------------------- -------------------------------
Capital Appreciation $30,039,000
-------------------------------- -------------------------------
Emerging Growth $61,291,000
-------------------------------- -------------------------------
Small Company Value $ 8,428,000
-------------------------------- -------------------------------
</TABLE>
Investment decisions for each Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as a
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to price
and available investments allocated as to amount, in a manner which Warburg
believes to be equitable to each client, including the Funds. In some instances,
this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold for the Fund. To the extent
permitted by law, Warburg may aggregate the securities to be sold or purchased
for a Fund with those to be sold or purchased for such other investment clients
in order to obtain best execution.
Any portfolio transaction for a Fund may be executed through
Counsellors Securities Inc., each Fund's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the Fund a
commission rate consistent with those charged by Counsellors Securities to
comparable unaffiliated customers in similar transactions. All transactions with
affiliated brokers will comply with Rule 17e-1 under the 1940 Act. No portfolio
transactions have been executed through Counsellors Securities since the
commencement of the Funds' operations.
In no instance will portfolio securities be purchased from or
sold to Warburg or Counsellors Securities or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom a Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services. See the
Prospectuses, "Shareholder Servicing."
Transactions for a Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, a Fund will deal directly with the dealers who make a
market in the securities involved, except in those 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
27
<PAGE>
<PAGE>
futures transactions and the purchase and sale of underlying securities upon
exercise of options.
A Fund may participate, if and when practicable, in bidding for
the purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of such
a group. A Fund will engage in this practice, however, only when Warburg, in its
sole discretion, believes such practice to be otherwise in the Fund's interest.
Portfolio Turnover
Each Fund does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. Each Fund's portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of its
portfolio securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by a Fund could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold.
MANAGEMENT OF THE FUNDS
Officers and Board of Directors/Trustees
The names (and ages) of the each Fund's Directors/Trustees and
officers, their addresses, present positions and principal occupations during
the past five years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard N. Cooper (62) Director/Trustee
Harvard University Professor at Harvard University; National Intelligence
1737 Cambridge Street Council from June 1995 until January 1997; Director or
Cambridge, Massachusetts 02138 Trustee of CircuitCity Stores, Inc. (retail
electronics and appliances) and Phoenix Home Life
Mutual Insurance Company.
Donald J. Donahue (72) Director/Trustee
27 Signal Road Chairman of Magma Copper Company from December 1987
Stamford, Connecticut 06902 until December 1995; Chairman and Director of NAC
Holdings from September 1990-June 1993;
Director of Pioneer Companies, Inc.
(chlor-alkali chemicals) and predecessor
companies since 1990 and Vice Chairman
since December 1995.
</TABLE>
28
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Jack W. Fritz (69) Director/Trustee
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications
Wilson, Wyoming 83014 (developers and operators of radio stations); Director
of Advo, Inc. (direct mail advertising).
John L. Furth* (66) Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1970; Director and officer of other
investment companies advised by Warburg.
Thomas A. Melfe (65) Director/Trustee
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure Newton &
New York, New York 10112 Irvine; Chairman of the Board, Municipal Fund for New
York Investors, Inc.
Alexander B. Trowbridge (67) Director/Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business
Washington, DC 20004 consulting) from January 1990-November 1996; President
of the National Association of Manufacturers from
1980-1990; Director or Trustee of New England Life
Insurance Co., ICOS Corporation (biopharmaceuticals),
WMX Technologies Inc. (solid and hazardous waste
collection and disposal), The Rouse Company (real
estate development), Harris Corp. (electronics and
communications equipment), The Gillette Co. (personal
care products) and Sun Company Inc. (petroleum
refining and marketing).
George U. Wyper (41) Co-President and Co-Portfolio Manager of the Capital
466 Lexington Avenue Appreciation Fund
New York, NY 10017-3147 Managing Director of Warburg; Associated with Warburg
since 1994; Chief Investment 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.
</TABLE>
- ----------
* Indicates a Director/Trustee who is an "interested person" of each Fund as
defined in the 1940 Act.
29
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Susan L. Black (57) Co-President and Co-Portfolio Manager of the Capital
466 Lexington Avenue Appreciation Fund
New York, New York 10017-3147 Managing Director of Warburg; Associated with Warburg
since 1985.
Elizabeth B. Dater (52) Co-President and Co-Portfolio Manager of the Emerging
466 Lexington Avenue Growth Fund
New York, New York 10017-3147 Managing Director of Warburg; Associated with Warburg
since 1978.
Stephen J. Lurito (34) Co-President and Co-Portfolio Manager of the Emerging 466
Lexington Avenue Growth Fund Associated with Warburg since 1987;
New York, New York 10017-3147 Investment Management Research Analyst at Sanford C.
Bernstein & Company, Inc. from 1985-1987.
Arnold M. Reichman* (48) Trustee/Director and Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1984; Senior Vice
President, Secretary and Chief Operating
Officer of Counsellors Securities;
Officer of other investment companies
advised by Warburg.
Eugene L. Podsiadlo (40) Senior Vice President
466 Lexington Avenue Managing Director of Warburg; Associated with Warburg
New York, New York 10017-3147 since 1991; Vice President of Citibank, N.A. from
1987-1991; Officer of Counsellors Securities and other
investment companies advised by Warburg.
Stephen Distler (43) Vice President
466 Lexington Avenue Assistant Secretary of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1984; Treasurer of Counsellors
Securities; Vice President, Treasurer and Chief
Accounting Officer or Vice President and Chief
Financial Officer of other investment companies
advised by Warburg.
</TABLE>
- ----------
* Indicates a Trustee/Officer who is an 'interested person' of each Fund as
defined in the 1940 Act.
30
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Eugene P. Grace (45) Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April 1994; life
insurance agent, New York Life Insurance
Company from 1993-1994; General Counsel
and Secretary, Home Unity Savings Bank
from 1991-1992; Vice President and Chief
Compliance Officer of Counsellors
Securities; Vice President and Secretary
of other investment companies advised by
Warburg.
Howard Conroy (43) Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992; Associated with
New York, New York 10017-3147 Martin Geller, C.P.A. from 1990-1992; Vice President,
Finance with Gabelli/Rosenthal &
Partners, L.P. until 1990; Vice
President, Treasurer and Chief
Accounting Officer of other investment
companies advised by Warburg.
Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995; Associated with
New York, New York 10017-3147 BlackRock Financial Management, Inc. from September
1994 to October 1995; Associated with
BEA Associates from April 1993 to
September 1994; Associated with Ernst &
Young LLP from 1990 to 1993; Treasurer
and Chief Accounting Officer of other
investment companies advised by Warburg.
Janna Manes, Esq. (29) Assistant Secretary
466 Lexington Avenue Assistant Vice President of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1996; Associated with the law firm of
Willkie Farr & Gallagher from 1993-1996;
Assistant Secretary of other investment
companies advised by Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Funds' co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Funds
for acting as an officer or director/trustee of a Fund. Each Director/Trustee
who is not a director, trustee, officer or employee of Warburg, PFPC or any of
their affiliates receives the following annual and per-meeting fees:
31
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------- ------------------- ----------------------------------
FUND ANNUAL FEE FEE FOR EACH MEETING ATTENDED
- -------------------------------- ------------------- ----------------------------------
<S> <C> <C>
Capital Appreciation Fund $1,000 $250
- -------------------------------- ------------------- ----------------------------------
Emerging Growth Fund $1,000 $250
- -------------------------------- ------------------- ----------------------------------
Small Company Value Fund $500 $250
- -------------------------------- ------------------- ----------------------------------
</TABLE>
Each Director/Trustee is reimbursed for expenses incurred in
connection with his attendance at Board meetings.
Directors/Trustees' Total Compensation
(for the fiscal year ended October 31, 1996)
<TABLE>
<CAPTION>
- --------------------- ------------------ ----------------- ------------------ ------------------
ALL INVESTMENT
COMPANIES
NAME OF CAPITAL SMALL COMPANY MANAGED BY
DIRECTOR/TRUSTEE APPRECIATION EMERGING GROWTH VALUE FUND WARBURG*
- --------------------- ------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>>
John L. Furth** None None None None
- --------------------- ------------------ ----------------- ------------------ ------------------
Arnold M. Reichman** None None None None
- --------------------- ------------------ ----------------- ------------------ ------------------
Richard N. Cooper $2,000 $2,000 $1,500 $42,916
- --------------------- ------------------ ----------------- ------------------ ------------------
Donald J. Donahue $2,000 $2,000 $1,500 $42,916
- --------------------- ------------------ ----------------- ------------------ ------------------
Jack W. Fritz $2,000 $2,000 $1,500 $42,916
- --------------------- ------------------ ----------------- ------------------ ------------------
Thomas A. Melfe $2,000 $2,000 $1,500 $42,916
- --------------------- ------------------ ----------------- ------------------ ------------------
Alexander B. $2,000 $2,000 $1,500 $42,916
Trowbridge
- --------------------- ------------------ ----------------- ------------------ ------------------
</TABLE>
* Each Director/Trustee serves as a Director or Trustee of 20 other
investment companies advised by Warburg.
** Mr. Furth and Mr. Reichman are considered to be interested persons of the
Fund and Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receive no compensation from any Fund or any other investment
company managed by Warburg.
As of February 2, 1997, the Trustees/Directors and officers of
each Fund as a group owned less than 1% of the outstanding shares of each Fund.
32
<PAGE>
<PAGE>
Portfolio Managers
Capital Appreciation Fund. Mr. George U. Wyper is co-president
and co-portfolio manager of the Capital Appreciation 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 Warburg in August 1994 as a managing director of Warburg. 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, co-president and co-portfolio manager of the
Capital Appreciation Fund, is also co-portfolio manager of Warburg Pincus Health
Sciences Fund. Ms. Black is a managing director of Warburg 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 Warburg in 1985. Ms.
Black received a B.A. degree from Mount Holyoke College.
Emerging Growth Fund. Ms. Elizabeth B. Dater, co-president and
co-portfolio manager of the Emerging Growth Fund, is also co-portfolio manager
of Warburg Pincus Post-Venture Capital Fund and the Small Company Growth
Portfolio of Warburg Pincus Trust. Ms. Dater has been with the Fund since its
inception and she manages an institutional post-venture capital fund. Ms. Dater
is the former director of research for Warburg's investment management
activities. Prior to joining Warburg in 1978, she was a vice president of
research at Fiduciary Trust Company of New York and an institutional sales
assistant at Lehman Brothers. Ms. Dater has been a regular panelist on Maryland
Public Television's Wall Street Week with Louis Rukeyser since 1976. Ms. Dater
earned a B.A. degree from Boston University in Massachusetts.
Mr. Stephen J. Lurito, co-president and co-portfolio manager of
the Emerging Growth Fund, is also co-portfolio manager of Warburg Pincus
Post-Venture Capital Fund, Warburg Pincus Small Company Growth Fund and the
Small Company Growth Portfolio of Warburg Pincus Trust. Mr. Lurito, also the
research coordinator and a portfolio manager for
33
<PAGE>
<PAGE>
micro-cap equity and post-venture products, has been with Warburg since 1987 and
has been with the Fund since 1990. Prior to that he was a research analyst at
Sanford C. Bernstein & Company, Inc. Mr. Lurito earned a B.A. degree from the
University of Virginia and an M.B.A. from The Wharton School, University
of Pennsylvania.
Ms. Medha Vora, co-portfolio manager of the Emerging Growth Fund,
is also a co-portfolio manager for mid-cap growth separate accounts advised by
Warburg. Ms. Vora, a senior vice president at Warburg, joined Warburg in January
1997. Prior to joining Warburg, Ms. Vora was a vice president at Chase Asset
Management from April 1996 to December 1996 and a senior vice president at the
Trust Company of the West from 1993 to 1996. She was a senior analyst at the
Prudential Special Situations Fund, L.P. from 1991 to 1993 and an assistant vice
president at the First National Bank of Chicago from 1985 to 1991. Ms. Vora
received her M.B.A. degree from the University of Madison in Wisconsin and her
B.S. from the University of Bombay in India.
Small Company Value Fund. Mr. George U. Wyper (described above)
is also co-portfolio manager of the Small Company Value Fund.
Mr. Kyle F. Frey is associate portfolio manager and research
analyst of the Small Company Value Fund. Mr. Frey, a senior vice president of
Warburg, is also a research analyst and assistant portfolio manager for
small-cap growth equity and distribution management products. Prior to joining
Warburg in 1989, Mr. Frey was with Goldman, Sachs & Co. in the institutional
sales division. Mr. Frey earned a B.S. degree from the University of New
Hampshire and an M.B.A. from New York University.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, Counsellors
Funds Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators
to the Fund pursuant to separate written agreements (the "Advisory Agreement,"
the "Counsellors Service Co-Administration Agreement" and the "PFPC
Co-Administration Agreement," respectively). The services provided by, and the
fees payable by the Fund to, Warburg under the Advisory Agreement, Counsellors
Service under the Counsellors Service Co-Administration Agreement and PFPC under
the PFPC Co-Administration Agreement are described in the Prospectuses. See the
Prospectuses, "Management of the Fund." Each class of shares of the Fund bears
its proportionate share of fees payable to Warburg, Counsellors Service and PFPC
in the proportion that its assets bear to the aggregate assets of the Fund at
the time of calculation.
34
<PAGE>
<PAGE>
For the fiscal years ended October 31, 1994, October 31, 1995 and
October 31, 1996 during which a Fund had investment operations, investment
advisory fees earned by Warburg, waivers and net advisory fees for each Fund
were as follows:
<TABLE>
<CAPTION>
- --------------------------- ------- ------------------ ----------------- ------------------
GROSS NET
FUND YEAR ADVISORY FEE WAIVER ADVISORY FEE
- --------------------------- ------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Capital Appreciation 1994 $1,172,857 $11,179 $1,161,678
- --------------------------- ------- ------------------ ----------------- ------------------
1995 $1,367,729 0 $1,367,729
- --------------------------- ------- ------------------ ----------------- ------------------
1996 $2,323,788 0 $2,323,788
- --------------------------- ------- ------------------ ----------------- ------------------
- --------------------------- ------- ------------------ ----------------- ------------------
Emerging Growth 1994 $2,234,376 $100,408 $2,133,968
- --------------------------- ------- ------------------ ----------------- ------------------
1995 $3,824,061 0 $3,824,061
- --------------------------- ------- ------------------ ----------------- ------------------
1996 $9,738,214 0 $9,738,214
- --------------------------- ------- ------------------ ----------------- ------------------
- --------------------------- ------- ------------------ ----------------- ------------------
Small Company Value 1996 $280,663 $115,171 $165,492
(commenced operations
12/29/95)
- --------------------------- ------- ------------------ ----------------- ------------------
</TABLE>
During the fiscal years ended October 31, 1994, October 31, 1995
and October 31, 1996 during which a Fund had investment operations, PFPC and
Counsellors Service earned the following amounts in co-administration fees.
<TABLE>
<CAPTION>
- --------------------------- --------------- ----------------------- ------------------------
FUND YEAR PFPC COUNSELLORS SERVICE
- --------------------------- --------------- ----------------------- ------------------------
<S> <C> <C> <C>
Capital Appreciation 1994 $167,551 $133,255
- --------------------------- --------------- ----------------------- ------------------------
1995 $195,390 $195,390
- --------------------------- --------------- ----------------------- ------------------------
1996 $332,684 $332, 684
- --------------------------- --------------- ----------------------- ------------------------
- --------------------------- --------------- ----------------------- ------------------------
Emerging Growth 1994 $248,264 $202,895
- --------------------------- --------------- ----------------------- ------------------------
1995 $424,895 $424,895
- --------------------------- --------------- ----------------------- ------------------------
1996 $1,043,313 $1,082,024
- --------------------------- --------------- ----------------------- ------------------------
- --------------------------- --------------- ----------------------- ------------------------
Small Company Value 1996 $237 (Fully waived) $28,066
(commenced operations
12/29/95)
- --------------------------- --------------- ----------------------- ------------------------
</TABLE>
35
<PAGE>
<PAGE>
Custodians and Transfer Agent
PNC Bank, National Association ("PNC") is custodian of the assets
of the Capital Appreciation Fund and the Emerging Growth Fund and is custodian
of the U.S. assets of the Small Company Value Fund pursuant to a custodian
agreement (the "Custodian Agreement") with each Fund. Fiduciary Trust Company
International ("Fiduciary") serves as custodian of the Small Company Value
Fund's foreign assets. Under the Custodian Agreements, PNC and Fiduciary each
(i) maintains a separate account or accounts in the name of the Fund, (ii) holds
and transfers portfolio securities on account of the Fund, (iii) makes receipts
and disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions 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 and securities depositories to serve as sub-custodian on behalf of the
Fund. With the approval of the Board, Fiduciary is authorized to select one or
more foreign banking institutions and foreign securities depositories to serve
as sub-custodian on behalf of the Small Company Value Fund. PNC is an indirect,
wholly owned subsidiary of PNC Bank Corp. and its principal business address is
1600 Market Street, Philadelphia, Pennsylvania 19103. The principal
business address of Fiduciary is Two World Trade Center, New York, New York
10048.
State Street serves as the shareholder servicing, transfer and
dividend disbursing agent of each Fund pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of the Fund,
(ii) addresses and mails all communications by the Fund to record owners of Fund
shares, including reports to shareholders, dividend and distribution notices and
proxy material for its meetings of shareholders, (iii) maintains shareholder
accounts and, if requested, sub-accounts and (iv) makes periodic reports to the
Board concerning the transfer agent's operations with respect to the Fund. 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, North Quincy, Massachusetts 02171.
Organization of the Fund
Capital Appreciation Fund. The Fund's Agreement and Declaration
of Trust (the "Trust Agreement") authorizes the Board to issue an unlimited
number of full and fractional shares of common stock, $.001 par value per share,
of which an unlimited number are designated "Common Shares" and an unlimited
number are designated "Advisor Shares."
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Capital
Appreciation Fund. However, the Trust Agreement disclaims shareholder liability
for acts or obligations of the Fund and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
36
<PAGE>
<PAGE>
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations, a
possibility that Warburg believes is remote and immaterial. Upon payment of any
liability incurred by the Fund, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Fund. The Trustees
intend to conduct the operations of the Fund in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities of the
Fund.
Emerging Growth Fund and Small Company Value Fund. Each Fund's
charter authorizes the Board to issue three billion full and fractional shares
of common stock, $.001 par value per share, of which one billion shares are
designated "Common Shares" and two billion shares are designated "Advisor
Shares."
All Funds. All shareholders of the Fund in each class, upon
liquidation, will participate ratably in the Fund's net assets. Shares do not
have cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Directors/Trustees can elect all
Directors/Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights.
Distribution and Shareholder Servicing
Small Company Value Fund, Common Shares. The Small Company Fund
has entered into a Shareholder Servicing and Distribution Plan (the "12b-1
Plan"), pursuant to Rule 12b-1 under the 1940 Act, pursuant to which the Fund
will pay Counsellors Securities, in consideration for Services (as defined
below), a fee calculated at an annual rate of .25% of the average daily net
assets of the Common Shares of the Fund. Services performed by Counsellors
Securities include (i) the sale of the Common Shares, as set forth in the 12b-1
Plan ("Selling Services"), (ii) ongoing servicing and/or maintenance of the
accounts of Common Shareholders of the Fund, as set forth in the 12b-1 Plan
("Shareholder Services"), and (iii) sub-transfer agency services, subaccounting
services or administrative services related to the sale of the Common Shares, as
set forth in the 12b-1 Plan ("Administrative Services" and collectively with
Selling Services and Administrative Services, "Services") including, without
limitation, (a) payments reflecting an allocation of overhead and other office
expenses of Counsellors Securities related to providing Services; (b) payments
made to, and reimbursement of expenses of, persons who provide support services
in connection with the distribution of the Common Shares including, but not
limited to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, and providing any other Shareholder Services; (c)
payments made to compensate selected dealers or other authorized persons for
providing any Services; (d) costs relating to the formulation and implementation
of marketing and promotional activities for the Common Shares, including, but
not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, and related travel and entertainment
expenses; (e) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective shareholders of
the Fund; and (f) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities that the Fund may,
from time to time, deem advisable.
37
<PAGE>
<PAGE>
Pursuant to the 12b-1 Plan, Counsellors Securities provides the
Board with periodic reports of amounts expended under the 12b-1 Plan and the
purpose for which the expenditures were made. For the period from December 29,
1995 (commencement of operations) to October 31, 1996, the Small Company Value
Common Shares paid $70,162 pursuant to the 12b-1 Plan, all of which was spent on
advertising and marketing communications.
All Funds, Advisor Shares. The Capital Appreciation and Emerging
Growth Funds have, and the Small Company Value Fund may, enter into agreements
("Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and financial
intermediaries ("Institutions") to provide certain distribution, shareholder
servicing, administrative and/or accounting services for their customers (or
participants in the case of retirement plans) ("Customers") who are beneficial
owners of Advisor Shares. See the Advisor Prospectuses, "Shareholder Servicing."
Agreements will be governed by a distribution plan (the "Distribution Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Distribution Plan requires the
Board, at least quarterly, to receive and review written reports of amounts
expended under the Distribution Plan and the purposes for which such
expenditures were made. The Funds' Advisor Shares paid Institutions the
following fees for the years ending October 31, 1995 and October 31, 1996, all
of which was paid to Institutions:
<TABLE>
<CAPTION>
- -------------------------------------- ------------------- -----------------
FUND* YEAR PAYMENT
- -------------------------------------- ------------------- -----------------
<S> <C> <C>
Capital Appreciation 1995 $45,989
- -------------------------------------- ------------------- -----------------
1996 $98,516
- -------------------------------------- ------------------- -----------------
- -------------------------------------- ------------------- -----------------
Emerging Growth 1995 $531,359
- -------------------------------------- ------------------- -----------------
1996 $1,373,043
- -------------------------------------- ------------------- -----------------
</TABLE>
* The Small Company Value Fund Advisor shares made no payments to
Institutions for the period ending October 31, 1996.
An Institution with which a Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under each
Fund's co-administration and distribution and shareholder servicing
arrangements. A Customer of an Institution should read the relevant Prospectus
and this Statement of Additional Information in conjunction with the Agreement
and other literature
38
<PAGE>
<PAGE>
describing the services and related fees that would be provided by the
Institution to its Customers prior to any purchase of Fund shares. Prospectuses
are available from each Fund's distributor upon request. No preference will be
shown in the selection of Fund portfolio investments for the instruments of
Institutions.
General. The Distribution Plans and the 12b-1 Plans will continue
in effect for so long as its continuance is specifically approved at least
annually by each Fund's Board, including a majority of the Directors/Trustees
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Distribution Plans ("Independent
Directors/Trustees"). Any material amendment of the Distribution Plans or the
12b-1 Plans would require the approval of the Board in the manner described
above. The Distribution Plans or the 12b-1 Plans may not be amended to increase
materially the amount to be spent under it without shareholder approval of the
Advisor Shares or the Common Shares, as the case may be. The Distribution Plans
or the 12b-1 Plans may be terminated at any time, without penalty, by vote of a
majority of the Independent Directors/Trustees or by a vote of a majority of the
outstanding voting securities of the Advisor Shares or the Common Shares of a
Fund, as the case may be.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each Fund's shares is equal to the per
share net asset value of the relevant class of shares of the Fund. Information
on how to purchase and redeem Fund shares and how such shares are priced is
included in the Prospectuses under "Net Asset Value."
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (A Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)
If the Board determines that conditions exist which make payment
of redemption proceeds wholly in cash unwise or undesirable, a Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds. Each Fund will comply with Rule 18f-1 promulgated under the 1940 Act
with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the relevant Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that
39
<PAGE>
<PAGE>
withdrawals exceed dividends, distributions and appreciation of a shareholder's
investment in a Fund, there will be a reduction in the value of the
shareholder's investment and continued withdrawal payments may reduce the
shareholder's investment and ultimately exhaust it. Withdrawal payments should
not be considered as income from investment in a Fund. All dividends and
distributions on shares in the Plan are automatically reinvested at net asset
value in additional shares of the relevant Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg
is available to investors in each Fund. The funds into which exchanges of Common
Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares in
a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any exchange,
the investor should obtain and review a copy of the current prospectus of the
relevant class of each fund into which an exchange is being considered.
Shareholders may obtain a prospectus of the relevant class of the fund into
which they are contemplating an exchange from Counsellors Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same day,
at a price as described above, in shares of the relevant class of the fund being
acquired. Warburg reserves the right to reject more than three exchange requests
by a shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting each 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.
Each Fund 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, a 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, a Fund must, among other things:
(i) distribute to its shareholders the sum of at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment income
and net realized short-term capital gains) plus at least 90% of its net tax
exempt interest income; (ii) derive at
40
<PAGE>
<PAGE>
least 90% of its gross income from dividends, interest, payments with respect to
loans of securities, gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures, and forward contracts) derived with respect to the Fund's
business of investing in such securities or currencies; (iii) derive less than
30% of its annual gross income from the sale or other disposition of securities,
options, futures, forward contracts or certain other assets held for less than
three months; and (iv) diversify its holdings so that, at the end of each fiscal
quarter of the Fund (a) at least 50% of the market value of the 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, a 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, each 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 each Fund's taxable ordinary income for the calendar year and at least 98% of
the excess of its capital gains over capital losses realized during the one-year
period ending October 31 during such year, together with any undistributed,
untaxed amounts of ordinary income and capital gains from the previous calendar
year. Each Fund expects to pay the dividends and make the distributions
necessary to avoid the application of this excise tax.
Each Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options, futures contracts
and forward contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses recognized by the Fund (i.e., may affect whether gains or
losses are ordinary or capital), accelerate recognition of income to the Fund,
defer Fund losses and cause the Fund to be subject to hyperinflationary currency
rules. These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (i) will require each 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. Each Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and records
when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment 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.
41
<PAGE>
<PAGE>
A shareholder of a 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 a Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of a Fund's taxable year
regarding the federal income tax status of certain dividends and distributions
that were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he has provided a correct taxpayer identification number
and that he is not subject to "backup withholding," the shareholder may be
subject to a 31% "backup withholding" tax with respect to (i) taxable dividends
and distributions and (ii) the proceeds of any sales or repurchases of shares of
a 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 a 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
42
<PAGE>
<PAGE>
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.
A 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 a 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 a 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 a Fund is unclear. If a 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 the 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 a Fund.
DETERMINATION OF PERFORMANCE
From time to time, a Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. With respect to the Funds' Common and Advisor
Shares, the Funds' average annual total returns for the indicated periods ended
October 31, 1996 were as follows:
COMMON SHARES
<TABLE>
<CAPTION>
- ------------------------- --------------- ------------------- --------------------------------
FROM COMMENCEMENT OF OPERATIONS
FUND ONE-YEAR FIVE-YEAR (COMMENCEMENT DATE)
- ------------------------- --------------- ------------------- --------------------------------
<S> <C> <C> <C>
Capital Appreciation 24.67% 16.22% 12.28%
(8/17/87)
- ------------------------- --------------- ------------------- --------------------------------
Emerging Growth 16.14% 17.76% 17.55%
(1/21/88)
- ------------------------- --------------- ------------------- --------------------------------
Small Company Value N/A N/A 43.80%+
(12/29/95)
- ------------------------- --------------- ------------------- --------------------------------
</TABLE>
+ Non-annualized. Absent waiver of fees by Warburg, the average annualized
total return for the Small Company Value Fund for the period would be
53.55%.
43
<PAGE>
<PAGE>
ADVISOR SHARES
<TABLE>
<CAPTION>
- ------------------------------ ----------------- ------------------ --------------------------
FROM COMMENCEMENT OF
OPERATIONS
FUND ONE-YEAR FIVE-YEAR (COMMENCEMENT DATE)
- ------------------------------ ----------------- ------------------ --------------------------
<S> <C> <C> <C>
Capital Appreciation 24.15% 15.69% 14.25%
(4/4/91)
- ------------------------------ ----------------- ------------------ --------------------------
Emerging Growth 15.69% 17.18% 17.61
(4/4/91)
- ------------------------------ ----------------- ------------------ --------------------------
Small Company Value N/A N/A 44.60%+
(12/29/95)
- ------------------------------ ----------------- ------------------ --------------------------
</TABLE>
+ Non-annualized. Absent waiver of fees by Warburg, the average annualized
total return for the Small Company Value Fund for the period would be
54.05%.
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)'pp'n = ERV. For purposes of this formula, "P" is a
hypothetical investment of $1,000; "T" is average annual total return; "n" is
number of years; and "ERV" is the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the one-, five- or ten-year periods (or
fractional portion thereof). Total return or "T" is computed by finding the
average annual change in the value of an initial $1,000 investment over the
period and assumes that all dividends and distributions are reinvested during
the period.
A Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. A Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be. Investors should note that this performance may not be representative of
the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time to
time depending upon market conditions, the composition of a Fund's portfolio and
operating expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Fund's performance will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in a Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
44
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for each Fund. The financial statements that are
incorporated by reference into this Statement of Additional Information have
been audited by Coopers & Lybrand, and have been incorporated by reference
herein in reliance upon the report of such firm of independent accountants given
upon their authority as experts in accounting and auditing.
The financial statement for each of the Capital Appreciation Fund
and the Emerging Growth Fund for the fiscal year ended October 31, 1992 have
been audited by Ernst & Young LLP ("Ernst & Young"), independent accountants, as
set forth in their report and have been incorporated by reference herein 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 each Fund as well
as counsel to Warburg and Counsellors Securities.
MISCELLANEOUS
As of February 2, 1997, the name, address and percentage of
ownership of each person that owns of record 5% or more of each Fund's
outstanding shares were as follows:
CAPITAL APPRECIATION
<TABLE>
<S> <C> <C>
COMMON SHARES Northern Trust Company 7.53%
FBO Mattel Corp.
PO Box 92956
Chicago, Illinois 60675-2956
Charles Schwab & Co., Inc. 7.02%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, California 94104-4122
ADVISOR SHARES Connecticut General Life Ins. Co. 99.95%
On behalf of its separate account
55E c/o Melissa Spencer M110
CIGNA Corp. PO Box 2975
Hartford, Connecticut 06104-2975
</TABLE>
The Capital Appreciation Fund believes these entities are not
the beneficial owners of shares held of record by them. Mr. Lionel I. Pincus,
Chairman of the Board and Chief Executive Officer of Warburg, may be deemed to
have beneficially owned 44.75% of the Common Shares outstanding, including
shares owned by clients for which Warburg has investment discretion and by
companies that Warburg may be deemed to control. Mr. Pincus disclaims ownership
of these shares and does not intend to exercise voting rights with respect to
these shares.
45
<PAGE>
<PAGE>
EMERGING GROWTH
<TABLE>
<S> <C> <C>
COMMON SHARES Charles Schwab & Co., Inc. 21.09%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, California 94104-4122
Nationwide Life Insurance Company 8.43%
Nationwide QPVA
c/o IPO Portfolio Accounting
PO Box 182029
Columbus, Ohio 43218-2029
National Financial Services Corp. 6.78%
FBO Customers
PO Box 3908
Church Street Station
New York, New York 10008-3908
First Trust NA TR 6.31%
United Healthcare Corp. 401K
Savings TR UAD 6-9-93
Attn: Mutual Funds #21740224
PO Box 64010
St. Paul, Minnesota 55164-0010
ADVISOR SHARES Connecticut General Life Ins. Co. 99.49%
On behalf of its separate accounts
55E c/o Melissa Spencer M110
CIGNA Corp. PO Box 2975
Hartford, Connecticut 06104-2975
</TABLE>
The Emerging Growth Fund believes these entities are not the
beneficial owners of shares held of record by them. Mr. Lionel I. Pincus,
Chairman of the Board and Chief Exeuctive Officer of Warburg, may be deemed
to have beneficially owned 11.45% of the Common Shares outstanding, including
shares owned by clients for which Warburg has investment discretion and by
companies that Warburg may be deemed to control. Mr. Pincus disclaims
ownership of these shares and does not intend to exercise voting rights with
respect to these shares.
46
<PAGE>
<PAGE>
SMALL COMPANY VALUE FUND
<TABLE>
<S> <C> <C>
COMMON SHARES Charles Schwab & Co., Inc. 24.00%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, California 9410404122
National Financial Services Corp. 12.29%
FBO Customers
PO Box 3908
Church Street Station
New York, New York 10008-3908
ADVISOR SHARES FTC Co. Datalynx #275 63.06%
PO Box 173763
Denver, Colorado 80217-3763
Donaldson Lufkin & Jenrette Sec's 24.30%
PO Box 2052
Jersey City, New Jersey 07303-2052
US Clearing Corp. 8.05%
FBO 780-91864-19
26 Broadway
New York, New York 10004-1798
</TABLE>
The Small Company Value Fund believes these entities are not
the beneficial owners of shares held of record by them. Mr. Lionel I. Pincus,
Chairman of the Board and Chief Executive Officer of Warburg, may be deemed to
have beneficially owned 29.33% of the Common Shares outstanding, including
shares owned by clients for which Warburg has investment discretion and by
companies that Warburg may be deemed to control. Mr. Pincus disclaims ownership
of these shares and does not intend to exercise voting rights with respect to
these shares.
FINANCIAL STATEMENTS
Each Fund's audited annual report dated October 31, 1996, which
either accompanies this Statement of Additional Information or has previously
been provided to the investor to whom this Statement of Additional Information
is being sent, is incorporated herein by reference. Each Fund will furnish
without charge a copy of its annual report upon request by calling Warburg
Pincus Funds at (800) 927-2874.
47
<PAGE>
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
<PAGE>
<PAGE>
BB, B and CCC - Debt rated BB and B is regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which
no interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2
<PAGE>
<PAGE>
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
the bonds rated "Aa" through "B." The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C comprise the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
3
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in Part A:
(a) Financial Highlights
(2) Audited Financial Statements included in Part B:
(incorporated by reference to the Fund's Annual
Report dated October 31, 1996.)
(a) Report of Coopers & Lybrand L.L.P.,
Independent Accountants
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 (a) Agreement and Declaration of Trust.(2)
(b) Amendments to Declaration of Trust.(1)
(c) Amendment to Declaration of Trust.
2 Second Amended and Restated By-Laws.(2)
3 Not applicable.
4 Forms of Certificates of Beneficial Interest.(3)
5 Form of Investment Advisory Agreement.(3)
- -------------------
(1) Incorporated by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A, filed with the Securities
and Exchange Commission on December 24, 1996.
(2) Incorporated by reference to Post-Effective Amendment No. 15 to the
Registrant's Registration Statement, dated September 22, 1995.
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Warburg, Pincus Trust filed on June 14, 1995 (Securities Act File No.
33-58125).
<PAGE>
<PAGE>
6 Form of Distribution Agreement.
7 Not applicable.
8(a) Form of Custodian Agreement with Provident National Bank.(4)
(b) Custodian Agreement with The Chase Manhattan Bank, N.A.(1)
9(a) Form of Transfer Agency Agreement.(3)
(b-1) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc.(3)
(b-2) Form of Co-Administration Agreement with PFPC Inc.(3)
(c) Form of Services Agreement.
10(a) Consent of Willkie Farr & Gallagher, counsel to the Fund.
(b) Opinion of Willkie Farr & Gallagher, counsel to the Fund.(4)
11(a) Consent of Coopers & Lybrand L.L.P., Independent Accountants.
(b) Consent of Ernst & Young LLP, Independent Accountants.(1)
12 Not applicable.
13 Form of Purchase Agreement.(2)
14 Retirement Plans.(5)
15(a) Shareholder Services Plan.
(b) Distribution Plan.
(c) Form of Distribution Agreement between Counsellors Securities
Inc. and CIGNA Securities Inc.(4)
- -------------------
(4) Incorporated by reference to Opinion of Willkie Farr & Gallagher filed with
Registrant's Rule 24f-2 Notice which was filed on December 27, 1996.
(5) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Warburg, Pincus Managed Bond Trust,
filed on February 28, 1995 (Securities Act File No. 33-73672).
<PAGE>
<PAGE>
(d) Form of Selected Dealer Agreement between Counsellors
Securities Inc. and CIGNA Securities Inc.(4)
16 Schedule for Computation of Total Return Performance Quotation.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
18 Rule 18f-3 Plan.
Item 25. Persons Controlled by or Under Common Control
with Registrant
From time to time, Counsellors may be deemed to control the Fund
and other registered investment companies it advises through its beneficial
ownership of more than 25% of the relevant fund's shares on behalf of
discretionary advisory clients. Counsellors has four wholly-owned subsidiaries:
Counsellors Securities Inc., a New York Corporation; Counsellors Funds Service
Inc., a New York corporation; Counsellors Agency Inc., a New York corporation;
and Warburg, Pincus Investments International (Bermuda), Ltd., a Bermuda
corporation.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of December 31, 1996
-------------- -----------------------
Shares of beneficial interest, par value
$.001 per share -- Common Shares 4,962
Shares of beneficial interest, par value
$.001 share - Advisor Shares
9
Item 27. Indemnification
Registrant, officers and directors or trustees of Warburg, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
incorporated by reference to Item 27 of Part C of Post-Effective Amendment No.
16 to Registrant's Registration Statement on Form N-1A, filed on October 30,
1995.
<PAGE>
<PAGE>
Item 28. Business and Other Connections of
Investment Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus Counsellors
G.P., acts as investment adviser to Registrant. Warburg renders investment
advice to a wide variety of individual and institutional clients. The list
required by this Item 28 of officers and directors of Warburg, together with
information as to their other business, profession, vocation or employment of a
substantial nature during the past two years, is incorporated by reference to
Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for The RBB Fund, Inc.,
Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation Fund; Warburg
Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus
Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Global
Fixed Income Fund; Warburg Pincus Global Post-Venture Capital Fund; Warburg
Pincus Growth & Income Fund; Warburg Pincus Health Sciences Fund; Warburg Pincus
Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity Government Fund;
Warburg Pincus International Equity Fund; Warburg Pincus Japan Growth Fund;
Warburg Pincus Japan OTC Fund; Warburg Pincus New York Intermediate Municipal
Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus Post-Venture
Capital Fund; Warburg, Pincus Small Company Growth Fund; Warburg Pincus Small
Company Value Fund; Warburg Pincus Strategic Value Fund; Warburg Pincus Tax Free
Fund; Warburg Pincus Trust; and Warburg Pincus Trust II.
(b) For information relating to each director, officer or partner of
Counsellors Securities, reference is made to Form BD (SEC File No. 8-32482)
filed by Counsellors Securities under the Securities Exchange Act of 1934, as
amended.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Capital Appreciation Fund
466 Lexington Avenue
New York, New York 10017 - 3147
(Fund's Agreement and Declaration of Trust,
by-laws and minute books)
(2) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent and
dividend disbursing agent)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
<PAGE>
<PAGE>
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
(5) PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
(6) The Chase Manhattan Bank, N.A.
Chase Metrotech Center
Brooklyn, New York 11245
(records relating to its functions as custodian)
(7) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(8) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
(9) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent and
dividend disbursing agent)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
(b) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees of Registrant when requested in writing to do so by the holders of
at least 10% of Registrant's outstanding shares. Registrant undertakes further,
in connection with the meeting, to comply with the provisions of Section 16(c)
of the 1940 Act, relating to communications with the shareholders of certain
common-law trusts.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and the State of New York, on the 20th day of February, 1997.
WARBURG, PINCUS CAPITAL
APPRECIATION FUND
By: /s/ George U. Wyper
________________________________
George U. Wyper
Co-President
By: /s/ Susan L. Black
________________________________
Susan L. Black
Co-President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John L. Furth Chairman of the February 20, 1997
- ----------------------------
John L. Furth Board and Trustee
/s/ Howard Conroy Vice President and February 20, 1997
- ----------------------------
Howard Conroy Chief Financial Officer
/s/ Daniel S. Madden Treasurer and Chief February 20, 1997
- ----------------------------
Daniel S. Madden Accounting Officer
/s/ Richard N. Cooper Trustee February 20, 1997
- ----------------------------
Richard N. Cooper
/s/ Donald J. Donahue Trustee February 20, 1997
- ----------------------------
Donald J. Donahue
/s/ Jack W. Fritz Trustee February 20, 1997
- ----------------------------
Jack W. Fritz
/s/ Thomas A. Melfe Trustee February 20, 1997
- ----------------------------
Thomas A. Melfe
/s/ George W. Wyper Co-President February 20, 1997
- ----------------------------
George W. Wyper
</TABLE>
C-1
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Susan L. Black Co-President February 20, 1997
- ----------------------------
Susan L. Black
/s/ Alexander B. Trowbridge Trustee February 20, 1997
- ----------------------------
Alexander B. Trowbridge
/s/ Arnold M. Reichman Trustee February 20, 1997
- ----------------------------
Arnold M. Reichman
</TABLE>
C-2
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- -----------------------
1(c) Amendments to Declaration of Trust.
6 Form of Distribution Agreement.
9(c) Form of Services Agreement.
10(a) Consent of Willkie Farr & Gallagher, counsel to the Fund.
11(a) Consent of Coopers & Lybrand L.L.P., Independent Accountants.
15(a) Form of Distribution Plan.
16 Schedule for Computation of Total Return Performance Quotation.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
18 Rule 18f-3 Plan.
STATEMENT OF DIFFERENCES
Characters normally expressed as superscript shall be preceded by ... 'pp'
The trademark symbol shall be expressed as .......................... 'tm'
The dagger symbol shall be expressed as ............................. 'D'
<PAGE>
<PAGE>
WARBURG, PINCUS CAPITAL APPRECIATION FUND
Certificate of Amendment
The undersigned, being the Vice President and Secretary of Warburg,
Pincus Capital Appreciation Fund (hereinafter referred to as the "Trust"), a
trust with transferable shares of the type commonly called a Massachusetts
business trust, DOES HEREBY CERTIFY that, pursuant to the authority conferred
upon the Trustees of the Trust by Section 9.3 of the Agreement and Declaration
of Trust, dated December 23, 1986, as amended to date (hereinafter, as so
amended, referred to as the "Declaration of Trust"), and by the affirmative vote
of a Majority of the Trustees at a meeting duly called and held on January 15,
1997, the Declaration of Trust is amended as follows:
1. Section 1.4 of the Declaration of Trust is hereby amended by
adding thereto the following new definitions:
"`Additional Portfolio' shall have the meaning designated in
Section 6.1(c) hereof."
"`Additional Series' shall have the meaning designated in Section
6.1(c) hereof."
"`Advisor Class' shall have the meaning designated in Section
6.1(a) hereof."
"`Advisor Series' shall have the meaning designated in Section
6.1(a) hereof."
"`Class' or `Classes' shall mean, with respect to any Series, any
unissued Shares of such Series in respect of which the Trustees shall
from time to time fix and determine any special provisions relating to
sales charges, any rights of redemption and the price, terms and manner
of redemption, special and relative rights as to dividends and other
distributions and on liquidation, sinking or purchase fund provisions,
conversion rights, and conditions under which the Shareholders of such
Class shall have separate voting rights or no voting rights."
"`Common Class' shall have the meaning designated in Section
6.1(a) hereof."
"`Common Shares' shall have the meaning designated in Section
6.1(a) hereof."
"`Existing Classes' shall have the meaning designated in Section
6.1(a) hereof."
"`Existing Portfolio' shall have the meaning designated in
Section 6.1(a) hereof."
"`Existing Series' shall have the meaning designated in Section
6.1(a) hereof."
"`1990 Certificate of Designation' shall have the meaning
designated in Section 6.1(a) hereof."
<PAGE>
<PAGE>
-2-
"`Reference Date' shall have the meaning designated in Section
6.1(a) hereof."
"`Series 1 Shares' shall have the meaning designated in Section
6.1(a) hereof."
"`Series 2 Shares' shall have the meaning designated in Section
6.1(a) hereof."
2. Section 1.4 of the Declaration of Trust is hereby amended by amending
and restating the definitions of "Certificate of Designation", "Certificate of
Termination", "Majority Shareholder Vote" and "Single Class Voting" to read in
their entirety as follows:
"`Certificate of Designation' shall have the meaning designated
in Section 6.1(b) hereof."
"`Certificate of Termination' shall have the meaning designated
in Section 6.1(b) hereof."
"`Majority Shareholder Vote,' as used with respect to the
election of any Trustee at a meeting of Shareholders, shall mean the
vote for the election of such Trustee of a plurality of all outstanding
Shares of the Trust, without regard to Series or Class, represented in
person or by proxy and entitled to vote thereon, provided that a quorum
(determined as provided in Section 7.5 hereof) is present, and as used
with respect to any other action required or permitted to be taken by
Shareholders, shall mean the vote for such action of the holders of that
majority of all outstanding Shares (or, where a separate vote of Shares
of any particular Series or Class is to be taken, the affirmative vote
of that majority of the outstanding Shares of that Series or Class) of
the Trust which consists of:(i) a majority of all Shares (or of Shares
of the particular Series or Class) represented in person or by proxy and
entitled to vote on such action at the meeting of Shareholders at which
such action is to be taken, provided that a quorum (determined as
provided in Section 7.5 hereof) is present; or (ii) if such action is to
be taken by written consent of Shareholders, a majority of all Shares
(or of Shares of the particular Series or Class) issued and outstanding
and entitled to vote on such action; provided, that (iii) as used with
respect to any action requiring the affirmative vote of `a majority of
the outstanding voting securities', as the quoted phrase is defined in
the 1940 Act, of the Trust or of any Portfolio, `Majority Shareholder
Vote' means the vote for, such action at a meeting of Shareholders of
the smallest majority of all outstanding Shares of the Trust (or of
Shares of the particular Series or Class) entitled to vote on such
action which satisfies such 1940 Act voting requirement."
"`Single Class Voting,' as used with respect to any matter to be
acted upon at a meeting or by written consent of Shareholders, shall
mean a style of voting in which each holder of one or more Shares shall
be entitled to one vote on the matter in question for each Share
standing in his name on the records of the Trust, irrespective of Series
or Class, and all outstanding Shares of all Series or Classes vote as a
single class."
<PAGE>
<PAGE>
-3-
3. Paragraph (k) of Section 4.1 of the Declaration of Trust is
hereby deleted in its entirety.
4. Paragraph (c) of Section 5.2 of the Declaration of Trust is
hereby amended and restated in its entirety to read as follows:
"(c) Distribution. One or more agreements, each with a broker or
dealer in securities, providing for the sale of Shares of any one
or more Series or Classes of Shares to net the Trust not less
than the net asset value per Share (as described in Section
6.2(g) hereof) and pursuant to which the Trust may appoint the
other party to any such agreement as its principal underwriter or
sales agent for the distribution of such Shares. Such agreements
shall contain such terms and conditions as the Trustees may in
their discretion determine to be not inconsistent with this
Declaration, the applicable provisions of the 1940 Act and any
applicable provisions of the By-Laws (any such agent being herein
referred to as a `Principal Underwriter' or a `Distributor,' as
the case may be)."
5. Sections 6.1 and 6.2 of the Declaration of Trust are hereby
amended and restated in their entirety to read as follows:
"SECTION 6.1 Shares; Portfolios; Series and Classes of Shares.
The beneficial interest in the Trust shall be divided into Shares having a
nominal or par value of one mill ($.001) per Share, of which an unlimited number
may be issued, and may be divided into Series and Classes as provided in this
Article 6.
"a) The Existing Portfolio and the Shares Thereof. The assets
held by the Trust on January 15, 1997 (the `Reference Date') consist of
a single Portfolio, known as the Capital Appreciation Fund (the
`Existing Portfolio'). The beneficial interests in the Existing
Portfolio are at the Reference Date represented by a single series of
Shares (the `Existing Series'), an unlimited number of which may be
issued. The Shares of the Existing Series outstanding at the Reference
Date consist of two Classes (the `Existing Classes'), one, of which an
unlimited number may be issued to any purchaser, authorized by this
Declaration of Trust, as originally executed on December 23, 1986, and
commonly known as Common Shares (the `Common Shares', and the Class to
which they pertain, the `Common Class'), and a second, of which one
billion (1,000,000,000) shares may be issued, designated by a
Certificate of Designation filed on May 17, 1990 with the Secretary of
State of The Commonwealth of Massachusetts (the `1990 Certificate of
Designation') as the Series 2 Shares (the `Series 2 Shares'). A third
Class of Shares, designated as the Series 1 Shares (the `Series 1
Shares'), were authorized by the 1990 Certificate of Designation, but no
Shares of such Class have been issued. The Series 1 Shares are hereby
eliminated and the Class thereof terminated, and the Series 2 Shares are
hereby renamed the `Advisor Shares', and the Class to which they
pertain, the `Advisor Class', and the number of Shares of the Advisor
Class which the Trust is authorized to issue shall henceforth be
unlimited. In addition to the Common Class and the Advisor Class, the
unissued Shares of the
<PAGE>
<PAGE>
-4-
Existing Series may at any time be divided into one or more additional
Classes pursuant to subsection (d) of this Section 6.1.
"(b) Preferences, etc., of the Existing Classes. Each Share of
the Existing Series has the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as every other
Share of such Series, except that:
"(i) Advisor Shares will share equally with Common Shares
in the income, earnings and profits derived from investment and
reinvestment of the assets belonging to the Existing Portfolio,
and will be charged equally with Common Shares with the
liabilities of the Existing Portfolio, except that (i) Advisor
Shares will bear the expense of payments to institutions made
pursuant to any Plan, as defined in Section 7.1, under any
agreements entered into between the Trust and the institutions
providing for services to the customers of the institutions who
beneficially own Advisor Shares, and (ii) Common Shares shall not
bear the expense of payments under any Plan applicable to Advisor
Shares; and
"(ii) On any matter submitted to a vote of shareholders of
the Existing Portfolio that pertains to the agreements or
expenses described in clause (b)(i), above (or to any plan
adopted for such Portfolio relating to said agreements or
expenses), only the holders of Advisor Shares will be entitled to
vote, except that: (A) if said matter affects Common Shares,
holders of Common Shares will also be entitled to vote, and in
such case Advisor Shares will be voted in the aggregate together
with Common Shares, and not as a separate Class (except where
otherwise required by law or permitted by the governing Board of
the Trust acting in its sole discretion); and (B) if such matter
does not affect Advisor Shares, the holders of Advisor Shares
will not be entitled to vote (except where otherwise required by
law or permitted by the governing Board of the Trust acting in
its sole discretion), even though the matter is submitted to a
vote of the holders of Common Shares.
"(c) Additional Portfolios and Series of Shares. The Trustees
shall have the authority, at any time or from time to time, and without
any requirement of Shareholder approval, (i) to establish and designate
one or more additional separate, distinct and independent Portfolios, in
addition to the Existing Portfolio (each such additional Portfolio an
`Additional Portfolio') for the purpose of holding one or more separate
and distinct portfolios of assets, (ii) to authorize a separate Series
of Shares to represent the beneficial interests in each such Additional
Portfolio (each such Series for an Additional Portfolio, an `Additional
Series'), and to fix and determine the rights and preferences of Shares
of each Series as to rights of redemption, the price, terms and manner
of redemption, rights as to dividends and other distributions and on
liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the Shareholders of the several Series shall have
separate voting rights or no voting rights,
<PAGE>
<PAGE>
-5-
and to provide that any such Series shall consist of a single Class of
Shares, or of two or more separate Classes of Shares, as they deem
necessary or desirable, and (iii) to classify or reclassify any unissued
Shares, or any Shares of any Series previously issued and reacquired by
the Trust, into Shares of one or more other Series that may be
established and designated from time to time. Except as otherwise
provided as to a particular Portfolio herein or in the Certificate of
Designation therefor or in the Prospectus with respect to such
Portfolio, the Trustees shall have all the rights and powers, and be
subject to all the duties and obligations, with respect to each such
Portfolio and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
The establishment and designation of any Portfolio (in addition to the
Existing Portfolio) and the authorization of the Series of Shares
representing the beneficial interests therein shall be effective upon
the execution by a Majority of the Trustees (or by an officer of the
Trust pursuant to the vote of a Majority of the Trustees) of an
instrument setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series and the
manner in which the same may be amended (a `Certificate of
Designation'), which may provide that the number of Shares of such
Series or any Class thereof that may be issued is unlimited, or may
limit the number issuable. At any time that there are no Shares
outstanding of any Series previously established and designated,
including the Existing Series, the Trustees may by an instrument
executed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees) terminate such
Portfolio and the establishment and designation thereof and the
authorization of its Shares (a `Certificate of Termination'). Each
Certificate of Designation or Certificate of Termination, and any
instrument amending a Certificate of Designation, shall have the status
of an amendment to this Declaration of Trust, shall set forth the
information and shall become effective and be filed as provided in
Section 9.4 hereof.
"(d) Additional Classes of Shares. Without limitation of any
other powers accorded to them by this Declaration or otherwise, the
Trustees shall have power, at any time or from time to time, and without
the necessity for any Shareholder approval, by vote of a Majority of the
Trustees, to authorize additional Classes of Shares of the Existing
Series, or two or more separate Classes of any Additional Series
initially authorized without Classes, or to classify or reclassify any
unissued Shares of any Series, or any Shares of any Series previously
issued and reacquired by the Trust (including in either case Shares of
the Existing Portfolio) into any number of additional Classes of such
Series, as they deem necessary or desirable, and in either such
connection to fix and determine the relative rights and burdens of
Shares of the respective Classes of such Series as to sales charges,
redemption charges or other fees and charges, allocations of expenses,
conversion rights, and conditions under which Shareholders of the
several Classes shall have separate voting rights or (subject to Article
7 hereof) no voting rights. Any such authorization of Classes or
reclassification of Shares shall be effective upon the execution by a
Majority of the Trustees (or by an officer of the Trust pursuant to the
vote of a Majority of the Trustees) and the deposit among the records of
the Trust of an instrument setting forth
<PAGE>
<PAGE>
-6-
such provisions and the manner in which the same may be amended. At any
time at which no Shares of a particular Class and no Shares of any other
Class which are convertible into Shares of such Class are outstanding,
the Trustees may terminate such Class. Any such termination of a Class
shall be effective upon the execution by a Majority of the Trustees (or
by an officer of the Trust pursuant to the vote of a Majority of the
Trustees) and the deposit among the records of the Trust of an
instrument stating that such Class is terminated. The differing rights
and obligations of each Class of Shares shall be set forth in the
Prospectus under which the Shares of such Class are sold, and the
Trustees may not change such rights and obligations in a manner adverse
to the holders of outstanding Shares of such Class, or grant any
preferences over such Class to the holders of shares of any other Class
without the affirmative vote or consent of the holders of `a majority of
the outstanding voting securities' of such Class, as the quoted phrase
is used in the 1940 Act.
"(e) Character of Separate Portfolios and Shares Thereof. The
Existing Portfolio, and each Additional Portfolio, if any, established
hereunder shall be a separate component of the assets of the Trust, and
the holders of Shares of the Series representing the beneficial interest
in the assets of that Portfolio, and of each Class of such Series, if
any, shall be considered Shareholders of such Portfolio, and also as
Shareholders of the Trust for purposes of receiving reports and notices
and (except as otherwise provided herein or in the Certificate of
Designation of a particular Portfolio as to such Portfolio, in a vote of
the Trustees as to any Class of a Series, or as required by the 1940 Act
or other applicable law) the right to vote, all without distinction by
Series or Class.
"(f) Consideration for Shares. The Trustees may issue Shares of
any Series or Class for such consideration (which may include property
subject to, or acquired in connection with the assumption of,
liabilities) and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split), all without
action or approval of the Shareholders. All Shares when so issued on the
terms determined by the Trustees shall be fully paid and non-assessable
(but may be subject to mandatory contribution back to the Trust as
provided in Section 6.2(g) hereof).
"SECTION 6.2 General Provisions for All Portfolios and Series.
Subject to Section 6.1(b), as to the Existing Classes, and to the power of the
Trustees to classify or reclassify unissued Shares of a Series or Class pursuant
to Section 6.1(c) or (d), the Existing Portfolio, and any Additional Portfolios
that may from time to time be established and designated by the Trustees, and
the Shares representing the beneficial interests therein, shall (unless the
Trustees otherwise determine with respect to an Additional Portfolio at the time
of establishing and designating the same) have the following relative rights and
preferences:
"(a) Assets Belonging to Portfolios. Any portion of the Trust
Property allocated to a particular Portfolio, and all consideration
received by the Trust for the issue or sale of Shares of such Portfolio,
together with all assets in which such consideration is invested or
reinvested, all interest, dividends, income, earnings, profits
<PAGE>
<PAGE>
-7-
and gains therefrom, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall be held by the Trustees in trust
for the benefit of the holders of Shares of that Portfolio and shall
irrevocably belong to that Portfolio for all purposes, and shall be so
recorded upon the books of account of the Trust, and the Shareholders of
such Portfolio shall not have, and shall be conclusively deemed to have
waived, any claims to the assets of any Portfolio of which they are not
Shareholders. Such consideration, assets, interest, dividends, income,
earnings, profits, gains and proceeds, together with any General Items
allocated to that Portfolio as provided in the following sentence, are
herein referred to collectively as `Portfolio Assets' of such Portfolio,
and as assets `belonging to' that Portfolio. If the Trust shall have or
realize any assets, income, interest, dividends, earnings, profits,
gains or proceeds which are not readily identifiable as belonging to any
particular Portfolio (collectively, `General Items'), the Trustees shall
allocate such General Items to and among any one or more of the
Portfolios of the Trust in such manner and on such basis as they, in
their sole discretion, deem fair and equitable; and any General Items so
allocated to a particular Portfolio shall belong to and be part of the
Portfolio Assets of that Portfolio. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Portfolios
for all purposes.
"(b) Liabilities of Portfolios. The assets belonging to each
Portfolio shall be charged with the liabilities incurred by or arising
in respect of that Portfolio and all expenses, costs, charges and
reserves attributable to that Portfolio, and at any time at which the
Trust shall have more than one Portfolio, any general liabilities,
expenses, costs, charges or reserves which are not readily identifiable
as pertaining to any particular Portfolio shall be allocated and charged
by the Trustees to and among any one or more of the Portfolios of the
Trust in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. The liabilities, expenses, costs,
charges and reserves so allocated and so charged to a particular
Portfolio are herein referred to as `liabilities of' that Portfolio.
Each allocation of liabilities, expenses, costs, charges and reserves by
the Trustees shall be conclusive and binding upon the Shareholders of
all Portfolios for all purposes. The creditors of a particular Portfolio
may look only to the assets of that Portfolio to satisfy such creditors'
claims, and the creditors of a particular Class of a Portfolio may look
only to the share of that Class in the assets of the Portfolio of which
it is a part to satisfy their claims.
"(c) Dividends. Dividends and distributions on Shares of any
Series may be paid with such frequency as the Trustees may determine,
which may be daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the Shareholders of the Portfolio to which such Series
pertains, from such of the income, accrued or realized, and capital
gains, realized or unrealized, and out of the assets belonging to that
Portfolio, as the Trustees may determine, after providing for actual and
accrued liabilities of that Portfolio. All dividends and distributions
on Shares of any Series without separate
<PAGE>
<PAGE>
-8-
Classes shall be distributed pro rata to the Shareholders of that
Portfolio in proportion to the number of such Shares held by them at the
date and time of record established for the payment of such dividends or
distributions. Dividends and distributions on the Shares of a Portfolio
having separate Classes of Shares shall be in such amount as may be
declared from time to time by the Trustees, and such dividends and
distributions may vary as between such Classes to reflect differing
allocations among such Classes of the liabilities, expenses, costs,
charges and reserves of such Portfolio, and any resultant differences
between the net asset value of such several Classes, to such extent and
for such purposes as the Trustees may deem appropriate, but dividends
and distributions on the Shares of a particular Class shall be
distributed pro rata to the holders of Shares of that Class in
proportion to the number of such Shares held by such holders at the date
and time of record established for the payment of such dividends and
distributions. Notwithstanding the last two preceding sentences, the
Trustees may determine, in connection with any dividend or distribution
program or procedure, that no dividend or distribution shall be payable
on newly-issued Shares as to which the Shareholder's purchase order
and/or payment have not been received by the time or times established
by the Trustees under such program or procedure, or that dividends or
distributions shall be payable on Shares which have been tendered by the
holder thereof for redemption or repurchase, but the redemption or
repurchase proceeds of which have not yet been paid to such Shareholder.
Dividends and distributions on the Shares of a Series may be made in
cash or Shares of any Class of that Series or a combination thereof as
determined by the Trustees, or pursuant to any program that the Trustees
may have in effect at the time for the election by each Shareholder of
the mode of the making of such dividend or distribution to that
Shareholder. Any such dividend or distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with
subsection (g) of this Section 6.2.
"(d) Liquidation. In the event of the liquidation or dissolution
of the Trust, the Shareholders of each Portfolio with outstanding Shares
shall be entitled to receive, when and as declared by the Trustees, the
excess of the Portfolio Assets of such Portfolio over the liabilities of
such Portfolio. The assets so distributable to the Shareholders of any
Portfolio without Classes shall be distributed among such Shareholders
in proportion to the number of Shares of that Portfolio held by them and
recorded on the books of the Trust. The assets so distributable to the
Shareholders of any Portfolio with Classes shall be allocated among such
Classes in proportion to the respective aggregate net asset value of the
outstanding Shares thereof, and shall be distributed to the Shareholders
of each such Class in proportion to the number of Shares of that Class
held by them and recorded on the books of the Trust. The liquidation of
any Portfolio, or of any Class of a Portfolio, may be authorized by vote
of a Majority of the Trustees, subject to the affirmative vote of `a
majority of the outstanding voting securities' of the Series
representing the beneficial interests in that Portfolio, or in that
Class of such Series, as the quoted phrase is defined in the 1940 Act,
determined in accordance with clause (iii) of the definition of
`Majority Shareholder Vote' in Section 1.4 hereof.
<PAGE>
<PAGE>
-9-
"(e) Redemption by Shareholder. Each holder of Shares of any
Series or Class shall have the right at such times as may be permitted
by the Trust, but no less frequently than once each week, to require the
Trust to redeem all or any part of such Shares at a redemption price
equal to the net asset value per Share of that Series or Class next
determined in accordance with subsection (g) of this Section 6.2 after
the Shares are properly tendered for redemption; provided, that the
Trustees may from time to time, in their discretion, determine and
impose a fee for such redemption, and the proceeds of the redemption of
Shares (including a fractional Share) of any Series or Class shall be
reduced by the amount of any applicable contingent deferred sales charge
payable on such redemption pursuant to the terms of the initial issuance
of such Shares (to the extent consistent with the 1940 Act or
regulations or exemptions thereunder). The redemption price of Shares
redeemed under this subsection (e) shall be paid in cash; provided, that
if the Trustees determine, which determination shall be conclusive, that
conditions exist with respect to any Series of Shares, or one or more
Classes of any Series, which make payment wholly in cash unwise or
undesirable, the Trust may make payment wholly or partly in Securities
or other assets belonging to the Portfolio to which such Series or Class
pertains, at the value of such Securities or assets used in such
determination of net asset value. Notwithstanding the foregoing, the
Trust may postpone payment of the redemption price and may suspend the
right of the holders of Shares of any Series or Class to require the
Trust to redeem such Shares during any period or at any time when and to
the extent permissible under the 1940 Act.
"(f) Redemption at the Option of the Trust. Each Share of any
Series or Class shall be subject to redemption at the option of the
Trust at the redemption price which would be applicable if such Share
were then being redeemed by the Shareholder pursuant to subsection (e)
of this Section 6.2: (i) at any time, if the Trustees determine in their
sole discretion that failure to so redeem may have materially adverse
consequences to the holders of the Shares of the Trust, generally, or of
any Portfolio thereof, or (ii) upon such other conditions with respect
to maintenance of Shareholder accounts of a minimum amount as may from
time to time be determined by the Trustees and set forth in the then
current Prospectus of such Portfolio. Upon such redemption the holders
of the Shares so redeemed shall have no further right with respect
thereto other than to receive payment of such redemption price.
"(g) Net Asset Value. Subject to the provisions of the two
sentences immediately following, the net asset value per Share of any
Series without Classes, or of any Class of a Series having separate
Classes, at any time shall be the quotient obtained by dividing the then
value of the net assets of the Portfolio to which such Series pertains,
or the share of such Class in such assets, as the case may be (being the
current value of the assets then belonging to such Portfolio, or the
share of such Class therein, less the then-existing liabilities of such
Portfolio, or the share of such Class in such liabilities) by the total
number of Shares of that Series or Class then outstanding, all
determined in accordance with the methods and procedures, including
without limitation those with respect to rounding, established by the
Trustees from time to time. The aggregate net asset value of the several
Classes of a Portfolio having
<PAGE>
<PAGE>
-10-
separate Classes of Shares shall be separately computed, and may vary
from one another. The Trustees shall establish procedures for the
allocation of investment income or capital gains and expenses and
liabilities of a Portfolio having separate Classes of Shares among the
several Classes of such Portfolio, in order to reflect the varying net
asset values of, and the liabilities and expenses attributable to, such
Classes. The Trustees may determine to maintain the net asset value per
Share of any Portfolio at a designated constant dollar amount and in
connection therewith may adopt procedures not inconsistent with the 1940
Act for the continuing declaration of income attributable to that
Portfolio as dividends payable in additional Shares of that Portfolio at
the designated constant dollar amount and for the handling of any losses
attributable to that Portfolio. Such procedures may provide that in the
event of any loss each Shareholder shall be deemed to have contributed
to the shares of beneficial interest account of that Portfolio such
Shareholder's pro rata portion of the total number of Shares required to
be canceled in order to permit the net asset value per Share of that
Portfolio to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each Shareholder of the Trust shall
be deemed to have expressly agreed, by investing in any Portfolio with
respect to which the Trustees shall have adopted any such procedure, to
make the contribution referred to in the preceding sentence in the event
of any such loss.
"(h) Transfer. All Shares of the Trust shall be transferable, but
transfers of Shares of a particular Series or Class will be recorded on
the Share transfer records of the Trust applicable to that Series or
Class only at such times as Shareholders shall have the right to require
the Trust to redeem Shares of that Series or Class and at such other
times as may be permitted by the Trustees.
"(i) Equality. All Shares of each Series without Classes shall
represent an equal proportionate interest in the assets belonging to the
Portfolio to which such Series pertains (subject to the liabilities of
that Portfolio), and each Share of any such Series shall be equal to
each other Share thereof. All Shares of each Class of any Series having
separate Classes shall represent an equal proportionate interest in the
share of such Class in the assets belonging to the Portfolio to which
such Series pertains, subject to a like share of the liabilities of such
Portfolio, adjusted for any liabilities specifically allocable to that
Class, and each Share of any such Class shall be equal to each other
Share thereof, but the interests represented by the Shares of the
different Classes of a Series having separate Classes shall reflect any
distinctions among the several Classes of such Series existing pursuant
to this Article 6 or Section 7.1 hereof, or the Certificate of
Designation for the Portfolio providing for such Series, as the same may
be from time to time amended. The Trustees may from time to time divide
or combine the Shares of any Series, or any Class of any Series, into a
greater or lesser number of Shares of that Series or Class without
thereby changing the proportionate beneficial interest in the assets
belonging to the Portfolio to which such Series or Class pertains, or in
any way affecting the rights of the holders of Shares of any other
Series or Class.
<PAGE>
<PAGE>
-11-
"(j) Rights of Fractional Shares. Any fractional Share of any
Series or Class of Shares shall carry proportionately all the rights and
obligations of a whole Share of that Series or Class, including rights
and obligations with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust or of
the Portfolio to which such Series or Class pertains.
"(k) Conversion and Exchange Rights. Subject to compliance with
the requirements of the 1940 Act, the Trustees shall have the authority
to provide that holders of Shares of any Series or Class shall have the
right to convert said Shares into, or exchange said Shares for, Shares
of one or more other Series or Classes of the Trust, or of one or more
other investment companies set forth in the Prospectus with respect to
such Series or Class, and that Shares of any Class of any Series shall
be automatically converted into Shares of another Class of such Series,
in each case in accordance with such requirements and procedures as the
Trustees may establish."
6. Section 7.1 of the Declaration of Trust is hereby amended and
restated in its entirety to read as follows:
"SECTION 7.1 Voting Powers. The Shareholders shall have power to
vote only (i) for the election or removal of Trustees as provided in
Sections 4.1(c) and (e) hereof, (ii) with respect to the approval or
termination in accordance with the 1940 Act of any contract with a
Contracting Party as provided in Section 5.2 hereof as to which
Shareholder approval is required by the 1940 Act, (iii) with respect to
any termination or reorganization of the Trust or any Portfolio to the
extent and as provided in Sections 9.1 and 9.2 hereof, (iv) with respect
to any amendment of this Declaration to the extent and as provided in
Section 9.3 hereof, (v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a
class action on behalf of the Trust or any Portfolio, or the
Shareholders of any of them (provided, however, that a Shareholder of a
particular Portfolio shall not in any event be entitled to bring or
maintain a derivative or class action on behalf of any other Portfolio
or the Shareholders thereof), and (vi) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, this
Declaration, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any State, or as the Trustees
may consider necessary or desirable. If and to the extent that the
Trustees shall determine that such action is required by law or by this
Declaration, they shall cause each matter required or permitted to be
voted upon at a meeting or by written consent of Shareholders to be
submitted to a separate vote of the outstanding Shares of each Series
entitled to vote thereon; provided, that (i) when expressly required by
this Declaration or by the 1940 Act or other law, actions of
Shareholders shall be taken by Single Class Voting of all outstanding
Shares of each Series and Class whose holders are entitled to vote
thereon; and (ii) when the Trustees determine that any matter to be
submitted to a vote of Shareholders affects only the rights or interests
of the holders of Shares of one or more but not all Series, or of one or
more but not all Classes of a single Series (including without
limitation any plan pursuant to Rule 12b-1
<PAGE>
<PAGE>
-12-
under the 1940 Act applicable to any such Series or Class), then only
the holders of Shares of the Series or Classes so affected shall be
entitled to vote thereon. Without limiting the generality of the
foregoing, and except as required by the 1940 Act or other law, the
holders of Shares of each Class shall have exclusive voting rights with
respect to the provisions of any plan adopted by the Trustees pursuant
to Rule 12b-1 under the 1940 Act (a `Plan') applicable to such Class."
7. Section 7.5 of the Declaration of Trust is hereby amended and
restated in its entirety to read as follows:
"SECTION 7.5 Quorum and Required Vote. A majority of the
outstanding Shares entitled to vote on a matter without regard to Series
or Class shall be a quorum for the transaction of business with respect
to such matter at a Shareholders' meeting, but any lesser number shall
be sufficient for adjournments. Any adjourned session or sessions may be
held within a reasonable time after the date set for the original
meeting without the necessity of further notice. A Majority Shareholder
Vote at a meeting at which a quorum is present shall decide any
question, except when a different vote is required or permitted by any
provision of the 1940 Act or other applicable law or by this Declaration
of Trust or the By-Laws, or when the Trustees shall in their discretion
require a larger vote or the vote of a majority or larger fraction of
the Shares of one or more particular Series or Classes."
8. Sections 9.3 and 9.4 of the Declaration of Trust are hereby amended
and restated in their entirety to read as follows:
"SECTION 9.3 Amendments, etc. All rights granted to the
Shareholders under this Declaration of Trust are granted subject to the
reservation of the right to amend this Declaration of Trust as herein
provided, except that no amendment shall repeal the limitations on
personal liability of any Shareholder or Trustee or the prohibition of
assessment upon the Shareholders (otherwise than as permitted under
Section 6.2(g)) without the express consent of each Shareholder or
Trustee involved. Subject to the foregoing, the provisions of this
Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does
not adversely affect the rights of any Shareholder with respect to which
such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940
Act, by an instrument in writing signed by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees). Any amendment to this Declaration of Trust that adversely
affects the rights of all Shareholders may be adopted at any time by an
instrument in writing signed by a Majority of the Trustees (or by an
officer of the Trust pursuant to the vote of a Majority of the Trustees)
when authorized to do so by the vote in accordance with Section 7.1
hereof of Shareholders holding a majority of all the Shares outstanding
and entitled to vote, without regard to Series or Class, or if said
amendment adversely affects the rights of the holders of Shares of less
than all of the Series, or of less than all of the Classes of Shares of
any Series, by the vote of the
<PAGE>
<PAGE>
-13-
holders of a majority of all the Shares entitled to vote of each Series
or Class so affected. Subject to the foregoing, any such amendment shall
be effective when the instrument containing the terms thereof and a
certificate (which may be a part of such instrument) to the effect that
such amendment has been duly adopted, and setting forth the
circumstances thereof, shall have been executed and acknowledged by a
Trustee or officer of the Trust and filed as provided in Section 9.4
hereof.
"SECTION 9.4 Filing of Copies of Declaration and Amendments. The
original or a copy of this Declaration, and of each amendment hereto
(including each Certificate of Designation and Certificate of
Termination) shall be kept at the office of the Trust where it may be
inspected by any Shareholder, and one copy of each such instrument shall
be filed with the Secretary of The Commonwealth of Massachusetts, and
with any other governmental office where such filing may from time to
time be required by the laws of Massachusetts, but such filing shall not
be a prerequisite to the effectiveness of this Declaration or any such
amendment or other instrument. A restated Declaration, integrating into
a single instrument all of the provisions of this Declaration which are
then in effect and operative, may be executed from time to time by a
Majority of the Trustees and shall, upon filing with the Secretary of
The Commonwealth of Massachusetts, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu
of the original Declaration and the various amendments thereto."
IN WITNESS WHEREOF, the undersigned has set his hand and the seal of the
Trust, this 15th day of January, 1997.
/s/ Eugene P. Grace
_____________________________________
Name: Eugene P. Grace
Title: Vice President and Secretary
[TRUST SEAL]
<PAGE>
<PAGE>
-14-
ACKNOWLEDGMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
January 15, 1997
Then personally appeared the above-named Eugene P. Grace, known to me
and known to me to be the person named in and who signed the foregoing
instrument, and acknowledged the same to be his free act and deed.
Before me,
Linda Iovan
____________________________________
Notary Public
My commission expires: 7-31-98
[NOTARIAL SEAL]
<PAGE>
<PAGE>
DISTRIBUTION AGREEMENT
December 31, 1996
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Warburg Pincus Funds (the "Fund") has
agreed that Counsellors Securities Inc. ("Counsellors Securities") shall be, for
the period of this Agreement, the distributor of shares of common stock of the
Fund, par value $.001 per share. The common stock not designated Advisor Shares
shall be referred to as the "Common Shares"."
1. Services as Distributor
1.1 Counsellors Securities will act as agent for the distribution
of the Common Shares and Advisor Shares covered by the Fund's registration
statement on Form N-1A, under the Securities Act of 1933, as amended (the "1933
Act"), and the Investment Company Act of 1940, as amended (the "1940 Act") (the
registration statement, together with the prospectuses (the "prospectus") and
statement of additional information (the "statement of additional information")
included as part of the registration statement, any amendments to the
registration statement, and any supplements to, or material incorporated by
reference into the prospectus or statement of additional information, being
referred to collectively in this Agreement as the "registration statement").
1.2 Counsellors Securities agrees to use appropriate efforts to
solicit orders for the sale of the Common Shares and Advisor Shares at such
prices and on the terms and conditions set forth in the registration statement
and will undertake such advertising and promotion as it believes is reasonable
in connection with such solicitation.
1.3 All activities by Counsellors Securities as distributor of
the Common Shares and Advisor Shares shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted by the Securities and Exchange Commission (the "SEC") or by any
<PAGE>
<PAGE>
securities association registered under the Securities Exchange Act of 1934, as
amended.
1.4 Counsellors Securities agrees to (a) provide one or more
persons during normal business hours to respond to telephone questions
concerning the Fund and its performance, (b) provide prospectuses of other funds
advised by Warburg, Pincus Counsellors, Inc. to shareholders considering
exercising the exchange privilege and (c) perform such other services as are
described in the registration statement and in the Shareholder Servicing and
Distribution Plan (with respect to Common Shares, the "12b-1 Plan") and in the
Distribution Plan (with respect to Advisor Shares, the "Distribution Plan"),
each adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act ("Rule
12b-1") to be performed by Counsellors Securities, without limitation,
distributing and receiving subscription order forms and receiving written
redemption requests.
1.5 Pursuant to the 12b-1 Plan, the Fund will pay Counsellors
Securities on the first business day of each quarter a fee for the previous
quarter calculated at an annual rate of .25% of the average daily net assets of
the Common Shares of the Fund as compensation for the services provided by
Counsellors Securities to the Common Shares pursuant to this Agreement.
Counsellors Securities serves without compensation as distributor for the
Advisor Shares pursuant to this Agreement. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (a) the sale of the Common Shares, as set forth in the 12b-1
Plan ("Selling Services"), (b) ongoing servicing and/or maintenance of the
accounts of holders of Common Shares, as set forth in the 12b-1 Plan
("Shareholder Services"), and/or (c) sub-transfer agency services, subaccounting
services or administrative services with respect to the Common Shares, as set
forth in the 12b-1 Plan ("Administrative Services" and collectively with Selling
Services and Administrative Services, "Services") including, without limitation,
(i) payments reflecting an allocation of overhead and other office expenses of
Counsellors Securities related to providing Services; (ii) payments made to, and
reimbursement of expenses of, persons who provide support services in connection
with the distribution of the Common Shares including, but not limited to, office
space and equipment, telephone facilities, answering routine inquiries regarding
the Fund, and providing any other Shareholder Services; (iii) payments made to
compensate selected dealers or other authorized persons for providing any
Services; (iv) costs relating to the formulation and implementation of marketing
and promotional activities for the Common Shares, including, but not limited to,
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, and related travel and entertainment expenses; (v) costs of
printing and distributing prospectuses, statements of additional information and
reports of the Fund to prospective holders of Common Shares; and (vi) costs
-2-
<PAGE>
<PAGE>
involved in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities for the Common Shares that the Fund may,
from time to time, deem advisable.
1.6 Counsellors Securities acknowledges that, whenever in the
judgment of the Fund's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, the Common
Shares or Advisor Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Counsellors Securities will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
1.8 Counsellors Securities will transmit any orders received by
it for purchase or redemption of the Common Shares and Advisor Shares to State
Street Bank and Trust Company ("State Street"), the Fund's transfer and dividend
disbursing agent, or its successor of which Counsellors Securities is notified
in writing. The Fund will promptly advise Counsellors Securities of the
determination to cease accepting orders or selling Common Shares or Advisor
Shares or to recommence accepting orders or selling Common Shares or Advisor
Shares. The Fund (or its agent) will confirm orders for Common Shares and
Advisor Shares placed through Counsellors Securities upon their receipt, or in
accordance with any exemptive order of the SEC, and will make appropriate book
entries pursuant to the instructions of Counsellors Securities. Counsellors
Securities agrees to cause payment for Common Shares and Advisor Shares and
instructions as to book entries to be delivered promptly to the Fund (or its
agent).
1.9 The outstanding Common Shares and Advisor Shares are subject
to redemption as set forth in the prospectus. The price to be paid to redeem the
Common Shares and Advisor Shares will be determined as set forth in the
prospectus.
1.10 Counsellors Securities will prepare and deliver reports to
the Treasurer of the Fund on a regular, at least quarterly, basis, showing the
distribution expenses incurred pursuant to this Agreement, the 12b-1 Plan and
the Distribution Plan adopted by the Fund pursuant to Rule 12b-1 and the
purposes therefor, as well as any supplemental reports as the Directors from
time to time may reasonably request.
-3-
<PAGE>
<PAGE>
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with the sale of Common Shares and
Advisor Shares in those states that Counsellors Securities may designate.
2.2 The Fund shall furnish from time to time, for use in
connection with the sale of the Common Shares and Advisor Shares, such
informational reports with respect to the Fund and the Common Shares and Advisor
Shares as Counsellors Securities may reasonably request, all of which shall be
signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such reports, when so signed by
one or more of the Fund's officers, shall be true and correct. The Fund shall
also furnish Counsellors Securities upon request with: (a) annual audits of the
Fund's books and accounts made by independent public accountants regularly
retained by the Fund, (b) semiannual unaudited financial statements pertaining
to the Fund, (c) quarterly earnings statements prepared by the Fund, (d) a
monthly itemized list of the securities held by the Fund, (e) monthly balance
sheets as soon as practicable after the end of each month and (f) from time to
time such additional information regarding the Fund's financial condition as
Counsellors Securities may reasonably request.
3. Representations and Warranties
The Fund represents to Counsellors Securities that all
registration statements, prospectuses and statements of additional information
filed by the Fund with the SEC under the 1933 Act and the 1940 Act with respect
to the Common Shares and/or Advisor Shares have been carefully prepared in
conformity with the requirements of the 1933 Act, the 1940 Act and the rules and
regulations of the SEC thereunder. As used in this Agreement the terms
"registration statement", "prospectus" and "statement of additional information"
shall mean any registration statement, prospectus and statement of additional
information filed by the Fund with respect to the Common Shares and/or Advisor
Shares with the SEC and any amendments and supplements thereto which at any time
shall have been filed with the SEC. The Fund represents and warrants to
Counsellors Securities that any registration statement with respect to the
Common Shares and/or Advisor Shares, or prospectus and statement of additional
information contained therein, when such registration statement becomes
effective, will include all statements required to be contained therein in
conformity with the 1933 Act, the 1940 Act and the rules and regulations of the
SEC; that all statements of fact contained in any registration statement with
respect to the Common Shares and/or Advisor Shares, prospectus or statement of
additional information will be true and correct when such
-4-
<PAGE>
<PAGE>
registration statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information with respect
to the Common Shares and/or Advisor Shares when such registration statement
becomes effective will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of the Common Shares and/or
Advisor Shares. Counsellors Securities may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus or statement of
additional information as, in the light of future developments, may, in the
opinion of Counsellors Securities' counsel, be necessary or advisable. If the
Fund shall not propose such amendment or amendments and/or supplement or
supplements within fifteen (15) days after receipt by the Fund of a written
request from Counsellors Securities to do so, Counsellors Securities may, at its
option, terminate this Agreement. The Fund shall not file any amendment to any
registration statement or supplement to any prospectus or statement of
additional information without giving Counsellors Securities reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit the Fund's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus or statement of
additional information with respect to the Common Shares and/or Advisor Shares,
of whatever character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund agrees to indemnify, defend and hold Counsellors
Securities, its several officers and directors, and any person who controls
Counsellors Securities within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Counsellors Securities, its officers and directors, or any such controlling
person, may incur under the 1933 Act, the 1940 Act or common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement, any prospectus or any
statement of additional information with respect to the Common Shares and/or
Advisor Shares, or arising out of or based upon any omission or alleged omission
to state a material fact required to be stated in any registration statement,
any prospectus or any statement of additional information with respect to the
Common Shares and/or Advisor Shares, or necessary to make the statements in any
of them not misleading; provided, however, that the Fund's agreement to
indemnify Counsellors Securities, its officers or directors, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of or based
-5-
<PAGE>
<PAGE>
upon any statements or representations made by Counsellors Securities or its
representatives or agents other than such statements and representations as are
contained in any registration statement, prospectus or statement of additional
information with respect to the Common Shares and/or Advisor Shares and in such
financial and other statements as are furnished to Counsellors Securities
pursuant to paragraph 2.2 hereof; and further provided that the Fund's agreement
to indemnify Counsellors Securities and the Fund's representations and
warranties hereinbefore set forth in paragraph 3 shall not be deemed to cover
any liability to the Fund or its shareholders to which Counsellors Securities
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of Counsellors
Securities' reckless disregard of its obligations and duties under this
Agreement. The Fund's agreement to indemnify Counsellors Securities, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Fund's being notified of any action brought
against Counsellors Securities, its officers or directors, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Fund at its principal office in New York, New York and sent to
the Fund by the person against whom such action is brought, within ten (10) days
after the summons or other first legal process shall have been served. The
failure to so notify the Fund of any such action shall not relieve the Fund from
any liability that the Fund may have to the person against whom such action is
brought by reason of any such untrue or alleged untrue statement or omission or
alleged omission otherwise than on account of the Fund's indemnity agreement
contained in this paragraph 4.1. The Fund's indemnification agreement contained
in this paragraph 4.1 and the Fund's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of Counsellors Securities, its officers and
directors, or any controlling person, and shall survive the delivery of any of
the Fund's shares. This agreement of indemnity will inure exclusively to
Counsellors Securities' benefit, to the benefit of its several officers and
directors, and their respective estates, and to the benefit of the controlling
persons and their successors. The Fund agrees to notify Counsellors Securities
promptly of the commencement of any litigation or proceedings against the Fund
or any of its officers or directors in connection with the issuance and sale of
any of the Common Shares and/or Advisor Shares.
4.2 Counsellors Securities agrees to indemnify, defend and hold
the Fund, its several officers and directors, and any person who controls the
Fund within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the Fund, its officers or
directors or any such controlling person
-6-
<PAGE>
<PAGE>
may incur under the 1933 Act, the 1940 Act or common law or otherwise, but only
to the extent that such liability or expense incurred by the Fund, its officers
or directors or such controlling person resulting from such claims or demands
shall arise out of or be based upon (a) any unauthorized sales literature,
advertisements, information, statements or representations or (b) any untrue or
alleged untrue statement of a material fact contained in information furnished
in writing by Counsellors Securities to the Fund specifically for use in the
registration statement and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the prospectus
or statement of additional information, or shall arise out of or be based upon
any omission or alleged omission to state a material fact in connection with
such information furnished in writing by Counsellors Securities to the Fund and
required to be stated in such answers or necessary to make such information not
misleading. Counsellors Securities' agreement to indemnify the Fund, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon Counsellors Securities' being notified of any action
brought against the Fund, its officers or directors, or any such controlling
person, such notification to be given by letter or telegram addressed to
Counsellors Securities at its principal office in New York, New York and sent to
Counsellors Securities by the person against whom such action is brought, within
ten (10) days after the summons or other first legal process shall have been
served. The failure to so notify Counsellors Securities of any such action shall
not relieve Counsellors Securities from any liability that Counsellors
Securities may have to the Fund, its officers or directors, or to such
controlling person by reason of any such untrue or alleged untrue statement or
omission or alleged omission otherwise than on account of Counsellors
Securities' indemnity agreement contained in this paragraph 4.2. Counsellors
Securities agrees to notify the Fund promptly of the commencement of any
litigation or proceedings against Counsellors Securities or any of its officers
or directors in connection with the issuance and sale of any of the Common
Shares and/or Advisor Shares.
4.3 In case any action shall be brought against any indemnified
party under paragraph 4.1 or 4.2, and it shall timely notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified
-7-
<PAGE>
<PAGE>
party shall have concluded reasonably that representation of the indemnifying
party and the indemnified party by the same counsel would be inappropriate due
to actual or potential differing interests between them in the conduct of the
defense of such action.
5. Effectiveness of Registration
None of the Common Shares or Advisor Shares shall be offered by
either Counsellors Securities or the Fund under any of the provisions of this
Agreement and no orders for the purchase or sale of the Common Shares or Advisor
Shares shall be accepted by the Fund if and so long as the effectiveness of the
registration statement shall be suspended under any of the provisions of the
1933 Act or if and so long as the prospectus is not on file with the SEC;
provided, however, that nothing contained in this paragraph 5 shall in any way
restrict or have an application to or bearing upon the Fund's obligation to
repurchase its shares from any shareholder in accordance with the provisions of
the prospectus or statement of additional information.
6. Notice to Counsellors Securities
The Fund agrees to advise Counsellors Securities immediately in
writing:
(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of additional
information then in effect with respect to the Common Shares and/or
Advisor Shares or for additional information;
(b) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the registration statement,
prospectus or statement of additional information then in effect with
respect to the Common Shares and/or Advisor Shares or the initiation of
any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement,
prospectus or statement of additional information then in effect with
respect to the Common Shares and/or Advisor Shares or that requires the
making of a change in such registration statement, prospectus or
statement of additional information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with respect to any
amendment to any registration statement, prospectus or statement of
additional information with respect to the Common Shares or Advisor
Shares which may from time to time be filed with the SEC.
-8-
<PAGE>
<PAGE>
7. Term of Agreement
This Agreement shall continue until April 17, 1998 with respect
to each of the Common Shares and Advisor Shares, and thereafter shall continue
automatically for successive annual periods ending on April 17th of each year,
provided such continuance is specifically approved at least annually by (a) a
vote of a majority of the Fund's Board of Directors or (b) a vote of a majority
(as defined in the 1940 Act) of each of the outstanding Common Shares and
Advisor Shares, respectively, provided that the continuance is also approved by
a vote of a majority of the Fund's Directors who are not interested persons (as
defined in the 1940 Act) of the Fund and who have no direct or indirect
financial interest in the operation of the 12b-1 Plan or the Distribution Plan,
in this Agreement or in any agreement related to the 12b-1 Plan or Distribution
Plan ("Qualified Directors"), by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable with respect to
the Common Shares or the Advisor Shares without penalty (a) on sixty (60) days'
written notice, by a vote of a majority of the Fund's Qualified Directors or by
vote of a majority (as defined in the 1940 Act) of the outstanding Common Shares
or Advisor Shares, as applicable, or (b) on ninety (90) days' written notice by
Counsellors Securities. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
8. Amendments
This Agreement may not be amended to increase materially the
amount of the fee with respect to the Common Shares described in Section 1.5
above without approval of at least a majority (as defined in the 1940 Act) of
the outstanding Common Shares. In addition, all material amendments to this
Agreement must be approved by vote of the Fund's Board of Directors, and by a
vote of a majority of the Qualified Directors, cast in person at a meeting
called for the purpose of voting on the approval.
-9-
<PAGE>
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
By:
--------------------------------
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By:
-------------------------------
Name:
-10-
<PAGE>
<PAGE>
WARBURG PINCUS ADVISOR FUNDS SERVICES AGREEMENT
Gentlemen:
We, Counsellors Securities Inc. ("CSI"), have an agreement (the
"Distribution Agreement") with the several open-end management investment
companies, or series thereof, for which Warburg, Pincus Counsellors, Inc.
("Counsellors") provides investment advisory services which are listed on
Appendix A hereto, as amended from time to time (the "Funds"). Pursuant to the
Distribution Agreements, we act as the distributor of shares of each Fund's
common stock or beneficial interest, as the case may be, par value $.001 per
share, designated Series 2 Shares or Advisor Shares (collectively, "Advisor
Shares"). This is to confirm that, in consideration of the agreements
hereinafter contained, we have agreed that the company that is the counterparty
to this Agreement (the "Service Organization") shall provide certain services in
connection with the Advisor Shares. We acknowledge that Advisor Shares may be
sold directly to certain employee benefit and retirement plans ("Plans") that
include or propose to include one or more Funds as an investment alternative.
The terms "Prospectus" and "Statement" as used herein refer respectively to the
then current prospectus and statement of additional information relating to the
Advisor Shares forming parts of the Registration Statement on Form N-1A of a
Fund under the Securities Act of 1933, as amended (the "1933 Act").
1. Services. Service Organization agrees to provide to investors in the
Funds ("Customers"), Plans and Plan participants the administrative, shareholder
and/or other services set forth on Schedule A hereto, as amended from time to
time. If Service Organization is not a banking organization that is prohibited
from performing such services (a "Bank"), Service Organization also agrees to
provide the distribution and marketing services set forth on Schedule A hereto.
In providing such services, Service Organization shall not, except as
specifically provided herein, have any authority to act as agent for CSI or any
Fund, but shall act only as agent of the Plans, Plan participants and Customers
who from time to time beneficially own Advisor Shares and as an independent
contractor and not as an employee or agent of the Funds, Counsellors or CSI.
Service Organization will maintain all records required by law,
including records detailing the services it provides in return for the fees to
which it is entitled under this Agreement. Such records shall be preserved,
maintained and made available to the extent required by law and in accordance
with the Investment Company Act of 1940, as amended (the "1940 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the rules thereunder. Upon
request by a Fund or CSI, Service Organization agrees to
<PAGE>
<PAGE>
promptly make copies or, if required, originals of such of these records
available to the Fund or CSI, as the case may be. Service Organization also
agrees to promptly notify the Fund or CSI if it experiences any difficulty in
maintaining these records in an accurate and complete manner. This provision
shall survive the termination of this Agreement.
Service Organization agrees to furnish the Funds, Counsellors and CSI
with such occasional and periodic reports as we shall reasonably request from
time to time to enable us or the Funds to comply with applicable laws and
regulations (including, without limitation, providing reports relating to blue
sky and other state securities laws and regulations) and with such other
information as they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Plans, Plan participants
and Customers of the services described herein). Moreover, Service Organization
agrees to provide to the Funds, Counsellors and CSI access to it, and its
personnel at their reasonable request during normal business hours to confirm
compliance with the provisions of this Agreement and applicable law. In
performing services hereunder, Service Organization agrees that it will not
engage in any activities set forth in Schedule B.
Service Organization shall take all steps necessary to ensure that the
arrangements provided for in this Agreement are properly disclosed to the Plans
and Customers. Service Organization agrees to inform Plans and Customers that
they are transacting business with Service Organization and not with CSI,
Counsellors or the Funds, and that they and Plan participants may look only to
Service Organization for resolution of problems or discrepancies in their
accounts or between those accounts and Service Organization's omnibus accounts
(the "Accounts") at the Funds.
In the case of Service Organizations that are not banks, neither CSI,
Counsellors nor any Fund assumes any responsibility or obligation as to Service
Organization's right to sell Advisor Shares in any state or jurisdiction. Any
such Service Organization agrees that it will not offer or sell any Advisor
Shares to Plans, Customers or persons (i) in any jurisdiction in which Service
Organization is not properly licensed and authorized to make such offers or
sales, or in which Advisor Shares are not qualified for sale, (ii) with respect
to whom such investment would not be suitable or appropriate under applicable
law or (iii) at any time after CSI or any Fund has provided you with written
notice that any Fund is not then currently offering Advisor Shares to the
public. CSI has full authority to take such action as it may deem advisable in
respect of all matters pertaining to the continuous offering of Advisor Shares.
CSI reserves the right in its sole discretion and without prior notice to
Service Organization to suspend sales or withdraw the offering of Advisor Shares
of each Fund.
Service Organization shall maintain at all times general liability and
other insurance coverage, including errors and omissions coverage, that is
reasonable and
-2-
<PAGE>
<PAGE>
customary in light of its duties hereunder, with limits of not less than
$5 million. Such insurance coverage shall be issued by a qualified
insurance carrier with a Best's rating of at least "A" or with the highest
rating of a nationally recognized statistical rating organization. In addition,
Service Organization shall promptly deliver to CSI such financial statements as
CSI may reasonably request concerning Service Organization's financial
condition; such statements shall fairly represent Service Organization's
financial condition as of the date thereof.
Each Fund and CSI may enter into other similar agreements with any other
person or persons without Service Organization's consent.
2. Orders for Advisor Shares. Orders received from Service Organization
for Advisor Shares will be accepted by CSI only at the public offering price
applicable to each order, as set forth in the relevant Prospectus and Statement.
All orders by Service Organization for Advisor Shares will be held through the
Accounts with the Funds; and Service Organization agrees to make available on a
monthly basis to CSI records necessary to determine the number of Plans, Plan
participants and/or Customers in each Account and the times of receipt of Plan
participant and Customer orders. Service Organization agrees to use its best
efforts to assist CSI in identifying "market timers" or investors who engage in
a pattern of short-term trading.
On each day on which a Fund calculates its net asset value (a "Business
Day"), Service Organization shall aggregate and calculate the net purchase and
redemption orders for each Account maintained by the Fund in which Plan
participant and Customer assets are invested. Net orders shall only reflect Plan
participant and Customer orders that Service Organization has received prior to
the close of regular trading on the New York Stock Exchange, Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that Business Day. Orders that Service
Organization has received after the close of regular trading on the NYSE shall
be treated as though received on the next Business Day. Each communication of
orders by Service Organization shall constitute a representation that such
orders were received by it prior to the close of regular trading on the NYSE on
the Business Day on which the purchase or redemption order is priced in
accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to the
Funds shall be in accordance with Schedule C, as amended from time to time, as
well as with the Prospectus and Statement of the relevant Fund and with oral or
written instructions that CSI or a Fund shall forward to Service Organization
from time to time.
SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE PROCEDURES
REFERRED TO ABOVE, SERVICE ORGANIZATION HEREBY IS APPOINTED TO ACT, AND SERVICE
ORGANIZATION HEREBY AGREES TO ACT AS AGENT OF CSI FOR THE PURPOSE SPECIFICALLY
SET FORTH IN THIS
-3-
<PAGE>
<PAGE>
PARAGRAPH. Provided that Service Organization complies with
the foregoing, it shall be deemed to be an agent of CSI for the sole purpose of
receiving instructions as Plan and Customer agent for the purchase and
redemption of Advisor Shares of that Fund prior to the close of regular trading
each Business Day and communicating orders based on such instructions to the
Fund's transfer agent, all as specified herein. The Business Day on which
Service Organization receives such instructions prior to the close of regular
trading on the NYSE shall be the Business Day on which such orders will be
deemed to be received by CSI or the Fund's transfer agent as a result of such
instructions.
Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with the Fund's Prospectus.
Payment for Advisor Shares must be received at the time, and in the
manner, set forth in Schedule C, as amended from time to time. All orders are
subject to acceptance or rejection by CSI or the relevant Fund in the sole
discretion of either, or by the Fund's transfer agent acting on its behalf, and
orders shall be effective only upon receipt in proper form. Each Fund may, if
necessary, delay redemption of Advisor Shares to the extent permitted by the
1940 Act.
3. Fees. (a) Each Fund has adopted a plan pursuant to Rule 12b-1
under the 1940 Act providing for paymnet of 12b-1 fee of up to .75% of the value
of the average daily net assets of the Advisor Shares held of record by the
Service Organization from time to time on behalf of Plan participants and
Customers (the "Customers' Advisor Shares"). In consideration of the services
and facilities provided by the Service Organization, CSI, on behalf of each
Fund, may pay to the Service Organization, and the Service Organization will
accept as full payment therefor, a fee in an amount obtained by multiplying the
applicable percentages set forth on Appendix A by the average daily net assets
of the Customers' Advisor Shares, which fee will be computed daily and payable
quarterly. The fee set forth above may include a service fee in the amount of
.25% of the average daily net assets of the Customers' Advisor Shares, which fee
will be computed daily and payable quarterly. Any such service fee shall be paid
to Service Organization solely for personal service and/or the maintenance of
shareholder accounts.
(b) For purposes of determining the fees payable under this
Section 3, the average daily net assets of the Customers' Advisor Shares will be
computed in the manner specified in the relevant Fund's registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Advisor Shares for purposes of purchases and
redemptions. If in any period the aggregate amount payable to Service
Organization is less than $200, CSI may, in its discretion, defer the payment of
such amount until it, together with a subsequent payment or payments, exceeds
$200.
-4-
<PAGE>
<PAGE>
(c) Service Organization will provide to Plans, Plan participants
and Customers a schedule of fees showing the compensation payable to the Service
Organization hereunder, along with any other fees charged by it to Plans, Plan
participants and Customers relating to their assets that are invested in Advisor
Shares.
(d) The fees paid pursuant to this Agreement shall be payable
only after, for so long as and to the extent that CSI has received an amount
equal to the fees payable to Service Organization from each Fund pursuant to
such Fund's Distribution Plan, as amended from time to time, adopted pursuant to
Rule 12b-1 under the 1940 Act.
4. Counsellors Securities' Responsibilities; Limitation of Liability for
Claims. Any printed information that is furnished to Service Organization other
than each Fund's Prospectus, Statement, information supplemental to the
Prospectus and the Statement, periodic reports and proxy solicitation materials
is CSI's sole responsibility, and not the responsibility of any Fund, and
Service Organization agrees that the Funds, the shareholders of the Funds and
the officers and governing Boards of the Funds shall have no liability or
responsibility to Service Organization in these respects. Further, it is
understood, in the case of each Fund that is organized as a Massachusetts
business trust or series thereof, that the declarations of trust for each trust
refers to the trustees collectively as trustees and not as individuals
personally, and that the declaration of trust provides that no shareholder,
trustee, officer, employee or agent of the trust shall be subject to claims
against or obligations of the trust to any extent whatsoever, but that the trust
estate only shall be liable. No Fund shall be liable for the obligations or
liabilities of any other Fund. No series of any Fund, if any, shall be liable
for obligations of any other series.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Advisor Shares, the
Fund or CSI shall notify Service Organization as soon as practicable after
discovering the need for those adjustments that result in an aggregate
reimbursement of $150 or more to any one Account. Any such notice shall state
for each day for which an error occurred the incorrect price, the correct price
and, to the extent communicated to the Fund's shareholders, the reason for the
price change. Service Organization may send this notice or a derivation thereof
(so long as such derivation is approved in advance by CSI or Counsellors) to
Plan participants and Customers whose accounts are affected by the price change.
If an Account received amounts in excess of the amounts to which it
otherwise would have been entitled prior to an adjustment for an error, Service
Organization, at the Fund's request, will make a good faith attempt to collect
such excess amounts from
-5-
<PAGE>
<PAGE>
Plan participants and Customers. In no event, however,shall
Service Organization be liable to a Fund or CSI for any such amounts.
If an adjustment is to be made in accordance with the first paragraph of
this Section 5, the relevant Fund shall make all necessary adjustments (within
the parameters specified in that first paragraph) to the number of Advisor
Shares owned in the Accounts and distribute to Service Organization the amount
of such underpayment for credit to Plan participants' and Customers' accounts.
6. Publicity. CSI will provide Service Organization on a timely basis
with investment performance information for each Fund in which Service
Organization maintains an Account, including total return for the preceding
calendar month and calendar quarter, the calendar year to date, and the prior
one-year, five-year, and ten-year (or life of the Fund) periods. Service
Organization may, based on the Securities and Exchange Commission-mandated
information supplied by CSI, prepare communications for Plan participants and
Customers ("Participant Materials"). Service Organization shall provide copies
of all Participant Materials to CSI concurrently with their first use for CSI's
internal recordkeeping purposes. It is understood that neither CSI nor any Fund
shall be responsible for errors or omissions in, or the content of, Participant
Materials.
7. Standard of Care; Indemnification. In carrying out Service
Organization's and CSI's obligations under this Agreement, Service Organization
and CSI each agree to act in good faith and without negligence.
Service Organization agrees to and does release, indemnify and hold each
Fund, its investment adviser(s), CSI and their respective officers, trustees,
directors, employees, agents and controlling persons harmless from and against
any and all direct or indirect claims, liabilities, expenses or losses resulting
from requests, directions, actions or inactions of or by Service Organization or
its or their officers, employees or agents regarding Service Organization's
responsibilities hereunder. Without limiting the generality of the foregoing,
Service Organization agrees that this provision will apply to claims,
liabilities, expenses or losses arising out of (a) Service Organization making
any statement or representation concerning the Advisor Shares that is not
contained in the relevant Prospectus or Statement or in such printed material
issued by CSI or a Fund as information supplemental to the Prospectus and
Statement (including, without limitation, any statement, representation or
omission contained in Participant Materials), (b) a sale or offering of Advisor
Shares (i) in any state or jurisdiction in which such Advisor Shares are not
qualified for sale or exempt from the requirements of the relevant securities
laws or in which Service Organization is not properly licensed or authorized to
make offers or sales, (ii) which is unsuited or otherwise inappropriate for any
Plan, Plan participant or Customer or (iii) at any time after CSI or any Fund
provides written notice that any Fund is not then currently offering Advisor
Shares to
-6-
<PAGE>
<PAGE>
the public. CSI agrees to and does release, indemnify and hold Service
Organization and its officers, directors and controlling persons harmless from
and against any and all direct or indirect claims, liabilities, expenses or
losses resulting from requests, directions, actions or inactions of or by CSI or
its respective officers, trustees, directors, employees, agents or controlling
persons.
This provision shall survive the termination of this Agreement.
8. Representations and Warranties. Each party hereby represents and
warrants to the other that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
Service Organization further represents, warrants and agrees that:
(i) Service Organization is and, during the term of this
Agreement, will be fully authorized by applicable law and regulation and
by any agreement it may have with any Plan, Customer or client for whom
it may act in a manner covered by this Agreement to perform the services
and receive the compensation therefor described in this Agreement;
(ii) in performing the services and receiving the
compensation described in this Agreement, Service Organization will
comply with all applicable laws, rules and regulations;
(iii) Service Organization is duly registered as a
broker-dealer under Section 15 of the 1934 Act and a transfer agent
under Section 17A of the 1934 Act and, in each case, applicable state
securities laws and regulations, and all such registrations are in full
force and effect and will remain in effect during the term of this
Agreement; if Service Organization is not so registered, it is not
required to be so registered and will not be required to be so
registered in order to perform the services described in this Agreement;
(iv) neither Service Organization, nor any of its
"affiliates" (as such term is defined in 29 C.F.R. Section 2510.3-21(e))
is or, during term of this Agreement, will become a "fiduciary" of any
Plan as such term is defined in section 3(21) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), and
section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code");
(v) the receipt of fees hereunder will not constitute a
"prohibited transaction" as such term is defined in section 406 of ERISA
and section 4975 of the Code; and
-7-
<PAGE>
<PAGE>
(vi) the compensation payable to Service Organization
hereunder, together with any other compensation it receives from Plans,
Plan participants and Customers for services contemplated by this
Agreement, will not be excessive or unreasonable under the laws and
instruments governing its relationships with Plans, Plan participants
and Customers.
9. Reports. Service Organization will furnish CSI, each Fund or its
designees with such information as it or they may reasonably request (including,
without limitation, periodic certifications confirming the provision to Plans,
Plan participants and Customers of the services described herein), and will
otherwise cooperate with CSI, each Fund and its designees (including, without
limitation, any auditors designated by each Fund), in connection with the
preparation of reports to the Fund's governing Board concerning this Agreement
and the monies paid or payable by CSI, on behalf of the Fund, pursuant hereto,
as well as any other reports or filings that may be required by law. Service
Organization will promptly notify the Fund and CSI in the event it is no longer
able to make the representations and warranties set forth above.
10. Term. This Agreement will become effective on the date set forth
below. Unless sooner terminated, this Agreement will continue until one year
from the date hereof, and thereafter will continue automatically for successive
annual periods provided such continuance is specifically approved at least
annually by the Fund in the manner set forth in the next paragraph. This
Agreement is terminable with respect to each Fund, with or without cause,
without penalty (i) at any time by the Fund, which termination may be by vote of
a majority of (a) the Disinterested Trustees/Directors (as defined below) or (b)
the outstanding Advisor Shares of the Fund, or (ii) by CSI or Service
Organization upon 30 days' notice to the other party hereto.
Anything in this Agreement to the contrary notwithstanding, no
compensation may be paid under this Agreement with respect to any Fund until
this Agreement has been approved by vote of a majority of (i) the Fund's
governing Board and (ii) those Trustees/Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect
financial interest in the operation of the Distribution Plan adopted by the Fund
regarding the provision of distribution and support services to the beneficial
owners of the Advisor Shares or in any agreements related thereto
("Disinterested Trustees/Directors"), cast in person at a meeting for the
purpose of voting on such approval.
11. Transactions Subject to Fund/SERV. Upon the execution of a
Fund/SERV Amendment to this Agreement, transactions in Fund shares may be
affected through Fund/SERV.
-8-
<PAGE>
<PAGE>
12. Governing Law; Complete Agreement; Assignment. This Agreement
shall be governed by and construed in accordance with the laws (except the
conflict of law rules) of the State of New York.
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, statements,
arrangements, agreements, warranties and understandings between the parties with
respect to the subject matter hereof, whether oral or written, express or
implied.
This Agreement is non-assignable by the parties hereto and will
terminate automatically in the event of its assignment (as such term is defined
in the 1940 Act). Nothing in this Agreement is intended to confer upon any
person other than the Fund and the parties hereto and their permitted assigns
and successors any rights or remedies under or by reason of this Agreement.
13. Amendment. This Agreement, including the Schedules thereto, may
be modified or amended and the terms of this Agreement may be waived only by
writings signed by each of the parties.
14. Notices. All notices and communications shall be mailed or telecopied
to Service Organization to the address set forth below and to the Fund or CSI
at 466 Lexington Avenue, New York, New York 10017, Attention: Eugene P. Grace
Fax No.: 212-878-9351), or in any case to such other address as a party may
request by giving written notice to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 199_ By:________________________________
Name:
Title:
Effective as of:______________
-9-
<PAGE>
<PAGE>
Please indicate Service Organization's confirmation and acceptance of this
Agreement as of the date written above by signing below and returning one copy
of this Agreement to Counsellors Securities Inc., 466 Lexington Avenue, New
York, New York 10017, Attention: Eugene P. Grace.
Accepted and Agreed:
__________________________________
By:__________________________
Name (Print):__________________
Title:_________________________
Address: ______________________
Telephone No.:__________________
Fax No.:
-10-
<PAGE>
<PAGE>
CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED SHALL HAVE THE MEANING
SET FORTH IN THE BODY OF THE ADVISOR FUNDS SERVICES AGREEMENT.
APPENDIX A
Funds Fee Rate
Warburg Pincus Balanced Fund .50%
Warburg Pincus Capital Appreciation Fund .50%
Warburg Pincus Emerging Growth Fund .50%
Warburg Pincus Emerging Markets Fund .50%
Warburg Pincus Fixed Income Fund .25%
Warburg Pincus Health Sciences Fund .50%
Warburg Pincus Global Fixed Income Fund .50%
Warburg Pincus Growth & Income Fund .50%
Warburg Pincus Intermediate Maturity Government Fund .25%
Warburg Pincus International Equity Fund .50%
Warburg Pincus Japan Growth Fund .50%
Warburg Pincus Japan OTC Fund .50%
Warburg Pincus New York Intermediate Municipal Fund .25%
Warburg Pincus Post-Venture Capital Fund .50%
Warburg Pincus Small Comany Growth Fund .50%
Warburg Pincus Small Company Value Fund .50%
-11-
<PAGE>
<PAGE>
SCHEDULE A
Distribution and Marketing Services
(i) formulation and implementation of marketing and promotional
activities including, but not limited to, direct mail promotions and other
advertising, if appropriate;
(ii) distributing Prospectuses, Statements and reports of the Fund to
prospective Plans, Plan sponsors and Customers;
(iii) preparing, printing and distributing sales literature
pertaining to the Fund; and
(iv) obtaining information, analyses and reports with respect to
marketing and promotional activities relating to the Fund.
Administrative Services
(i) receiving from the Plans, Plan participants and Customers, by the
close of regular trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time) on any business day (i.e., a day on which the New York Stock
Exchange is open for trading), instructions for the purchase and redemption of
shares; aggregating and processing purchase and redemption requests for Advisor
Shares from Plan participants and Customers and placing net purchase and
redemption orders with CSI or its designee; payment for net purchase orders must
be received at the time the order is placed; communicating orders in a timely
manner to CSI or its designee and promptly delivering, or instructing the Plans
to deliver, appropriate documentation to CSI or its designee;
(ii) providing Plan participants and Customers with a service that invests
the assets of their accounts in Advisor Shares;
(iii) providing information periodically to Plans, Plan participants and
Customers showing their positionsin Advisor Shares;
(iv) arranging for bank wires;
(v) providing sub-accounting with respect to Advisor Shares beneficially
owned by Plans, Plan participants and Customers;
A-1
<PAGE>
<PAGE>
(vi) if required by law, forwarding shareholder communications from the
relevant Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Plans, Plan
participants and Customers at Service Organization's expense, with such material
to be provided to it by CSI to the extent reasonably practicable upon ten
Business Days' notice;
(vii) withholding taxes on non-resident alien accounts and otherwise as
appropriate;
(viii) maintaining records of dividends and distributions; and disbursing
dividends and distributions and reinvesting such in the relevant Fund for Plans
and Plan participants;
(ix) preparing and delivering to Plans, Plan participants and Customers and
state and federal regulatory authorities, including the U.S. Internal Revenue
Service, such information respecting dividends and distributions paid by the
relevant Fund as may be required by law;
(x) maintaining adequate records for each Plan and Customer reflecting
Advisor Shares purchased and redeemed, including dates and prices for all
transactions, and Share balances;
(xi) preparing and delivering to Plans and Customers periodic account
statements showing for each Plan and Customer, respectively, the total number of
Advisor Shares held as of the statement closing date, purchases and redemptions
of Advisor Shares during the statement period, and dividends and other
distributions paid during the statement period (whether paid in cash or
reinvested in Advisor Shares), including dates and prices for all transactions;
(xii) on behalf of and to the extent instructed by each Plan and Customer
and as required by law, at Service Organization's expense, delivering to Plan
participants (or delivering to the Plans for distribution to Plan participants)
and Customers Prospectuses, Statements and other materials provided to it by CSI
to the extent reasonably practicable upon ten Business Days' notice;
(xiii) maintain daily and monthly purchase summaries (expressed in both
Share and dollar amounts) for each Plan and Customer; and
(xiv) settle orders in accordance with the terms of the Prospectus and
Statement of the Fund.
A-2
<PAGE>
<PAGE>
Shareholder Services
(i) responding to Plans, Plan participant and Customer inquiries;
(ii) providing information on Plan, Plan participant and Customer
investments;
(iii) providing other shareholder liaison services;
(iv) providing office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and facilities
currently used in Service Organization's business, or any personnel employed
by Service Organization) as may be reasonably necessary or beneficial in order
to provide services to Plans and Customers under this Agreement;
(v) sending confirmations of orders to the Plans and Plan participants and
Customers to the extent required by law and paying any costs in connection
therewith;
(vi) using all reasonable efforts to ensure that taxpayer identification
numbers provided by Service Organization on behalf of the Plans, Plan
participants and Customers are correct; and
(vii) providing the Plans, Plan participants and Customers a confirming
Prospectus following an acquisition of Advisor Shares to the extent required by
law.
A-3
<PAGE>
<PAGE>
Other Services
(i) providing all other services as may be incidental to the Distribution
and Marketing Services, Administrative Services and Shareholder Services
enumerated above;
(ii) providing such other services as may be normal or customary for service
providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by the parties
to the extent permitted under applicable statutes, rules and regulations.
A-4
<PAGE>
<PAGE>
SCHEDULE B
Prohibited Activities
(i) Service Organization shall not withhold placing orders for the Advisor
Shares received from Plan participants and Customers so as to profit as a
result of such withholding.
(ii) Service Organization shall not place orders for Advisor Shares unless it
has already received purchase orders for Advisor Shares at the applicable public
offering price and subject to the terms hereof.
(iii) Service Organization agrees that it will not offer or sell any Advisor
Shares except under circumstances that will result in compliance with applicable
federal and state securities laws and that in connection with sales and offers
to sell Advisor Shares Service Organization will furnish to each person to whom
any such sale or offer is made, at or prior to the time of offering or sale, a
copy of the relevant Prospectus and, if requested, the corresponding Statement
(each as then amended or supplemented) and will not furnish to any person any
information relating to a Fund that is inconsistent in any respect with the
information contained in the Prospectus and Statement (each as then amended or
supplemented).
(iv) Service Organization shall not make any representations concerning the
Advisor Shares except those contained in the relevant Prospectus and Statement
and in such printed information subsequently issued by CSI or a Fund as
information supplemental to the Prospectus and Statement.
B-1
<PAGE>
<PAGE>
SCHEDULE C
Operating Procedures
1. Each Fund will make available its net asset value per share on a
daily basis as soon as reasonably practicable after the net asset value is
calculated. The Fund will use its best efforts to make such determination
available by 6:00 p.m., Eastern time, but in no event later than 7:00 p.m.,
Eastern time, each Business Day.
2. Each Fund will furnish notice of the declaration of any income,
dividends or capital gains distributions payable by it. This information will
include the ex, record and payable dates along with the Fund's reinvestment
price. Typically, this notice will be given by fax transmission, but may be
given by other means as may be reasonable under the circumstances.
3. Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with the Fund's Prospectus.
4. For trades placed with a Fund the Business Day after a trade date
("T+1") for investment at the prior Business Day's net asset value:
(i) trade orders must be received before 4:00 p.m., Eastern time, by
the Service Organization on the trade date ("T"):
(ii) trade orders must be communicated to the relevant Fund by 10:00
a.m., Eastern time on T + 1, and
(iii) payment for such orders must be in federal funds transmitted by
wire. This wire must be initiated by 12:00 p.m., Eastern time on T + 1 by
either the Service Organization or CSI, as the case may be.
5. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued by the Funds unless specifically
requested by the Service Organization and agreed to by the relevant Fund.
6. CSI will make available reports as to the states and jurisdictions
in which we believe the Funds are qualified for sale under, or are exempt from
the requirements of, the respective securities laws of such states and
jurisdictions. These reports will be updated periodically as changes arise.
7. The Funds will make available confirmation of executed trades the
next Business Day following receipt of the trade from the Service Organization.
Confirmation may be in written or verbal form. If verbal, Service Organization
must promptly inform CSI of any discrepancies; silence will be deemed to
indicate agreement.
8. The Funds will make available account statements on a calendar
quarter basis.
C-1
<PAGE>
<PAGE>
CONSENT OF COUNSEL
Warburg, Pincus Capital Appreciation Fund
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 18 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 33-12344,
Investment Company Act File No. 811-5041) of Warburg, Pincus Capital
Appreciation Fund (the "Fund") under the caption "Independent Accountants
and Counsel" and to the Fund's filing a copy of this Consent as an exhibit to
the Amendment.
/s/ Willkie Farr & Gallagher
------------------------------
Willkie Farr & Gallagher
February 17, 1997
New York, New York
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 18 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 33-12344) of our report dated December 18, 1996 on our audit of
the financial statements and financial highlights of Warburg, Pincus Capital
Appreciation Fund. We also consent to the reference to our Firm under the
heading "Financial Highlights" in the Prospectus and under the heading
"Independent Accountants and Counsel" in the Statement of Additional
Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 17, 1997
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") is adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), by each of the Warburg Pincus Funds (the "Fund"), subject to the
following terms and conditions:
Section 1. Distribution Agreements; Annual Fee.
Any officer of the Fund or Counsellors Securities Inc., the
Fund's distributor ("Counsellors Securities"), is authorized to execute and
deliver written agreements (the "Agreements") in any form duly approved by the
Board of Directors/Trustees of the Fund (the "Board") with institutional
shareholders of record, broker-dealers, financial institutions, depository
institutions, retirement plans and other financial intermediaries ("Service
Organizations") relating to shares of the Fund's common stock, par value $.001
per share, designated Advisor Shares (the "Advisor Shares"). Pursuant to an
Agreement, Service Organizations will be paid an annual fee out of the assets of
the Fund by the Fund directly or by Counsellors Securities on behalf of the Fund
for providing (a) services primarily intended to result in the sale of Advisor
Shares ("Distribution Services"), (b) shareholder servicing to their customers
or clients who are the record and/or the beneficial owners of Advisor Shares
("Customers") ("Shareholder Services") and/or (c) administrative and accounting
services to Customers ("Administrative Services"). A Service Organization will
be paid an annual fee under the Plan calculated daily and paid monthly at an
annual rate of up to .50% of the average daily net assets of the Advisor Shares
held by or on behalf of its Customers ("Customers' Shares") with respect to
Distribution Services and/or Administrative Services and may be paid an annual
fee of up to .25% of the average daily net assets of Customers' Shares with
respect to Shareholder Services.
Section 2. Services.
The annual fee paid to Service Organizations under Section 1 of
the Plan with respect to Distribution Services, if any, will compensate Service
Organizations to cover certain expenses primarily intended to result in the sale
of Advisor Shares, including, but not limited to: (a) costs of payments made to
employees that engage in the distribution of Advisor Shares; (b) payments made
to, and expenses of, persons who provide support services in connection with the
distribution of Advisor Shares, including, but not limited to, office space and
equipment, telephone facilities, processing shareholder transactions and
providing any other shareholder services not otherwise provided by the Fund's
transfer agent; (c) costs relating to the formulation and implementation of
marketing and
<PAGE>
<PAGE>
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (d)
costs of printing and distributing prospectuses, statements of additional
information and reports of the Fund to prospective holders of Advisor Shares;
(e) costs involved in preparing, printing and distributing sales literature
pertaining to the Fund and (f) costs involved in obtaining whatever information,
analyses and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable.
The annual fee paid to Service Organizations under Section 1 of
the Plan with respect to Shareholder Services, if any, will compensate Service
Organizations for personal service and/or the maintenance of Customer accounts,
including but not limited to (a) responding to Customer inquiries, (b) providing
information on Customer investments and (c) providing other shareholder liaison
services.
The annual fee paid to Service Organizations under Section 1 of
the Plan with respect to Administrative Services, if any, will compensate
Service Organizations for administrative and accounting services to their
Customers, including, but not limited to: (a) aggregating and processing
purchase and redemption requests from Customers and placing net purchase and
redemption orders with the Fund's distributor or transfer agent; (b) providing
Customers with a service that invests the assets of their accounts in Advisor
Shares; (c) processing dividend payments from the Fund on behalf of Customers;
(d) providing information periodically to Customers showing their positions in
Advisor Shares; (e) arranging for bank wires; (f) providing sub-accounting with
respect to Advisor Shares beneficially owned by Customers or the information to
the Fund necessary for sub-accounting; (g) forwarding shareholder communications
from the Fund (for example, proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers,
if required by law and (h) providing other similar services to the extent
permitted under applicable statutes, rules and regulations.
Payments under this Plan are not tied exclusively to the expenses
for shareholder servicing, administration and distribution expenses actually
incurred by any Service Organization, and the payments may exceed expenses
actually incurred by any Service Organization.
Section 3. Additional Payments.
Counsellors Securities, Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ("Warburg"), Counsellors Funds Service, Inc., the
Fund's co-administrator ("Counsellors Service"), or any affiliate of any of the
foregoing may, from time to time, make payments to Service Organizations for
providing distribution, administrative, accounting and/or other
<PAGE>
<PAGE>
services with respect to holders of Advisor Shares. Counsellors Securities,
Warburg, Counsellors Service or any affiliate thereof may, from time to time, at
their own expense, pay certain Fund transfer agent fees and expenses related to
accounts of Customers of Service Organizations that have entered into
Agreements. A Service Organization may use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of Customers of the Service Organization that hold Advisor
Shares. Payments by the Fund under this Plan shall not be made to a Service
Organization with respect to services for which the Service Organization is
otherwise compensated by Counsellors Securities, Warburg, Counsellors Service or
any affiliate thereof.
Payments may be made to Service Organizations by Counsellors
Securities, Warburg, Counsellors Service or any affiliate thereof from any such
entity's own resources, which may include a fee it receives from the Fund.
Section 4. Monitoring.
Counsellors Securities shall monitor the arrangements pertaining
to the Fund's Agreements with Service Organizations.
Section 5. Approval by Shareholders.
The Plan is effective, and fees are payable in accordance with
Section 1 of the Plan pursuant to the approval of the Plan by a vote of at least
a majority of the outstanding voting Advisor Shares.
Section 6. Approval by Board Members.
The Plan is effective, and payments under any related agreement
may be made pursuant to the approval of the Plan and such agreement by a
majority vote of both (a) the full Board of the Fund and (b) those
Directors/Trustees ("Board Members") who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to it (the "Qualified Board Members"), cast in
person at a meeting called for the purpose of voting on the Plan and the related
agreements.
Section 7. Continuance of the Plan.
The Plan will continue in effect for so long as its continuance
is specifically approved at least annually by the Fund's Board in the manner
described in Section 5 above.
Section 8. Termination.
The Plan may be terminated at any time by a majority vote of the
Qualified Board Members or by a majority of the outstanding voting Advisor
Shares.
<PAGE>
<PAGE>
Section 9. Amendments.
The Plan may not be amended to increase materially the amount of
the fees described in Section 1 above with respect to the Advisor Shares without
approval of at least a majority of the outstanding voting Advisor Shares. In
addition, all material amendments to the Plan must be approved by the Fund's
Board in the manner described in Section 6 above.
Section 10. Selection of Certain Board Members.
While the Plan is in effect, the selection and nomination of the
Fund's Board Members who are not interested persons of the Fund will be
committed to the discretion of the Board Members then in office who are not
interested persons of the Fund.
Section 11. Written Reports.
In each year during which the Plan remains in effect, Counsellors
Securities will furnish to the Fund's Board, and the Board will review, at least
quarterly, written reports, which set out the amounts expended under the Plan
and the purposes for which those expenditures were made.
Section 12. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating
to the Plan and any report made pursuant to Section 11 above, for a period of
not less than six years (the first two years in an easily accessible place) from
the date of the Plan, agreement or report.
Section 13. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same meanings
that those terms have under the 1940 Act and the rules and regulations
thereunder, subject to any exemption that may be granted to the Fund under the
1940 Act by the Securities and Exchange Commission.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Fund has executed the Plan as of ________
__, 199_.
By:___________________________
Name:
Title:
Acknowledged this
_____ day of ________, 199_
COUNSELLORS SECURITIES INC.
By:_____________________________
Name:
Title:
<PAGE>
<PAGE>
Warburg Pincus Capital Appreciation Fund
Common Shares
1 year Total Return:
((12,467-10,000) / 10,000 = 24.67%
5 year Annualized Total Return:
((21,205/10,000)'pp'1/5 -1) = 16.22%
Annualized Total Return from inception:
((29,074/10,000)'pp'1/9.21644 -1) = 12.28%
Advisor Shares
1 year Total Return:
((12,415-10,000) / 10,000 = 24.15%
5 year Annualized Total Return:
((20,720/10,000)'pp'1/5 -1) / = 15.69%
Annualized Total Return from inception:
((21,037/10,000)'pp'1/5.58356 -1) = 14.25%
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000811159
<NAME> WARBURG PINCUS CAPITAL APPRECIATION FUND
<SERIES>
<NUMBER> 001
<NAME> COMMON SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 362292048
<INVESTMENTS-AT-VALUE> 426862090
<RECEIVABLES> 9439239
<ASSETS-OTHER> 4206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 436305535
<PAYABLE-FOR-SECURITIES> 4439457
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 719059
<TOTAL-LIABILITIES> 5158516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 393166373
<SHARES-COMMON-STOCK> 24037943
<SHARES-COMMON-PRIOR> 15095015
<ACCUMULATED-NII-CURRENT> 1645742
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14094545
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22240359
<NET-ASSETS> 431147019
<DIVIDEND-INCOME> 4048685
<INTEREST-INCOME> 1347518
<OTHER-INCOME> 0
<EXPENSES-NET> 3544637
<NET-INVESTMENT-INCOME> 1851566
<REALIZED-GAINS-CURRENT> 45879867
<APPREC-INCREASE-CURRENT> 22240359
<NET-CHANGE-FROM-OPS> 69971792
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 205824
<DISTRIBUTIONS-OF-GAINS> 31785322
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 200852137
<NUMBER-OF-SHARES-REDEEMED> 86168618
<SHARES-REINVESTED> 31176989
<NET-CHANGE-IN-ASSETS> 183841154
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 31648355
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2328788
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3544637
<AVERAGE-NET-ASSETS> 312980680
<PER-SHARE-NAV-BEGIN> 16.39
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 3.53
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> 2.04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.95
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000811159
<NAME> WARBURG PINCUS CAPITAL APPRECIATION FUND
<SERIES>
<NUMBER> 002
<NAME> ADVISOR SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 362292048
<INVESTMENTS-AT-VALUE> 426862090
<RECEIVABLES> 9439239
<ASSETS-OTHER> 4206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 436305535
<PAYABLE-FOR-SECURITIES> 4439457
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 719059
<TOTAL-LIABILITIES> 5158516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 393166373
<SHARES-COMMON-STOCK> 24037943
<SHARES-COMMON-PRIOR> 15095015
<ACCUMULATED-NII-CURRENT> 1645742
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14094545
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22240359
<NET-ASSETS> 431147019
<DIVIDEND-INCOME> 4048685
<INTEREST-INCOME> 1347518
<OTHER-INCOME> 0
<EXPENSES-NET> 3544637
<NET-INVESTMENT-INCOME> 1851566
<REALIZED-GAINS-CURRENT> 45879867
<APPREC-INCREASE-CURRENT> 22240359
<NET-CHANGE-FROM-OPS> 69971792
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 205824
<DISTRIBUTIONS-OF-GAINS> 31785322
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 200852137
<NUMBER-OF-SHARES-REDEEMED> 86168618
<SHARES-REINVESTED> 31176989
<NET-CHANGE-IN-ASSETS> 183841154
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 31648355
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2328788
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3544637
<AVERAGE-NET-ASSETS> 19703271
<PER-SHARE-NAV-BEGIN> 16.26
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 3.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.73
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
RULE 18f-3 PLAN
Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), requires that the Board of an investment company
desiring to offer multiple classes pursuant to the Rule adopt a plan setting
forth the separate arrangement and expense allocation of each class (a "Class"),
and any related conversion features or exchange privileges. The differences in
distribution arrangements and expenses among these classes of shares, and the
exchange features of each class, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the governing documents
of each fund that adopts this Plan (the "Fund" and together the "Funds"), by
action of the governing Board of the Fund.
The governing Board, including a majority of the non-interested Board
members, of each Fund, or series thereof, which desires to offer multiple
classes has determined that the following Plan is in the best interests of each
class individually and the Fund as a whole:
1. Class Designation. Shares of a Fund or series of a Fund shall be
divided into Common Shares and Advisor Shares.
2. Differences in Services. Counsellors Securities Inc. ("CSI") will
provide shareholder servicing and distribution services to holders of Common
Shares and Advisor Shares. Institutional shareholders of record may also provide
distribution services, shareholder services and/or administrative and accounting
services to or on behalf of their clients or customers who beneficially own
Advisor Shares.
3. Differences in Distribution Arrangements.
Common Shares. Common Shares are sold to the general public and are not
subject to any annual distribution fee, except for Funds that have adopted a
Shareholder Servicing and Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, which Funds pay CSI .25% per annum for services under that Plan.
Specified minimum initial and subsequent purchase amounts are applicable to the
Common Shares. Common Shares are available through certain organizations that
may or may not charge their customers administrative charges or other direct
fees in connection with investing in Common Shares. CSI may pay certain
financial institutions, broker-dealers and recordkeeping organizations a fee
based on the value of accounts maintained by such organizations in Common Shares
of a Fund.
<PAGE>
<PAGE>
-2-
Advisor Shares. Advisor Shares are available for purchase by financial
institutions, retirement plans, broker-dealers, depository institutions and
other financial intermediaries (collectively, "Institutions"). Advisor Shares
may be charged a shareholder service fee (the "Shareholder Service Fee") payable
at an annual rate of up to .25%, and a distribution fee (the "Distribution
Service Fee") payable at an annual rate of up to .50%, of the average daily net
assets of such Class under a Distribution Plan adopted pursuant to Rule 12b-1
under the 1940 Act. Payments may be made directly out of the assets of the Fund
or by CSI on its behalf. Additional payments may be made by CSI or an affiliate
thereof from time to time to Institutions for providing distribution,
administrative, accounting and/or other services with respect to Advisor Shares.
Payments by the Fund shall not be made to an Institution pursuant to the Plan
with respect to services for which Institutions are otherwise compensated by CSI
or an affiliate thereof. There is no minimum amount of initial or subsequent
purchases of Advisor Shares imposed on Institutions.
General. CSI or an affiliate thereof may pay certain Fund transfer agent
fees and expenses related to accounts of customers of organizations that have
entered into agreements with CSI or the Fund. An organization may use a portion
of the fees paid pursuant to the Plan to compensate the Fund's custodian or
transfer agent for costs related to accounts of customers of the organization
that hold Common Shares or Advisor Shares.
Payments may be made to organizations the customers or clients of which
invest in a Fund's Common Shares or Advisor Shares by CSI or an affiliate
thereof from such entity's own resources, which may include a fee it receives
from the Fund.
4. Expense Allocation. The following expenses shall be allocated, to the
extent practicable, on a Class-by-Class basis: (a) fees under the Shareholder
Servicing and Distribution Plan or Distribution Plan, as applicable; (b)
transfer agent fees identified by the Fund's transfer agent as being
attributable to a specific Class; and (c) expenses incurred in connection with
shareholders' meetings as a result of issues relating to a specific Class.
The distribution, administrative and shareholder servicing fees and
other expenses listed above which are attributable to a particular Class are
charged directly to the net assets of the particular Class and, thus, are borne
on a pro rata basis by the outstanding shares of that Class; provided, however,
that money market funds and other funds making daily distributions of their net
investment income may allocate these items to each share regardless of class or
on the basis of relative net assets (settled shares), applied in each case
consistently.
<PAGE>
<PAGE>
-3-
5. Conversion Features. No Class shall be subject to any automatic
conversion feature.
6. Exchange Privileges. Shares of a Class shall be exchangeable only for
(a) shares of the same Class of other investment companies advised by Warburg,
Pincus Counsellors, Inc. that are part of the same group of investment companies
and (b) shares of certain other investment companies specified from time to
time.
7. Additional Information. This Plan is qualified by and subject to the
terms of the then current prospectus for the applicable Class; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the applicable Fund's multiple class structure.
Dated: November 4, 1996
<PAGE>
