WARBURG PINCUS EUROPEAN FUND INC, N-1A, 1998-07-30

WARBURG PINCUS EUROPEAN FUND INC
N-1A, 1998-07-30

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<PAGE> 1

As filed with the U.S. Securities and Exchange Commission
on July 30, 1998

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

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. [ ]

and/or

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

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

Warburg, Pincus European Equity Fund, Inc.

(Exact Name of Registrant as Specified in Charter)

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

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

Mr. Eugene P. Grace
Warburg, Pincus European Equity Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147

(Name and Address of Agent for Service)

Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099

<PAGE> 2

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.

Title of Securities Being Registered: Common Stock, $.001 par value per share.

The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended (the "1933 Act"), or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.

<PAGE> 3

WARBURG, PINCUS EUROPEAN EQUITY FUND, INC.

FORM N-1A

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. (a) Front Cover Page.......................................... Front Cover Page
(b) Back Cover Page........................................... Back Cover Page

2. Risk/Return Summary:
Investments, Risks,
and Performance............................................. Overview -- Investor Profile; Goals
and Principal Strategies; A Word About
Risk

3. Risk/Return Summary:
Fee Table................................................... Fees and Fund Expenses; Example

4. Investment Objectives,
Principal Investment Strategies,
and Related Risks........................................... Overview -- Goals and Principal
Strategies; A Word About Risk;
European Equity Fund; Central and
Eastern Europe Fund; More About Risk;
Other Investment Strategies

5. Management's Discussion of
Fund Performance............................................ Not Applicable

6. Management, Organization and
Capital Structure............................................. Overview -- Multi-Class Structure; The
Funds In Detail; Fund Information Key;
Meet The Managers

7. Shareholder Information....................................... Fund Information Key; About Your
Account; Other Information; For More
Information; Shareholder Guide

8. Distribution Arrangements..................................... The Funds In Detail; Other Information

9. Financial Highlights Information.............................. Not Applicable
</TABLE>

<PAGE> 4

<TABLE>
<CAPTION>
Part B
Item No.
- --------
<S> <C>
10. (a) Front Cover Page.......................................... Cover Page
(b) Table of Contents......................................... Cover Page

11. Fund History.................................................. Organization of the Funds

12. Description of the Fund and its
Investments and Risks....................................... Organization of the Funds; Investment
Objectives and Policies; See
Prospectus -- ""Goals and Principal
Strategies," "A Word About Risk,"
"Other Investment Strategies," "More
About Risk," "European Equity Fund,"
and "Central and Eastern Europe Fund"

13. Management of the Fund........................................ Management of the Funds; See
Prospectus -- "The Funds In Detail,"
and "Meet The Managers"

14. Control Persons and Principal
Holders of Securities....................................... Management of the Funds

15. Investment Advisory and
Other Services.............................................. Management of the Funds; See
Prospectus -- "The Funds In Detail,"
and "Other Information"

16. Brokerage Allocation
and Other Practices......................................... Investment Objectives and Policies --
Portfolio Transactions

17. Capital Stock and Other
Securities.................................................. Management of the Funds; --
Organization of the Fund; See
Prospectus -- "Overview -- Multi-Class
Structure"
</TABLE>
<PAGE> 5

<TABLE>
<CAPTION>
<S> <C>
18. Purchase, Redemption and Pricing
of Shares................................................... Additional Purchase and Redemption
Information; See Prospectus -- "About
Your Account," "Other Information,"
"For More Information," and
"Shareholder Guide"

19. Taxation of the Fund.......................................... Additional Information Concerning
Taxes; See Prospectus -- "About Your
Account"

20. Underwriters.................................................. Investment Objectives and Policies --
Portfolio Transactions; Management of
the Funds -- Distribution and
Shareholder Servicing; See Prospectus
-- "The Funds In Detail," and "Other
Information"

21. Calculation of Performance Data............................... Determination of Performance

22. Financial Statements.......................................... Financial Statements; Report of
PricewaterhouseCoopers LLP,
Independent Accountants
</TABLE>

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.

<PAGE> 6
COMMON

Subject to Completion, dated July 30, 1998

PROSPECTUS
October 1, 1998

WARBURG PINCUS EUROPEAN EQUITY FUND

WARBURG PINCUS CENTRAL AND EASTERN EUROPE FUND

As with all mutual funds, the Securities and Exchange Commission has not
approved these funds, nor does it guarantee that the information in this
prospectus is accurate or complete. It is a criminal offense to state otherwise.

<PAGE> 7

CONTENTS

OVERVIEW 3
Multi-Class Structure 3
Investor Profile 3
Goals and Principal Strategies 4
A Word About Risk 5
Fees and Fund Expenses 6
Example 7

THE FUNDS IN DETAIL 8
The Management Firms 8
Fund Information Key 9

EUROPEAN EQUITY FUND 10

CENTRAL AND EASTERN EUROPE FUND 12

MORE ABOUT RISK 14
Introduction 14
Types of Investment Risk 14
Other Investment Practices 16

MEET THE MANAGERS 18

ABOUT YOUR ACCOUNT 20
How to Invest 20
Share Valuation 20
Buying and Selling Shares 20
Distributions 21
Taxes 21

OTHER INFORMATION 22
About the Distributor 22
Other Ways to Invest 22
Communication Topics

FOR MORE INFORMATION 23

<PAGE> 8

OVERVIEW

MULTI-CLASS STRUCTURE

Each of these funds offers two classes of shares, Common and Institutional. This
prospectus offers the Common Class. The Institutional Class is described in a
separate prospectus.

INVESTOR PROFILE

These funds are designed for investors who:

- - are investing for long-term goals

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

- - are seeking access to European markets that can be less accessible to
individual investors

- - can accept a higher degree of volatility

- - want to diversify a portfolio of domestic investments

They may NOT be appropriate if you:

- - are investing for a shorter time horizon

- - are uncomfortable with an investment that may suffer substantial declines in
value

- - are looking for a broadly diversified global or international equity fund

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

The Central and Eastern Europe Fund targets the emerging markets of a single
geographic region. The fund's investments may include Russia, a country whose
stock markets have experienced extreme volatility and illiquidity. Because
this fund involves a high level of risk, you should consider it only for the
aggressive portion of your portfolio. The Central and Eastern Europe Fund may
not be appropriate for everyone.

3
<PAGE> 9

GOALS AND PRINCIPAL STRATEGIES

<TABLE>
<CAPTION>
FUND / RISK FACTORS GOAL STRATEGY
<S> <C> <C>
EUROPEAN EQUITY FUND Capital appreciation - Invests in European stocks
Risk factors: - Targets Western European countries
Market risk - May use growth or value approaches
Foreign securities
Region focus

CENTRAL AND EASTERN EUROPE FUND Capital appreciation - Invests primarily in Central and
Risk Factors: Eastern European stocks
Market risk
Foreign securities - Focuses on the Czech Republic, Hungary,
Emerging markets focus Poland and Russia
Region focus
Country focus - Combines growth and value approaches
</TABLE>

<PAGE> 10

A WORD ABOUT RISK

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

The principal risks of investing in the funds are discussed below. Before you
invest, please make sure you understand the risks that apply to your fund. As
with any mutual fund, you could lose money over any period of time.

Investments in the funds are not bank deposits. They are not FDIC-insured or
government-endorsed.

MARKET RISK

Both funds

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

FOREIGN SECURITIES

Both funds

A fund that invests outside the U.S. carries additional risks that include:

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

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

- - POLITICAL RISK Foreign-government actions such as capital controls,
nationalizing a company or industry, expropriating assets, or
imposing punitive taxes could have a severe effect on foreign security prices
and impair a fund's ability to repatriate capital or income. Other political
risks include economic policy changes, social and political instability,
military action and war.

COUNTRY/REGION FOCUS

Both funds

Market swings in the targeted country or region will be likely to have
a greater effect on fund performance than they would in a more geographically
diversified equity fund.

EMERGING MARKETS FOCUS

Central and Eastern Europe Fund

Focusing on emerging markets involves higher levels of risk, including
increased currency, information, liquidity, market, political and valuation
risk. Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose a fund to operational and other risks
as well. Some countries may have restrictions that could limit a fund's access
to attractive opportunities. Additionally, emerging markets often face serious
problems (such as high external debt, inflation and unemployment) that could
subject a fund to increased volatility or substantial declines in value).

<PAGE> 11

FEES AND FUND EXPENSES

This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are estimates for fiscal 1999, but do not reflect
fee waivers and expense reimbursements.*

<TABLE>
<CAPTION>
Central and
European Equity Eastern Europe
Fund Fund
<S> <C> <C>
SHAREHOLDER FEES
(paid directly from your
investment)
--------------------------------- ------------------ ----------------
Sales charge "load" on purchases NONE NONE
--------------------------------- ------------------ ----------------
Deferred sales charge "load" NONE NONE
--------------------------------- ------------------ ----------------
Sales charge "load" on NONE NONE
reinvested distributions
--------------------------------- ------------------ ----------------
Redemption fee (short-term NONE 1.00%(1)
trading fee) on shares held
less than six months (as a
percent of amount redeemed)
--------------------------------- ------------------ ----------------
Exchange fee NONE NONE
--------------------------------- ------------------ ----------------

--------------------------------- ------------------ ----------------
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
--------------------------------- ------------------ ----------------
Management fee 1.00% 1.25%
--------------------------------- ------------------ ----------------
Distribution and service .25% .25%
(12b-1) fee
--------------------------------- ------------------ ----------------
Other expenses X.xx% X.xx%
--------------------------------- ------------------ ----------------
TOTAL ANNUAL FUND OPERATING X.xx%* X.xx%*
EXPENSES*
--------------------------------- ------------------ ----------------
</TABLE>

(1) The short-term trading fee is waived until further notice.

* Through at least December 1999, fund service providers have voluntarily
agreed to waive some of their fees and reimburse expenses. These waivers and
reimbursements are expected to lower fund expenses as follows:

<TABLE>
<CAPTION>
Management Distribution and Other Total annual fund
fee service (12b-1) fee expenses operating expenses

<S> <C> <C> <C> <C>
European Equity Fund X.xx% .25% X.xx% [X.xx%]
Central and
Eastern Europe Fund X.xx% .25% X.xx% [X.xx%]
</TABLE>

<PAGE> 12

EXAMPLE

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

Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed previously, and you close your account at the end of the time periods
shown. Based on these assumptions, your cost would be:

<TABLE>
<CAPTION>
<S> <C> <C>
BEFORE WAIVERS AND REIMBURSEMENTS* ONE YEAR THREE YEARS
------------------------------------- ---------- ------------
European Equity Fund $ $
------------------------------------- ---------- ------------
Central and Eastern Europe Fund $ $
------------------------------------- ---------- ------------
</TABLE>

*Fee waivers and expense reimbursements would lower your cost as follows:
<TABLE>
<CAPTION>

<S> <C> <C>
One year Three years

European Equity Fund $ $
Central and Eastern Europe Fund $ $

</TABLE>

<PAGE> 13

THE FUNDS IN DETAIL

THE MANAGEMENT FIRMS

BEA ASSOCIATES
One Citicorp Center
153 East 53rd Street
New York, NY 10022

- - Investment adviser for the funds

- - A member of Credit Suisse Asset Management and a subsidiary of Credit
Suisse Group, one of the world's leading banks

- - An investment manager for corporate and state pension funds, endowments
and other institutions

- - Currently manages approximately $35 billion in assets

Together with its predecessor firms, BEA has been engaged in the investment
advisory business for over 60 years.

CREDIT SUISSE ASSET MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ

- - Sub-adviser for the funds under the supervision of BEA

- - Currently manages approximately $35 billion in assets

- - A member of Credit Suisse Asset Management and a subsidiary of Credit
Suisse Group

- - Credit Suisse Asset Management has offices in Budapest, Moscow, Prague,
Warsaw, Frankfurt, Milan, Paris, Sydney, Tokyo and Zurich (these offices are
not registered with the U.S. Securities and Exchange Commission)

DISTRIBUTION AND SERVICE

COUNSELLORS SECURITIES INC.
466 Lexington Avenue
New York, NY 10017

- - Distributor of the funds

- - A wholly owned subsidiary of Warburg Pincus Asset Management, Inc.

COUNSELLORS FUNDS SERVICE, INC.
466 Lexington Avenue
New York, NY 10017

- - Provides the funds with administrative services

- - A wholly owned subsidiary of Warburg Pincus Asset Management, Inc.

<PAGE> 14

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

GOAL AND STRATEGY
The fund's particular investment goals and the strategies it intends to use in
pursuing them.

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

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

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

INVESTOR EXPENSES
Estimated expenses for the 1999 fiscal year.

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

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

<PAGE> 15

EUROPEAN EQUITY FUND

GOAL AND STRATEGY

The European Equity Fund seeks capital appreciation. To pursue this goal, the
fund invests primarily in stocks of Western European companies.

Normally the fund invests at least 65% of assets in equity securities of
companies located in or conducting a majority of their business in Western
Europe, considered to be the countries of the European Union, as well as Norway
and Switzerland. The European Union currently consists of the following Western
European countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the
United Kingdom.

To enhance return potential, the fund may also pursue opportunities in other
European countries.

The fund intends to diversify its investments across different countries.
However, at times the fund may invest a significant part of its assets in a
single country.

In choosing stocks, the portfolio managers consider factors that include (but
are not limited to):

- - stock price relative to the company's rate of earnings growth

- - valuation relative to other European companies and market averages

- - the stock's currency denomination

PORTFOLIO INVESTMENTS

This fund intends to invest at least 80% of its assets in equity securities of
Western European companies. These equity securities include:

- - common and preferred stocks

- - securities convertible into common stocks

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

The fund may also invest in investment-grade debt securities issued by Western
European companies and governments. To a limited extent, the fund may engage in
other investment practices.

RISK FACTORS
This fund's principal risk factors are:

- - market risk

- - foreign securities

- - region focus

The value of your investment will fluctuate in response to stock market
movements. Because the fund invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
described in "More About Risk."

Also, because the fund targets a single region, you should expect it to be more
volatile than a more geographically diversified equity fund. Fund performance is
closely tied to economic and political conditions within Europe.

To the extent that the fund uses certain investment practices, it takes on
further risks that could adversely affect its performance. Please read "More
About Risk" carefully before you invest.

<PAGE> 16

PORTFOLIO MANAGEMENT

Patricia Maxwell-Arnot and Susan E. Boland manage the fund's investment
portfolio. You can find out more about them in "Meet the Managers."
<TABLE>
<CAPTION>

INVESTOR EXPENSES
<S> <C>
Management fee X.xx%
All other expenses X.xx%
Total expenses X.xx%
</TABLE>

<PAGE> 17
CENTRAL AND EASTERN EUROPE FUND

GOAL AND STRATEGY

The Central and Eastern Europe Fund seeks capital appreciation. To pursue this
goal, it invests primarily in stocks of Central and Eastern European companies.

Under normal conditions, the fund invests at least 65% of assets in equity
securities of companies located in or conducting a majority of their business in
Central and Eastern Europe. The fund currently intends to focus on the Czech
Republic, Hungary, Poland and Russia. Although it may invest a significant part
of its assets in any of these countries, the fund will not invest more than 40%
of assets (measured at the time of purchase) in any single one. Other Central
and Eastern European countries in which the fund may invest include Bulgaria,
Croatia, Estonia, Latvia, Lithuania, Romania, Slovakia, Slovenia and the
Ukraine. Up to 20% of assets (measured at the time of purchase) may be invested
in any one of these countries.

The fund may also invest in equity and debt securities of companies located in
other European countries. These include emerging markets issuers, as well as
companies expected to benefit from economic growth in Central and Eastern
Europe.

The portfolio managers seek to identify countries where economic and political
reforms are most likely to produce above-average long-term returns. The managers
then look for companies best positioned to take advantage of these developments.
The fund's managers may consider factors such as:

- - operating ratios relative to other companies in the same industry

- - price/cash flow ratio relative to industry peers and market averages

PORTFOLIO INVESTMENTS

This fund invests primarily in equity securities that include:

- - common and preferred stocks

- - securities convertible into common stocks

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

The fund may also invest in debt securities, including those rated below
investment grade (junk bonds). To a limited extent, the fund may engage in other
investment practices.

RISK FACTORS
This fund's principal risk factors are:

- - market risk

- - foreign securities

- - emerging-markets focus

- - region focus

- - country focus

Also, because the fund targets a single region, you should expect it to be more
volatile than a more geographically diversified equity fund. Fund performance is
closely tied to

<PAGE> 18

economic and political conditions within Central and Eastern Europe.

To the extent that the fund invests in start-up or other small companies and
uses certain other investment practices, it takes on further risks that could
adversely affect its performance. Please read "More About Risk" carefully before
you invest.

PORTFOLIO MANAGEMENT

Glenn Wellman and Isabel Knight manage the fund's investment portfolio. You can
find out more about them in "Meet the Managers."
<TABLE>
<CAPTION>

INVESTOR EXPENSES
<S> <C>
Management fee X.xx%
All other expenses X.xx%
Total expenses X.xx%
</TABLE>

<PAGE> 19

MORE ABOUT RISK

INTRODUCTION

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

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

TYPES OF INVESTMENT RISK

The following risks are referred to throughout this prospectus.

ACCESS RISK Some countries may restrict a fund's access to investments or offer
terms that are less advantageous than those for local investors. This could
limit the attractive investment opportunities available to a fund.

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

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

EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.

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

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

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

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

LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell at
the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead

<PAGE> 20

or forego an investment opportunity. Any of these could have a negative effect
on fund management or performance.

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

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

POLITICAL RISK Foreign-government actions such as capital controls,
nationalizing a company or industry, expropriating assets, or imposing punitive
taxes could have a severe effect on foreign security prices and impair a fund's
ability to repatriate capital or income. Other political risks include economic
policy changes, social and political instability, military action and war.

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

YEAR 2000 PROCESSING RISK The funds could be adversely affected if the computer
systems used by their adviser, sub-adviser and other service providers do not
correctly handle the change from "99" to "00" on January 1, 2000. The adviser
and sub-adviser are working to avoid such problems and to obtain assurances from
service providers that they are taking similar steps. However, there can be no
assurance that these efforts will be sufficient.

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

<PAGE> 21
OTHER INVESTMENT PRACTICES
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------
This table shows each fund's limitations on certain investment E
practices. In each case the significant types of risk are listed (see U
two preceding pages for definitions). Numbers in this table show R
allowable use only. O C
P &
KEY TO TABLE: E E
* No policy limitation on use; fund may be using currently. A
N
x Permitted, but typically not used to a significant extent. E
U
- -- Not permitted E R
Q O
20% italic type represents percent of total fund assets U P
T E
20% roman type represents percent of net fund assets Y

- ------------------------------------------------------------------------- ----- ------
BORROWING The borrowing of money from banks to meet redemptions or for
other temporary or emergency purposes. Exposure risk. 30% 30%
- ------------------------------------------------------------------------- ----- ------

COUNTRY/REGION FOCUS Investing a significant portion of fund assets in
a single country or region. Market swings in the targeted country or * *
region will be likely to have a greater effect on fund performance
than they would in a more geographically diversified equity fund.
Currency, market, political risks.

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

EMERGING MARKETS Countries generally considered to be relatively less
developed or industrialized. Emerging markets often face economic problems
that could subject a fund to increased volatility or substantial declines x *
in value. Deficiencies in regulatory oversight, market infrastructure,
shareholder protections and company laws could expose a fund to risks
beyond those normally encountered in developed countries. Access, currency,
information, liquidity, market, operational, political, valuation risks.

- ------------------------------------------------------------------------- ----- ------
FOREIGN SECURITIES Securities of foreign issuers, such as American or
European depositary receipts (abbreviated ADRs and EDRs). Depositary * *
receipts are dollar-denominated securities typically issued by banks and
based on ownership of securities issued by foreign companies. Currency,
information, liquidity, market, political, valuation risks.

</TABLE>

16
<PAGE> 22
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------- ----- ------
<S> <C> <C>
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated below
BBB/Baa (or of comparable quality, if unrated) are considered junk x 35%
bonds. Credit, information, interest rate, liquidity, market, valuation
risks.
- ------------------------------------------------------------------------- ----- ------
PRIVATIZATION PROGRAMS Foreign governments may sell all or part of
their interests in enterprises they own or control. Access, currency, * *
information, liquidity, operational, political, valuation risks.
- ------------------------------------------------------------------------- ----- ------
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with restrictions
on trading, or those not actively traded. Liquidity, valuation, market 15% 15%
risks.
- ------------------------------------------------------------------------- ----- ------
SECURITIES LENDING Lending portfolio securities to financial institutions;
a fund receives cash, U.S. government securities or bank letters of credit 50% 50%
as collateral. Credit, liquidity, market, operational risks.
- ------------------------------------------------------------------------- ----- ------
SHORT-TERM TRADING Selling a security shortly after purchase. A fund
engaging in short-term trading will have higher turnover and * *
transaction expenses. Increased short-term capital gains distributions
could raise shareholders' income tax liability.
- ------------------------------------------------------------------------- ----- ------
START-UP OR OTHER SMALL COMPANIES Companies with small relative market
capitalizations. Information, liquidity, market, valuation risks. x *

----- ------
- ------------------------------------------------------------------------- ----- ------
STRUCTURED INSTRUMENTS Structured securities and other instruments
(such as swaps) allow a fund to gain access to the performance of * *
a benchmark asset such as an index or selected stocks where the
fund's direct investment in the benchmark asset is restricted.
Access, credit, currency, exposure, information, interest-rate,
liquidity, market, political, valuation risks.
- ------------------------------------------------------------------------- ----- ------
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's assets in
investments such as money market obligations and investment-grade debt x x
securities for defensive purposes. Although intended to avoid losses
in unusual market conditions, defensive tactics might prevent a fund from
achieving its goal.
- ------------------------------------------------------------------------- ----- ------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of
securities for delivery at a future date; market value may change 20% 20%
before delivery. Exposure, liquidity, market risks.
- ------------------------------------------------------------------------- ----- ------
</TABLE>

17
<PAGE> 23
MEET THE MANAGERS

[Susan E. Boland]

SUSAN E. BOLAND
Senior Vice President,
BEA Associates

- - Co-Portfolio Manager, European Equity Fund since fund inception

- - Joined BEA in 1996

- - Director and portfolio manager with Barran & Partners Limited, 1995-1996

- - Partner and European portfolio manager for Teton Partners, 1992-1995

- - Portfolio manager and analyst with Fidelity Management & Research Company,
1985-1991

[Isabel Knight]

ISABEL KNIGHT
Director,
Credit Suisse Asset Management Limited

- - Co-Portfolio Manager, Central and Eastern Europe Fund since fund inception

- - Joined CSAM in 1997

- - Senior fund manager for emerging Europe with Foreign & Colonial Emerging
Markets, 1995-1997

- - Portfolio manager for Morgan Stanley Asset Management, 1992-1995

Portfolio managers are introduced in alphabetical order.

18
<PAGE> 24
[Patricia Maxwell-Arnot]

PATRICIA MAXWELL-ARNOT
Managing Director,
Credit Suisse Asset Management Limited

- - Co-Portfolio Manager, European Equity Fund since fund inception

- - Joined CSAM in 1995

- - Director at Lazard Brothers (London), 1984-1994

[Glenn Wellman]

GLENN WELLMAN
Managing Director,
Credit Suisse Asset Management Limited

- - Co-Portfolio Manager, Central and Eastern Europe Fund since fund inception

- - Joined CSAM in 1993

- - Managing director and chief investment officer, Alliance Capital Limited,
1987-1993

19
<PAGE> 25
ABOUT YOUR ACCOUNT

HOW TO INVEST

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

SHARE VALUATION

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

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

Each fund values its securities at the most recent sale price when it
calculates its NAV. If there are no sales of a security it is valued at the
mean between bid and asked quotations. When market quotations are not readily
available, securities and other assets are valued at fair value. A fund
determines fair value in good faith, according to procedures established by its
Board. Debt obligations that will mature in 60 days or less are valued on the
basis of amortized cost, unless the Board determines that using this method
would not reflect the investments' value.

BUYING AND SELLING SHARES

Each fund is open on those days when the New York Stock Exchange is open,
typically Monday through Friday. If we receive your request in proper form by
4 p.m. ET, your transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.

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

A short-term trading fee of 1.0% of the amount redeemed will be
deducted from the redemption proceeds if you sell shares of the Central and
Eastern Europe Fund after holding them less than six months. This fee, which is
currently being waived, is paid to the fund to offset costs associated with
short-term shareholder trading. It does not apply to shares acquired through
reinvestment of distributions. If you bought shares on different days, any
shares you bought through reinvestment of distributions will be redeemed first,
followed by the shares you held longest.

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

ACCOUNT STATEMENTS

In general, you will receive account statements as follows:

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

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

<PAGE> 26
- - otherwise, every quarter

You will receive annual and semiannual financial reports. Every year you also
should receive, if applicable, a Form 1099 tax information statement mailed by
January 31.

DISTRIBUTIONS

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

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

Each fund distributes substantially all of its net income and capital gains to
shareholders at least annually, usually in November or December.

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

TAXES

As with any investment, you should consider how your investment in a fund will
be taxed. Unless your account is an IRA or other tax-advantaged account, you
should be aware of the potential tax implications. Please consult your tax
professional concerning your own tax situation.

TAXES ON DISTRIBUTIONS

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

Consequently, distributions you receive from a fund, whether reinvested or taken
in cash, are generally considered taxable. Distributions from a fund's long-term
capital gains are taxed as capital gains; distributions from other sources are
generally taxed as ordinary income.

Some dividends paid in January may be taxable as if they had been paid the
previous December. If you buy shares shortly before or on the "record date" -
the date that establishes you as the person to receive the upcoming
distribution - you will receive a portion of the money you just invested in
the form of a taxable distribution.

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

TAXES ON TRANSACTIONS

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

21
<PAGE> 27
OTHER INFORMATION

ABOUT THE DISTRIBUTOR

Counsellors Securities Inc. is responsible for:

- - making the funds available to you

- - account servicing and maintenance

- - sub-transfer agency services, sub-accounting services, and administrative
services related to sale of the Common Class

As part of their business strategies, the funds each have adopted a Rule 12b-1
shareholder servicing and distribution plan to compensate Counsellors Securities
for its services. Under the plan, Counsellors Securities receives fees at an
annual rate of 0.25% of average daily net assets of the fund's Common Class.

Rule 12b-1 is the federal securities regulation authorizing fees of this type.
Because the fees are paid out of a fund's assets on an on-going basis, over time
they will increase the cost of your investment and may cost you more than paying
other types of sales charges.

OTHER WAYS TO INVEST

You can also invest in the funds through a variety of financial-services firms.
Some of these include:

- - Charles Schwab & Company, Inc. Mutual Fund OneSource(TM) service

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

- - Jack White & Company, Inc.

- - Waterhouse Securities, Inc.

Your financial services firm may charge transaction fees or other fees that you
could avoid by investing directly with the fund. Please read their program
materials for any special provisions or service features that may apply to your
investment. Some account policies, such as the minimum initial or subsequent
investment amounts, may be different.

The distributor has contracted with a number of financial-services firms to
provide administrative, sub-accounting, sub-transfer agency and other services.
Each of these firms receives a fee based on the quality and types of services it
provides. In some cases the service fee may also depend on the firm's
standardized fee schedule or on special requirements of its business
relationship with the distributor. The fee may be up to ___% (or up to 0.40%
in connection with certain retirement plan programs) of the average annual
value of fund accounts maintained by the firm. The funds are not responsible
for paying the fee, although they may reimburse part of the fees paid at the
rates normally paid to the transfer agent.

Some financial-services firms and their investment professionals may receive
extra compensation. This compensation, which the distributor or adviser pays out
of their own resources, may include promotional incentives as well as (for the
distributor) reimbursement for marketing costs. The distributor or adviser may
also provide opportunities to attend events such as business meetings,
conferences and training programs. Travel, meals and lodging may be included.

COMMUNICATION TOPICS

In its reports, investor communications or advertisements a fund may include:

- - its total return performance

- - its performance compared with various indexes or other mutual funds

- - published evaluations by nationally recognized ranking services and financial
publications

- - updates concerning its strategies and portfolio investments

- - information about its goals, risk factors and expenses, including comparisons
with other mutual funds

- - analysis of its investments by industry, country, credit quality and other
characteristics

- - a discussion of the risk/return continuum relating to different investments

- - the potential impact of adding foreign stocks to a domestic portfolio

- - portfolio manager quotations and commentary

22
<PAGE> 28
FOR MORE INFORMATION

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

SHAREHOLDER GUIDE

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

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes financial statements, portfolio investments, detailed performance
information and the auditor's report.

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Provides more details about the fund. A current SAI is on file with the
Securities and Exchange Commission (SEC) and is incorporated by reference.

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

Please contact Warburg Pincus Funds to obtain information:

By telephone:
800-WARBURG
(800-927-2874)

By mail:
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030

By overnight or courier service:
BFDS
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, MA 02171

On the Internet:
www.warburg.com

SEC file numbers:
Warburg Pincus European Equity Fund 811-xxxx
Warburg Pincus Central and Eastern
Europe Fund 811-xxxx

23
<PAGE> 29
BUYING SHARES

OPENING AN ACCOUNT

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

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

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

ADDING TO AN ACCOUNT

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

INVESTMENT CHECKS

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

MINIMUM INITIAL
INVESTMENT

<TABLE>
<S> <C>
Cash Reserve Fund: $1,000
NY Tax Exempt Fund: $1,000
Growth & Income Fund: $1,000
Balanced Fund: $1,000

All other funds: $2,500

IRAs: $ 500

Transfers/Gifts to Minors: $ 500
</TABLE>

WIRE INSTRUCTIONS

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

HOW TO REACH US

SHAREHOLDER SERVICE CENTER
Toll-free: 800-WARBURG
(800-927-2874)

Fax: 212-370-9833

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

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

INTERNET WEB SITE
www.warburg.com

Buying Shares

OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
By Check
- --------------------------------------------------------------------------------

- - Complete the New Account - Make your check payable to Warburg
Application. For IRAs use the Pincus Funds.
Universal IRA Application.

- - Make your check payable to - Write the account number and the fund
Warburg Pincus Funds. name on your check.

- - Mail to the address on the - Mail to Warburg Pincus Funds.
application.
- Minimum amount is $100.

- --------------------------------------------------------------------------------
By Exchange
- --------------------------------------------------------------------------------

Call our Shareholder Service Center - Call our Shareholder Service Center to
to request an exchange. Be sure to request an exchange.
read the current prospectus for the
new fund. Also please observe the - Minimum amount is $250.
minimum initial investment.

- - If you do not have telephone
privileges, mail or fax a letter
of instruction.

- --------------------------------------------------------------------------------
By Wire
- --------------------------------------------------------------------------------

- - Complete and sign the New Account - Call our Shareholder Service Center
Application. by 4 p.m. ET to inform us of the
incoming wire.

- - Call our Shareholder Service - Wire the money for receipt by the
Center and fax the signed New close of business.
Account Application by 4 p.m. ET.

- - Shareholder Services will telephone - Minimum amount is $500.
you with your account number.

- - Wire your initial investment for
receipt by the close of business.

- - Mail the original, signed application
to Warburg Pincus Funds.

- - This method is not available for IRAs.

- --------------------------------------------------------------------------------
By Automated Clearing House (ACH) Transfer
- --------------------------------------------------------------------------------

- Call our Shareholder Service Center to
request an ACH transfer from your
bank.

Cannot be used to open an account. - Your purchase will be effective at the
next NAV calculated after we accept
your order.

- Minimum amount is $50.

- Requires ACH on Demand privileges

- --------------------------------------------------------------------------------
<PAGE> 30
SELLING SHARES

Selling Shares

TO SELL SOME OR ALL OF YOUR SHARES CAN BE USED FOR
- --------------------------------------------------------------------------------
By Mail
- --------------------------------------------------------------------------------

Write us a letter of instruction - Accounts of any type.
that includes: - Sales of any amount.

- - your name(s) and signature(s) - For IRAs please use the IRA
Distribution Form.
- - the fund name and account number

- - the dollar amount you want to sell

- - how to send the proceeds

Obtain a signature guarantee or other
documentation, if required (see
"Selling Shares in Writing").

Mail the materials to Warburg Pincus
Funds.

- - If only a letter of instruction is
required, you can fax it to the
Shareholder Service Center.

- --------------------------------------------------------------------------------
By Exchange
- --------------------------------------------------------------------------------

- - Obtain a current prospectus for the - Accounts with telephone privileges.
fund into which you would like to
exchange. Please observe the minimum - If you do not have telephone
initial investment. privileges, mail or fax a letter of
instruction to exchange shares.
- - Call our Shareholder Service Center
to request an exchange.

- --------------------------------------------------------------------------------
By Phone
- --------------------------------------------------------------------------------

Call our Shareholder Service Center - Non-IRA accounts with telephone
to request a redemption. You can privileges.
receive the proceeds as:

- - A check mailed to the address - Sales of up to of record $250,000.

- - An ACH transfer to your bank ($50
minimum)

- - A wire to your bank ($500 minimum)

- - See "By Wire or ACH Transfer" for
details.

- --------------------------------------------------------------------------------
By Wire or ACH Transfer
- --------------------------------------------------------------------------------

- - Complete the "Wire Instructions" or - Non-IRA accounts with wire redemption
"ACH on Demand" section of your New or ACH on Demand privileges.
Account Application.

- - Proceeds will be wired on the next - Requests by phone or mail.
business day.

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

SELLING SHARES IN WRITING

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

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

- - amounts of more than $250,000

- - IRA transfers of more than $100,000

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

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

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

RECENTLY PURCHASED SHARES

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

LOW-BALANCE ACCOUNTS

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

MINIMUM TO KEEP
AN ACCOUNT OPEN

<TABLE>
<S> <C>
Cash Reserve Fund: $ 750
NY Tax Exempt Fund: $ 750
Growth & Income Fund: $ 500
Balanced Fund: $ 500

All other funds: $2,000

IRAs: $ 250

Transfers/Gifts to Minors: $ 250
</TABLE>
<PAGE> 31
SHAREHOLDER SERVICES

AUTOMATIC SERVICES

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

AUTOMATIC MONTHLY INVESTMENT PLAN

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

SYSTEMATIC WITHDRAWAL PLAN

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

DISTRIBUTION SWEEP

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

RETIREMENT PLANS

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

- - Traditional IRAs

- - Roth IRAs

- - Roth Conversion IRAs

- - Spousal IRAs

- - Rollover IRAs

- - SEP-IRAs

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

TRANSFERS/GIFTS TO MINORS

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

ACCOUNT CHANGES

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

[Cover page legend]:

This guide is incorporated into and legally part of each Warburg Pincus Funds
prospectus.

1
<PAGE> 32
OTHER POLICIES

TRANSACTION DETAILS

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

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

- - your investment check or ACH transfer does not clear

- - you place a telephone order by 4 p.m. ET and we do not receive your wire by
the close of business

If you wire money without first calling Shareholder Services to place an order,
and your wire arrives after the close of regular trading on the New York Stock
Exchange, then your order will not be executed until the end of the next
business day. In the meantime, your payment will be held uninvested.

Unless you decline telephone privileges on your application, you may be
responsible for any fraudulent telephone order as long as the fund takes
reasonable measures to verify the order.

Uncashed redemption or distribution checks do not earn interest.

SPECIAL SITUATIONS

A fund reserves the right to:

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

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

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

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

- - waive its minimum investment requirements for employees and clients of its
adviser, sub-adviser, distributor and their affiliates

- - charge a wire redemption fee

- - delay sending out redemption proceeds for up to seven days

- - suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940

- - make a "redemption in kind" - payment in portfolio securities rather than
cash - if the amount you are redeeming is over $250,000 and could adversely
affect fund operations

800-WARBURG (800-927-2874)

MONDAY-FRIDAY, 8 A.M. - 8 P.M. SATURDAY, 8 A.M. - 4 P.M. (ET)

2
<PAGE> 33
Subject to Completion, dated July 30, 1998

PROSPECTUS
October 1, 1998

BEA INSTITUTIONAL FUNDS

European Equity Fund
Central and Eastern Europe Fund

<PAGE> 34

CONTENTS

OVERVIEW 3
Multi-Class Structure 3
Investor Profile 3
Goals and Principal Strategies 4
A Word About Risk 5
Fees and Fund Expenses 6
Example 7

THE FUNDS IN DETAIL 8
The Management Firms 8
Fund Information Key 9

EUROPEAN EQUITY FUND 10

CENTRAL AND EASTERN EUROPE FUND 12

MORE ABOUT RISK 14
Introduction 14
Types of Investment Risk 14
Other Investment Practices 16

MEET THE MANAGERS 18

ABOUT YOUR ACCOUNT 20
How to Invest 20
Share Valuation 20
Buying and Selling Shares 20
Distributions 21
Taxes 21

OTHER INFORMATION 22
About the Distributor 22
Communication Topics 22

FOR MORE INFORMATION 23

<PAGE> 35

OVERVIEW

MULTI-CLASS STRUCTURE

The BEA Institutional Funds are separate Institutional Classes of shares of
certain Warburg Pincus Funds. This prospectus describes the Institutional
Classes of the Warburg Pincus European Equity Fund and the Warburg Pincus
Central and Eastern Europe Fund. The Common Class is described in a separate
prospectus.

INVESTOR PROFILE

These funds are designed for investors who:

- - are investing for long-term goals

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

- - are seeking access to European markets that can be less accessible to
individual investors

- - can accept a higher degree of volatility

- - want to diversify a portfolio of domestic investments

They may NOT be appropriate if you:

- - are investing for a shorter time horizon

- - are uncomfortable with an investment that may suffer substantial declines in
value

- - are looking for a broadly diversified global or international equity fund

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

3
<PAGE> 36

GOALS AND PRINCIPAL STRATEGIES

<PAGE> 37

A WORD ABOUT RISK

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

Investments in the funds are not bank deposits. They are not FDIC-insured or
government-endorsed.

MARKET RISK

Both funds

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

FOREIGN SECURITIES

Both funds

A fund that invests outside the U.S. carries additional risks that include:

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

COUNTRY/REGION FOCUS

Both funds

Market swings in the targeted country or region will be likely to have
a greater effect on fund performance than they would in a more geographically
diversified equity fund.

EMERGING MARKETS FOCUS

Central and Eastern Europe Fund

<PAGE> 38

FEES AND FUND EXPENSES

(1) The short-term trading fee is waived until further notice.

<TABLE>
<CAPTION>
Management Distribution and Other Total annual fund
fee service (12b-1) fee expenses operating expenses

<S> <C> <C> <C> <C>
European Equity Fund X.xx% .25% X.xx% [X.xx%]
Central and
Eastern Europe Fund X.xx% .25% X.xx% [X.xx%]
</TABLE>

<PAGE> 39

EXAMPLE

*Fee waivers and expense reimbursements would lower your cost as follows:
<TABLE>
<CAPTION>

<S> <C> <C>
One year Three years

European Equity Fund $ $
Central and Eastern Europe Fund $ $

</TABLE>

<PAGE> 40

THE FUNDS IN DETAIL

THE MANAGEMENT FIRMS

BEA ASSOCIATES
One Citicorp Center
153 East 53rd Street
New York, NY 10022

- - Investment adviser for the funds

- - A member of Credit Suisse Asset Management and a subsidiary of Credit
Suisse Group, one of the world's leading banks

- - An investment manager for corporate and state pension funds, endowments
and other institutions

- - Currently manages approximately $35 billion in assets

Together with its predecessor firms, BEA has been engaged in the investment
advisory business for over 60 years.

CREDIT SUISSE ASSET MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ

- - Sub-adviser for the funds under the supervision of BEA

- - Currently manages approximately $35 billion in assets

- - A member of Credit Suisse Asset Management and a subsidiary of Credit
Suisse Group

DISTRIBUTION AND SERVICE

COUNSELLORS SECURITIES INC.
466 Lexington Avenue
New York, NY 10017

- - Distributor of the funds

- - A wholly owned subsidiary of Warburg Pincus Asset Management, Inc.

COUNSELLORS FUNDS SERVICE, INC.
466 Lexington Avenue
New York, NY 10017

- - Provides the funds with administrative services

- - A wholly owned subsidiary of Warburg Pincus Asset Management, Inc.

<PAGE> 41

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

GOAL AND STRATEGY
The fund's particular investment goals and the strategies it intends to use in
pursuing them.

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

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

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

INVESTOR EXPENSES
Estimated expenses for the 1999 fiscal year.

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

<PAGE> 42

EUROPEAN EQUITY FUND

GOAL AND STRATEGY

The European Equity Fund seeks capital appreciation. To pursue this goal, the
fund invests primarily in stocks of Western European companies.

To enhance return potential, the fund may also pursue opportunities in other
European countries.

The fund intends to diversify its investments across different countries.
However, at times the fund may invest a significant part of its assets in a
single country.

In choosing stocks, the portfolio managers consider factors that include (but
are not limited to):

- - stock price relative to the company's rate of earnings growth

- - valuation relative to other European companies and market averages

- - the stock's currency denomination

PORTFOLIO INVESTMENTS

This fund intends to invest at least 80% of its assets in equity securities of
Western European companies. These equity securities include:

- - common and preferred stocks

- - securities convertible into common stocks

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

The fund may also invest in investment-grade debt securities issued by Western
European companies and governments. To a limited extent, the fund may engage in
other investment practices.

RISK FACTORS
This fund's principal risk factors are:

- - market risk

- - foreign securities

- - region focus

To the extent that the fund uses certain investment practices, it takes on
further risks that could adversely affect its performance. Please read "More
About Risk" carefully before you invest.

<PAGE> 43

PORTFOLIO MANAGEMENT

Patricia Maxwell-Arnot and Susan E. Boland manage the fund's investment
portfolio. You can find out more about them in "Meet the Managers."
<TABLE>
<CAPTION>

INVESTOR EXPENSES
<S> <C>
Management fee X.xx%
All other expenses X.xx%
Total expenses X.xx%
</TABLE>

<PAGE> 44
CENTRAL AND EASTERN EUROPE FUND

GOAL AND STRATEGY

The Central and Eastern Europe Fund seeks capital appreciation. To pursue this
goal, it invests primarily in stocks of Central and Eastern European companies.

- - operating ratios relative to other companies in the same industry

- - price/cash flow ratio relative to industry peers and market averages

PORTFOLIO INVESTMENTS

This fund invests primarily in equity securities that include:

- - common and preferred stocks

- - securities convertible into common stocks

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

The fund may also invest in debt securities, including those rated below
investment grade (junk bonds). To a limited extent, the fund may engage in other
investment practices.

RISK FACTORS
This fund's principal risk factors are:

- - market risk

- - foreign securities

- - emerging-markets focus

- - region focus

- - country focus

Also, because the fund targets a single region, you should expect it to be more
volatile than a more geographically diversified equity fund. Fund performance is
closely tied to

<PAGE> 45

economic and political conditions within Central and Eastern Europe.

PORTFOLIO MANAGEMENT

Glenn Wellman and Isabel Knight manage the fund's investment portfolio. You can
find out more about them in "Meet the Managers."
<TABLE>
<CAPTION>

INVESTOR EXPENSES
<S> <C>
Management fee X.xx%
All other expenses X.xx%
Total expenses X.xx%
</TABLE>

<PAGE> 46

MORE ABOUT RISK

INTRODUCTION

TYPES OF INVESTMENT RISK

The following risks are referred to throughout this prospectus.

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

EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.

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

LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell at
the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead

<PAGE> 47

or forego an investment opportunity. Any of these could have a negative effect
on fund management or performance.

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

<PAGE> 48
OTHER INVESTMENT PRACTICES
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------
This table shows each fund's limitations on certain investment E
practices. In each case the significant types of risk are listed (see U
two preceding pages for definitions). Numbers in this table show R
allowable use only. O C
P &
KEY TO TABLE: E E
* No policy limitation on use; fund may be using currently. A
N
x Permitted, but typically not used to a significant extent. E
U
- -- Not permitted E R
Q O
20% italic type represents percent of total fund assets U P
T E
20% roman type represents percent of net fund assets Y

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

</TABLE>

16
<PAGE> 49
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------- ----- ------
<S> <C> <C>
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated below
BBB/Baa (or of comparable quality, if unrated) are considered junk x 35%
bonds. Credit, information, interest rate, liquidity, market, valuation
risks.
- ------------------------------------------------------------------------- ----- ------
PRIVATIZATION PROGRAMS Foreign governments may sell all or part of
their interests in enterprises they own or control. Access, currency, * *
information, liquidity, operational, political, valuation risks.
- ------------------------------------------------------------------------- ----- ------
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with restrictions
on trading, or those not actively traded. Liquidity, valuation, market 15% 15%
risks.
- ------------------------------------------------------------------------- ----- ------
SECURITIES LENDING Lending portfolio securities to financial institutions;
a fund receives cash, U.S. government securities or bank letters of credit 50% 50%
as collateral. Credit, liquidity, market, operational risks.
- ------------------------------------------------------------------------- ----- ------
SHORT-TERM TRADING Selling a security shortly after purchase. A fund
engaging in short-term trading will have higher turnover and * *
transaction expenses. Increased short-term capital gains distributions
could raise shareholders' income tax liability.
- ------------------------------------------------------------------------- ----- ------
START-UP OR OTHER SMALL COMPANIES Companies with small relative market
capitalizations. Information, liquidity, market, valuation risks. x *

17
<PAGE> 50
MEET THE MANAGERS

[Susan E. Boland]

SUSAN E. BOLAND
Senior Vice President,
BEA Associates

- - Co-Portfolio Manager, European Equity Fund since fund inception

- - Joined BEA in 1996

- - Director and portfolio manager with Barran & Partners Limited, 1995-1996

- - Partner and European portfolio manager for Teton Partners, 1992-1995

- - Portfolio manager and analyst with Fidelity Management & Research Company,
1985-1991

[Isabel Knight]

ISABEL KNIGHT
Director,
Credit Suisse Asset Management Limited

- - Co-Portfolio Manager, Central and Eastern Europe Fund since fund inception

- - Joined CSAM in 1997

- - Senior fund manager for emerging Europe with Foreign & Colonial Emerging
Markets, 1995-1997

- - Portfolio manager for Morgan Stanley Asset Management, 1992-1995

Portfolio managers are introduced in alphabetical order.

18
<PAGE> 51
[Patricia Maxwell-Arnot]

PATRICIA MAXWELL-ARNOT
Managing Director,
Credit Suisse Asset Management Limited

- - Co-Portfolio Manager, European Equity Fund since fund inception

- - Joined CSAM in 1995

- - Director at Lazard Brothers (London), 1984-1994

[Glenn Wellman]

GLENN WELLMAN
Managing Director,
Credit Suisse Asset Management Limited

- - Co-Portfolio Manager, Central and Eastern Europe Fund since fund inception

- - Joined CSAM in 1993

- - Managing director and chief investment officer, Alliance Capital Limited,
1987-1993

19
<PAGE> 52
ABOUT YOUR ACCOUNT

HOW TO INVEST

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

SHARE VALUATION

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

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

BUYING AND SELLING SHARES

The funds may authorize financial-services firms, such as banks, brokers and
investment advisers (and other intermediaries that the firms may designate), to
accept orders, and your order will be considered received by the fund when
received by an authorized firm (or its designee).

A short-term trading fee of 1.0% of the amount redeemed will be deducted from
the redemption proceeds if you sell shares of the Central and Eastern Europe
Fund after holding them less than six months. This fee, which is currently being
waived, is paid to the fund to offset costs associated with short-term
shareholder trading. It does not apply to shares acquired through reinvestment
of distributions. If you bought shares on different days, any shares you bought
through reinvestment of distributions will be redeemed first, followed by the
shares you held longest.

ACCOUNT STATEMENTS

In general, you will receive account statements as follows:

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

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

<PAGE> 53
- - otherwise, every quarter

You will receive annual and semiannual financial reports. Every year you also
should receive, if applicable, a Form 1099 tax information statement mailed by
January 31.

DISTRIBUTIONS

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

Each fund distributes substantially all of its net income and capital gains to
shareholders at least annually, usually in November or December.

TAXES

TAXES ON DISTRIBUTIONS

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

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

TAXES ON TRANSACTIONS

21
<PAGE> 54
OTHER INFORMATION

ABOUT THE DISTRIBUTOR

Counsellors Securities Inc. is responsible for:

- - making the funds available to you

- - account servicing and maintenance

- - sub-transfer agency services, sub-accounting services, and administrative
services related to sale of the Institutional Class

COMMUNICATION TOPICS

In its reports, investor communications or advertisements a fund may include:

- - its total return performance

- - its performance compared with various indexes or other mutual funds

- - published evaluations by nationally recognized ranking services and financial
publications

- - updates concerning its strategies and portfolio investments

- - information about its goals, risk factors and expenses, including comparisons
with other mutual funds

- - analysis of its investments by industry, country, credit quality and other
characteristics

- - a discussion of the risk/return continuum relating to different investments

- - the potential impact of adding foreign stocks to a domestic portfolio

- - portfolio manager quotations and commentary

22
<PAGE> 55
FOR MORE INFORMATION

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

SHAREHOLDER GUIDE

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

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes financial statements, portfolio investments, detailed performance
information and the auditor's report.

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Provides more details about the fund. A current SAI is on file with the
Securities and Exchange Commission (SEC) and is incorporated by reference.

Please contact BEA Institutional Funds to obtain information:

By telephone:
800-401-2230

By mail:
BEA Institutional Funds
P.O. Box 8500
Boston, MA 02266-8500

By overnight or courier service:
BFDS
Attn: BEA
Institutional Funds
66 Brooks Drive
Braintree, MA 02171

On the Internet:
www.beafunds.com

SEC file numbers:
BEA Institutional/Warburg Pincus European Equity Fund 811-xxxx
BEA Institutional/Warburg Pincus Central and Eastern Europe Fund 811-xxxx

23
<PAGE> 56
SUBJECT TO COMPLETION, DATED JULY 30, 1998

STATEMENT OF ADDITIONAL INFORMATION

October 1, 1998

WARBURG PINCUS EUROPEAN EQUITY FUND

WARBURG PINCUS CENTRAL AND EASTERN EUROPE FUND

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

BEA INSTITUTIONAL EUROPEAN EQUITY FUND

BEA INSTITUTIONAL CENTRAL AND EASTERN EUROPE FUND

P.O. Box 8500, Boston, Massachusetts 02266-85000
For information, call (800) 401-2230

<TABLE>
<CAPTION>
CONTENTS
Page
----
<S> <C>
ORGANIZATION OF THE FUNDS.................................................. 2
INVESTMENT OBJECTIVES AND POLICIES......................................... 2
MANAGEMENT OF THE FUNDS.................................................... 35
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 45
EXCHANGE PRIVILEGE......................................................... 46
ADDITIONAL INFORMATION CONCERNING TAXES.................................... 47
DETERMINATION OF PERFORMANCE............................................... 52
INDEPENDENT ACCOUNTANTS AND COUNSEL........................................ 53
FINANCIAL STATEMENTS....................................................... 53
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 European Equity Fund (the "European Equity Fund") and Warburg
Pincus Central and Eastern Europe Fund (the "Central and Eastern Europe Fund")
(collectively the "Funds"), and with the combined Prospectus for the
Institutional Shares of each Fund, which are offered under the names BEA
Institutional European Equity Fund and BEA Institutional Central and Eastern
Europe Fund, each dated October 1, 1998, as amended or supplemented from time to
time (collectively the "Prospectus"), and is incorporated by reference in its
entirety into the Prospectus. 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 each Fund's Prospectus
and information regarding a Fund's current performance may be obtained by
calling (800) 927-2874 (Common Shares) or (800) 401-2230 (Institutional
<PAGE> 57
Shares). Information regarding the status of shareholder accounts may also be
obtained by calling the above numbers or by writing to a Fund, P.O. Box 9030,
Boston, Massachusetts 02205-9030 (Common Shares) or P.O. Box 8500, Boston,
Massachusetts 02266-8500 (Institutional Shares).

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE A PROSPECTUS.
<PAGE> 58
ORGANIZATION OF THE FUNDS

The Funds are diversified open-end management investment
companies that were incorporated under the laws of the State of Maryland on July
27, 1998. Each Fund is authorized to offer three classes of shares, one of
which, the Institutional Shares, is offered under the name BEA Institutional
Funds. Unless otherwise indicated, references to a "Fund" apply to all classes
of shares of that Fund as a group, including its Institutional Shares.

INVESTMENT OBJECTIVES AND POLICIES

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

The investment objective of the European Equity Fund is
capital appreciation, which it seeks to achieve by investing primarily in stocks
of Western European companies. The investment objective of the Central and
Eastern Europe Fund is capital appreciation, which it seeks to achieve by
investing primarily in stocks of Central and Eastern European companies.

The European Equity Fund: As stated in the Prospectus, the
European Equity Fund, under normal circumstances, will invest at least 65% of
its total assets in equity securities of companies (i) that, alone or on a
consolidated basis, derive 50% or more of their annual revenue from either goods
produced, sales made or services performed in Western European markets; (ii)
that are organized under the laws of, and with a principal office in, a Western
European country; or (iii) the principal securities trading market for which is
in a Western European market. Determinations as to eligibility will be made by
each Fund's investment adviser or sub-investment adviser (each an "Adviser")
based on publicly available information and inquiries made to the companies.
Additional countries may in the future be considered part of a Fund's definition
of Western Europe and appropriate spheres of investment by a Fund. The European
Equity Fund intends to invest at least 80% of its assets in equity securities of
Western European companies.

The Central and Eastern Europe Fund: As stated in the
Prospectus, the Central and Eastern Europe Fund, under normal circumstances,
will invest at least 65% of its total assets in equity securities of companies
(i) that, alone or on a consolidated basis, derive 50% or more of their annual
revenue from either goods produced, sales made or services performed in Central
and Eastern European markets; (ii) that are organized under the laws of, and
with a principal office in, a Central or Eastern European country; or (iii) the
principal securities trading market for which is in a Central or Eastern
European market. Determinations as to eligibility will be made by each Fund's
Adviser based on publicly available information and inquiries made to the
companies. The Fund considers Central Europe to be the area north of

2
<PAGE> 59
Italy and the former Yugoslavia, west of Romania and the former Soviet Union,
east of Switzerland and Germany and south of the Baltic Sea. The Fund considers
Eastern Europe to be currently comprised of, but not limited to, the countries
of the former Warsaw Pact and the European successor states of the former Soviet
Union. Additional countries may in the future be considered part of a Fund's
definition of Central and Eastern Europe and appropriate spheres of investment
by a Fund. Investment companies that invest principally in securities of Central
or Eastern European companies will also be considered to be Central or Eastern
European companies, as will American Depositary Receipts and Global Depositary
Receipts with respect to those securities. By investing in shares of investment
companies that invest in Central and Eastern Europe, a Fund will indirectly pay
a portion of the operating expenses, management expenses and brokerage costs of
such companies.

Options, Futures and Currency Exchange Transactions

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

Each Fund will realize 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,
a Fund as a put or call writer retains the risk of a decline in the price of the
underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.

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

In the case of options written by a Fund that are deemed covered by
virtue of a 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 a Fund has written
options may exceed the time within which a Fund must make delivery in accordance
with an exercise notice. In these instances, a Fund may

3
<PAGE> 60
purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, a Fund will not bear any market risk, since a
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 a
Fund may incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.

Additional risks exist with respect to certain of the securities for
which a Fund may write covered call options. For example, if a 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, a 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 a Fund's
Adviser 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
the Adviser 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 the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, each Fund will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "Clearing Corporation") and of
the securities exchange on which the option is written.

Prior to their expirations, put and call options may be sold in closing
sale or purchase transactions (sales or purchases by a Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which a Fund may realize a profit or loss from the sale.
An option position may be closed out only where there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
OTC market. When a Fund has purchased an option and engages in a closing sale
transaction, whether a 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 a 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.

4
<PAGE> 61
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 a Fund would not be deemed to own an option as a result of the
transaction. So long as the obligation of a Fund as the writer of an option
continues, a Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring a Fund to deliver the underlying
security against payment of the exercise price. This obligation terminates when
the option expires or a Fund effects a closing purchase transaction. A Fund 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 OTC market may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in OTC transactions would fail to meet their obligations
to the Fund. Each Fund, however, intends to purchase OTC options only from
dealers whose debt securities, as determined by its Adviser are considered to be
investment grade. If, as a covered call option writer, a 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, a 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 their Advisers and certain of their affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options the Funds will
be able to purchase on a particular security.

Securities Index Options. Each Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included

5
<PAGE> 62
in the index, fluctuating with changes in the market values of the securities
included in the index. Some securities index options are based on a broad market
index, such as the NYSE Composite Index, or a narrower market index such as the
Standard & Poor's 100. Indexes may also be based on a particular industry or
market segment.

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

OTC Options. Each Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Fund were to
purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by a Fund, a 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 a 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 a Fund, there can be no assurance
that a 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 a 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, a Fund may be unable to liquidate a dealer
option.

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

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 a 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 a Fund's policies. There is no
overall limit on the percentage of a Fund's assets that may be at risk with
respect to futures activities.

The over the counter market in forward foreign currency exchange
contracts offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange.
Such contracts are subject to the risk that the counterparty to the contract
will default on its obligations. Since these contracts are not guaranteed by an
exchange or clearinghouse, a default on the contract would deprive a Fund of
unrealized profits, transaction costs or the benefits of a currency hedge or
force a Fund to cover its purchase or sale commitments, if any, at the current
market price. Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the U.S. or abroad.

Futures Contracts. A foreign currency futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specified non-U.S. currency at a specified price, date, time and place. An
interest rate futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of a specific interest rate
sensitive financial instrument (debt security) at a specified price, date, time
and place. Securities indexes are capitalization weighted indexes which reflect
the market value of the securities listed on the indexes. A securities index
futures contract is an agreement to be settled by delivery of an amount of cash
equal to a specified multiplier times the difference between the value of the
index at the close of the last trading day on the contract and the price at
which the agreement is made.

No consideration is paid or received by a Fund upon entering into a
futures contract. Instead, a 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

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<PAGE> 64
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
a Fund fails to meet its contractual obligations. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the currency,
financial instrument or securities index underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." A Fund will also incur
brokerage costs in connection with entering into futures transactions.

At any time prior to the expiration of a futures contract, a Fund may
elect to close the position by taking an opposite position, which will operate
to terminate a Fund's existing position in the contract. Positions in futures
contracts and options on futures contracts (described below) may be closed out
only on the exchange on which they were entered into (or through a linked
exchange). No secondary market for such contracts exists. Although each Fund
intends to enter into futures contracts only if there is an active market for
such contracts, there is no assurance that an active market will exist at any
particular time. Most 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 a Fund to substantial losses. In such event, and in the
event of adverse price movements, a 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 a
Fund may realize a loss on a futures contract or option that is not offset by an
increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect a Fund's
performance.

Options on Futures Contracts. Each Fund may purchase and write put and
call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.

An option on a currency, interest rate or securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is

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<PAGE> 65
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 a 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 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, a 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.

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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, a Fund will have the right to sell
the currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value of
a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, a Fund may purchase
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to a Fund derived from purchases of currency options, like
the benefit derived from other types of options, will be reduced by premiums and
other transaction costs. Because transactions in currency exchange are generally
conducted on a principal basis, no fees or commissions are generally involved.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Although currency hedges limit the risk
of loss due to a decline in the value of a hedged currency, at the same time,
they also limit any potential gain that might result should the value of the
currency increase. If a devaluation is generally anticipated, a Fund may not be
able to contract to sell a currency at a price above the devaluation level it
anticipates.

While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value of
a Fund's investments and a currency hedge may not be entirely successful in
mitigating changes in the value of a Fund's investments denominated in that
currency. A currency hedge, for example, should protect a bond denominated in a
foreign currency against a decline in the particular currency, but will not
protect a Fund against a price decline if the issuer's creditworthiness
deteriorates.

Swaps. Each Fund may enter into swaps relating to indexes, currencies
and equity interests of foreign issuers without limit. A swap transaction is an
agreement between a Fund and a counterparty to act in accordance with the terms
of the swap contract. Index swaps involve the exchange by a Fund with another
party of the respective amounts payable with respect to a notional principal
amount related to one or more indexes. Currency swaps involve the exchange of
cash flows on a notional amount of two or more currencies based on their
relative future values. An equity swap is an agreement to exchange streams of
payments computed by reference to a notional amount based on the performance of
a basket of stocks or a single stock. Each Fund may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its assets, to protect against currency fluctuations, as a duration
management technique or to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date. Each Fund may also use
these transactions for speculative purposes, such as to obtain the price
performance of a security without actually purchasing the security in
circumstances, for example, the subject security is illiquid, is unavailable for
direct investment or available only on less attractive terms. Swaps have risks
associated with them including possible default by the counterparty to the
transaction,

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<PAGE> 67
illiquidity and, where swaps are used as hedges, the risk that the use of a swap
could result in losses greater than if the swap had not been employed

Each Fund will usually enter into swaps on a net basis (i.e. the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with a Fund receiving or paying, as the case may be,
only the net amount of the two payments. Swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to swaps is limited to the net amount of payments that a Fund is
contractually obligated to make. If the counterparty to a swap defaults, a
Fund's risk of loss consists of the net amount of payments that a Fund is
contractually entitled to receive. Where swaps are entered into for good faith
hedging purposes, the Adviser believes such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to a Fund's borrowing restrictions. Where swaps are entered into for
other than hedging purposes, a Fund will segregate an amount of cash or liquid
securities having a value equal to the accrued excess of its obligations over
entitlements with respect to each swap on a daily basis.

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 a 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 securities prices in the stock market generally or, in
the case of certain indexes, in an industry or market segment, rather than
movements in the price of a particular security. The risk of imperfect
correlation increases as the composition of a Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative movements in the hedged position and the hedge, a 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
a Fund's net investment results if market movements are not as anticipated when
the hedge is established. Securities index futures transactions may be subject
to additional correlation risks. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the securities index and futures markets. Secondly, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased

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participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the securities
index and movements in the price of securities index futures, a correct forecast
of general market trends by each Fund's Adviser still may not result in a
successful hedging transaction.

Each Fund will engage in hedging transactions only when deemed
advisable by its Adviser, and successful use by a Fund of hedging transactions
will be subject to its Adviser's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to predict correctly
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect a Fund's
performance.

Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. 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 a Fund on currencies, securities,
if applicable, 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 securities.

For example, a call option written by a Fund on securities may require
a 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 a Fund to
own portfolio securities that correlate with the index or to segregate assets
(as described above) equal to the excess of the index value over the exercise
price on a current basis. A put option written by a Fund may require a Fund to
segregate assets (as described above) equal to the exercise price. A Fund could
purchase a put option if the strike price of that option is the same or higher
than the strike price of a put option sold by a Fund. If a Fund holds a futures
or forward contract, a Fund could purchase a put option on the same futures or
forward contract with a strike price as high or higher than the price of the
contract held. A Fund may enter into fully or partially offsetting transactions
so that its net position, coupled with any segregated assets (equal to any
remaining obligation), equals its net obligation. Asset coverage may be achieved
by other means when consistent with applicable regulatory policies.

Additional Information on Other Investment Practices

Foreign Investments.

Investors should recognize that investing in foreign companies, whether
in emerging or more developed countries, involves certain risks, including those
discussed below, which are not typically associated with investing in U.S.
issuers. These risks include

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currency exchange rates and exchange control regulations, less publicly
available information, different accounting and reporting standards, less liquid
markets, more volatile markets, higher brokerage commissions and other fees,
possibility of nationalization or expropriation, confiscatory taxation,
political instability, and less protection provided by the judicial system. In
addition, changes in government administrations or economic or monetary policies
in the U.S. or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or adversely affect a Fund's
operations. Furthermore, the economies of individual foreign nations may differ
from that of the U.S., whether favorably or unfavorably, in areas such as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Any foreign
investments made by the Funds must be made in compliance with U.S. and foreign
currency restrictions and tax laws restricting the amounts and types of foreign
investments.

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

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

Political Instability. With respect to some foreign countries, there is
the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Funds, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries.

Emerging Markets. Investing in securities of issuers located in
"emerging markets" (less developed countries located outside of the U.S.)
involves not only the risks

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described above with respect to investing in foreign securities, but also other
risks, including exposure to economic structures that are generally less diverse
and mature than, and to political systems that can be expected to have less
stability than, those of developed countries. For example, many investments in
emerging markets experienced significant declines in value due to political and
currency volatility in emerging markets countries during the latter part of 1997
and the first half of 1998. Other characteristics of emerging markets that may
affect investment include certain national policies that may restrict investment
by foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed structures governing private and foreign
investments and private property. The typically small size of the markets for
securities of issuers located in emerging markets and the possibility of a low
or nonexistent volume of trading in those securities may also result in a lack
of liquidity and in price volatility of those securities.

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

Increased Expenses. The operating expenses of the Funds can be expected
to be higher than that of an investment company investing exclusively in U.S.
securities, since the expenses of the Funds, such as custodial costs, valuation
costs and communication costs, as well as the rate of the investment advisory
fees, though similar to such expenses of some other international funds, are
higher than those costs incurred by other investment companies not investing in
foreign securities.

Foreign Debt Securities. Each Fund may invest in debt securities (other
than money market obligations) and preferred stocks that are not convertible
into common stock for the purpose of seeking capital appreciation. Each Fund's
holdings of debt securities will be considered investment grade at the time of
purchase, except that each Fund may purchase a certain amount of below
investment grade securities (see "Below Investment Grade Securities"). 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 Service ("S&P") or, if unrated, is determined to be of comparable
quality by a Fund's Adviser. The returns on foreign debt securities reflect
interest rates and other market conditions prevailing in those countries and the
effect of gains and losses in the denominated currencies against the U.S.
dollar, which have had a substantial impact on investment in foreign
fixed-income securities. The relative performance of various countries'
fixed-income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.

The foreign government securities in which the Funds may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar

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<PAGE> 71
political subdivisions or central banks in foreign countries. Foreign government
securities also include debt obligations of supranational entities, which
include international organizations designated or backed by governmental
entities to promote economic reconstruction or development, international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.

Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Union to reflect changes in relative values of the
underlying currencies.

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

Sovereign Debt. Investments in sovereign debt involve special risks.
The issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due in accordance with the terms of such debt, and a Fund may have limited
legal recourse in the event of a default.

Sovereign debt differs from debt obligations issued by private entities
in that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.

A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.

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The occurrence of political, social or diplomatic changes in one or
more of the countries issuing sovereign debt could adversely affect a Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While the Adviser intends to manage the Funds in a manner
that will minimize the exposure to such risks, there can be no assurance that
adverse political changes will not cause a Fund to suffer a loss of interest or
principal on any of its holdings.

Investors should also be aware that certain sovereign debt instruments
in which a Fund may invest involve great risk. Sovereign debt issued by issuers
in many emerging markets generally is deemed to be the equivalent in terms of
quality to securities rated below investment grade by Moody's and S&P. Such
securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse conditions.
Some of such sovereign debt, which may not be paying interest currently or may
be in payment default, may be comparable to securities rated "D" by S&P or "C"
by Moody's. A Fund may have difficulty disposing of certain sovereign debt
obligations because there may be a limited trading market for such securities.
Because there is no liquid secondary market for many of these securities, the
Funds anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. The lack of a liquid secondary market may
have an adverse impact on the market price of such securities and a Fund's
ability to dispose of particular issues when necessary to meet a Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for a
Fund to obtain accurate market quotations for purposes of valuing a Fund's
portfolio and calculating its net asset value. When and if available, fixed
income securities may be purchased by a Fund at a discount from face value.
However, the Funds do not intend to hold such securities to maturity for the
purpose of achieving potential capital gains, unless current yields on these
securities remain attractive. From time to time, a Fund may purchase securities
not paying interest at the time acquired if, in the opinion of its Adviser, such
securities have the potential for future income or capital appreciation.

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

Central and Eastern European Countries. Both Funds will be exposed to
the risks of investing in Central and Eastern Europe although to a different
extent. The risks normally associated with investing in foreign securities may
be increased in Central and Eastern European countries due to the infancy of
political and economic structures. Many of these countries lack the political
and economic stability characteristic of more developed countries, and
unanticipated political or social developments may affect the value of a Fund's
investment. The small size and inexperience of the securities markets and the
limited volume of trading in such securities may make a Fund's investments
illiquid and more volatile than investments in more developed countries. There
may be little financial or accounting

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information available with respect to companies located in certain Central and
Eastern European countries and it may be difficult to assess the value of an
investment in such companies. These securities markets are substantially
smaller, less liquid and significantly more volatile than U.S. or Western
European markets. As a result, obtaining prices on portfolio securities from
independent sources may be more difficult. These factors may make it more
difficult for a Fund to calculate an accurate net asset value on a daily basis
and to respond to significant shareholder redemptions.

The value of a Fund's assets may be adversely affected by political,
economic, and social factors, changes in the law or regulations of Central and
Eastern European countries and the status of political and economic foreign
relations of Central and Eastern European countries. There is also speculation
that organized crime exerts significant influence on certain countries in this
region. Developments in the region may also affect the value of a Fund's assets.
Actions of Central and Eastern European governments could significantly affect
private sector companies and the Funds, market conditions, and prices and yields
of securities in each Fund's portfolio. Despite privatization programs that have
been implemented, the governments of Central and Eastern European countries have
exercised and continue to exercise significant influence over many aspects of
the local economies, and the number of public sector enterprises in Central and
Eastern Europe is substantial. New governments and new economic policies may
also have an unpredictable impact on Central and Eastern European economies.

Many of the countries in Central and Eastern Europe experienced
extremely high rates of inflation, particularly in the early 1990s when central
planning was first being replaced by the capitalist free market system. As a
result, the exchange rates of such countries experienced significant
depreciation relative to the U.S. dollar. While the inflation experience of such
countries has generally improved, there can be no assurance that this
improvement will continue. Consequently, the possibility of significant loss
arising from foreign currency depreciation must be considered as a serious risk.
Although Central and Eastern European governments are currently implementing
reforms directed at political and economic liberalization, there is no assurance
that these reforms will continue or, if continued, will be successful.

The economies of Central and Eastern European countries are heavily
dependent on the manufacturing sector, and adverse developments affecting this
sector in a particular country could adversely affect the economy as a whole. In
addition, these economies generally are heavily dependent upon international
trade and have been and may continue to be adversely affected by trade barriers
and other protectionist measures, exchange controls and relative currency
values. These economies may also be adversely affected by economic or political
developments in or controversies with neighboring countries and major trading
partners. The economies of certain Central and Eastern European countries are
heavily dependent on oil and gas imported from Russia via pipelines through the
Ukraine and the Slovak Republic. Political or economic turmoil in any one of
these nations could result in an energy crisis that could affect the economic
stability of certain Central and Eastern European countries, and consequently
adversely affect the Funds. Political or economic turmoil in nearby regions
could also lead to an influx of refugees to one or more Central or Eastern
European countries with adverse economic and political effects on such
countries.

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Investments in Central and Eastern European countries may include the
securities of both large and small companies. Small companies may offer greater
opportunities for capital appreciation than larger companies, but these
investments may involve certain special risks. Small companies may have limited
product lines, markets, or financial resources and may be dependent on a limited
management group. Securities issued by small companies may trade less frequently
and in smaller volume than more widely held securities issued by large
companies. Also, the values of securities issued by small companies may
fluctuate more sharply than those issued by larger companies, and a Fund may
experience some difficulty in establishing or closing out positions in small
company securities at prevailing prices.

Central and Eastern European countries may be subject to a greater
amount of social, political and economic instability resulting from
extra-constitutional changes or attempted changes in government, popular unrest
and hostile relations with neighboring countries or territories. Investments in
Central and Eastern Europe could also be adversely affected by developments in
other emerging markets, such as Asia or Latin America.

Some Central and Eastern European countries have substantial external
debt. Although, some countries have entered into debt restructuring agreements
with foreign creditors and some are negotiating the rescheduling of their debt,
there can be no assurance that such negotiations will succeed. In many cases, it
may be necessary to adopt economic policies to facilitate debt service
requirements (such as taking steps to control inflation) and these measures may
lead to periods of lower economic growth. Central and Eastern European countries
have been characterized by declining real gross domestic product, high
inflation, rising unemployment and declining personal income (in real terms).
Countries in this region lack a developed infrastructure, telecommunications
generally are poor and banks and financial systems are not well developed. There
is also a limited supply of domestic savings in the region and businesses can
experience difficulty in obtaining working capital.

Many Central and Eastern European currencies are not fully convertible.
Some currencies have depreciated in value substantially against the U.S. dollar
and could depreciate further in the future. Since the net asset value of each
Fund will be calculated and reported in U.S. dollars, depreciation in these
currencies could adversely impact a Fund's performance.

Changes in local exchange control regulations, tax laws, withholding
taxes and economic or monetary policies may also affect the value of an
investment in the Funds, and may give rise to a capital gains tax liability on a
Fund's investment gains. The tax laws and regulations are not well drafted and
are difficult to comply with, and a company may incur substantial penalties
despite using all reasonable efforts to ensure compliance. The tax laws and
regulations may be given retroactive effect which could result in additional
taxes that are not taken into account when calculating a Fund's net asset value.
The system of taxation in certain Central and Eastern European countries may
deter investment and hinder financial stability by concentrating on the taxation
of industry with relatively little emphasis on individual taxation. Finally,
accounting standards do not generally correspond to generally accepted
accounting principles or accepted international accounting standards, and a Fund
may have access to less financial information on investments than would normally
be the case in more sophisticated markets.

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<PAGE> 75
Many Central and Eastern European businesses do not have established
histories of operating within a market-oriented economy. These businesses
generally lack experience operating in the free market environment, modern
technology and a sufficient capital base with which to develop and expand
operations. Many of these countries are in need of restructuring their
industries to, among other things, close out-dated facilities and increase
investment in technology and management.

The securities in which a Fund may invest may not be listed or traded
on any securities market for the foreseeable future and, in some cases, may not
be registered for resale under the securities laws of any country. There may be
significant disparities between the prices paid for securities in private
transactions and the prices at which the same securities trade on an exchange or
in an over-the-counter market. These factors may limit a Fund's ability to
obtain accurate market quotations for purposes of valuing its portfolio
securities and calculating its net asset value. Although, many Central and
Eastern European countries are developing stock exchanges and formulating rules
and regulations, it is unlikely that these stock exchanges will, in the
foreseeable future, offer the liquidity available in western securities markets.
Accordingly, there may be no readily available market for the timely liquidation
of investments made by a Fund, particularly in periods when the relevant market
is declining.

The lack of environmental controls in Central and Eastern Europe has
led to widespread pollution and the legislative framework for environmental
liability and the extent of any exposure of businesses to the costs of pollution
clean-up have not been fully established. The extent of responsibility, if any,
for pollution-related liabilities of any business may not be determinable at the
time a Fund is considering an investment. Environmental liability could have a
significant adverse effect on the performance of companies in which a Fund
invests.

Legislative change in Central and Eastern Europe has been rapid, but it
is difficult to anticipate the impact of legislative reforms on the companies in
which a Fund will invest. Although there is significant political support for
legislative change to a market economy, it is not certain that legislation when
enacted will advance this objective. It will be more difficult for a Fund to
obtain effective redress or enforcement of its rights, in certain Central and
Eastern European countries, than in western jurisdictions. Also, the judicial
and civil procedure system in this region has not been modernized to a material
extent and many courts lack experience in commercial dispute resolution.
Further, many of the procedural remedies for enforcement and the protection of
legal rights typically found in western jurisdictions are not available in
Central and Eastern Europe.

Employment and labor legislation can be pro-employee, particularly in
matters such as termination of employment, maternity benefits, overtime
restrictions and trade union participation. Laws regulating ownership, control
and corporate governance of companies as well as protection of minority
shareholders have been adopted recently and have virtually never been tested in
the courts. The judicial systems have very limited experience with the
adjudication of securities claims and corporate disputes. Consequently, it may
be more difficult for a Fund to obtain a judgment in a court outside the U.S. to
the extent that there is a default with respect to a security of a Central or
Eastern European issuer or a Fund has any other claim against such an issuer.

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Disclosure and reporting requirements are minimal and anti-fraud and
insider trading legislation is generally rudimentary. Due to the newness of
Central and Eastern European securities markets, there is a low level of
monitoring and regulation of the markets and the activities of investors in such
markets, and there has been no or very limited enforcement to date of existing
regulations. The concept of fiduciary duties on the part of management or
directors to their companies as a whole is undeveloped. The regulatory
requirements for participants in the securities markets in the region as well as
the structure of relevant regulatory authorities are subject to constant change.
This may result in challenges to the validity of any license, permission,
consent or registration which is required in the particular country and which
were originally obtained in compliance with the laws.

Foreign investment in the securities of Central and Eastern European
companies is restricted and controlled to varying degrees. These restrictions or
controls may limit or preclude foreign investment in certain cases, may require
government approval prior to foreign investment, or may give preferential
treatment to nationals over foreign investors. Issuers in certain Central and
Eastern Europe countries are allowed by law to restrict the rights of foreign
investors to participate in the subscription of securities. This may result in
the disenfranchisement of foreign investors in respect of their rights to
participate in bonus issues, rights and issues or other corporate actions. This
may result in dilution of holdings and loss of voting power. A high proportion
of the shares of many Central and Eastern European companies are held by a
limited number of investment funds and other institutional investors, which may
limit the number of shares available for investment by the Funds. In addition,
minority shareholders in companies, such as the Funds, have limited rights
against actions taken by controlling parties, and those actions may adversely
affect the value of a Fund's holdings. A limited number of issuers represents a
disproportionately large percentage of market capitalization and trading value.

The prices at which a Fund may acquire investments may be affected by
the market's anticipation of a Fund's investing. In addition, trading on
material non-public information and securities transactions by brokers in
anticipation of transactions by a Fund in particular securities may impact such
prices. These and other factors may also affect the rate at which a Fund can
initially invest its assets.

Shareholders should be aware that settlement and safe custody of
securities in Central and Eastern Europe involves certain risks and
considerations which do not normally apply in more developed countries.
Verification and perfection of legal ownership in securities also differs and
are less effective than in Western Europe. In certain countries, securities are
issued only in bearer form. In other countries, no certificates are issued and
legal ownership of shares is perfected through registration either in the share
register of the company or at a central depository, in either case by a third
party over whom a Fund may not have control. In certain countries, the market
practice is settlement against production of evidence of title in the form of
extracts from the shareholders' register. Such extracts do not in themselves
constitute securities or constitute definitive evidence of title or ownership
rights. As such, these extracts do not guarantee that title to the securities
has in fact passed. In addition, fraudulent or incorrect registration may result
in title being removed from the securities register of an issuer. Access to
securities registers may also be limited and therefore registers may be
difficult to check.

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Fixed Income Securities. The value of the securities held by a Fund,
and thus the net asset value of the shares of a Fund, generally will vary
inversely in relation to changes in prevailing interest rates. Thus, if interest
rates have increased from the time a debt or other fixed income security was
purchased, such security, if sold, might be sold at a price less than its cost.
Conversely, if interest rates have declined from the time such a security was
purchased, such security, if sold, might be sold at a price greater than its
cost. Also, the value of such securities may be affected by changes in real or
perceived creditworthiness of the issuers. Thus, if creditworthiness is
enhanced, the price may rise. Conversely, if creditworthiness declines, the
price may decline. A Fund is not restricted to any maximum or minimum time to
maturity in purchasing portfolio securities, and the average maturity of a
Fund's assets will vary based on its Adviser's assessment of economic and market
conditions.

Below Investment Grade Securities. Each Fund may invest its assets in
non-investment grade securities (securities that are rated below the fourth
highest grade at the time of purchase by Moody's or S&P, or, if unrated, deemed
by the Adviser to be of comparable quality). Subsequent to its purchase by a
Fund, an issue of securities may cease to be rated or its rating may be reduced.
Neither event will require a sale of such securities by a Fund, although its
Adviser will consider such event in its determination of whether a Fund should
continue to hold the securities. The widespread expansion of government,
consumer and corporate debt within the economy has made the corporate sector,
especially cyclically sensitive industries, more vulnerable to economic
downturns or increased interest rates. Because lower-rated securities involve
issuers with weaker credit fundamentals (such as debt-to-equity ratios, interest
charge coverage, earnings history and the like), an economic downturn, or
increases in interest rates, could severely disrupt the market for lower-rated
securities and adversely affect the value of outstanding securities and the
ability of the issuers to repay principal and interest.

Securities rated below investment grade are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations and involve large
uncertainties or major risk exposures to adverse conditions. The market values
of below investment grade securities and unrated securities of comparable
quality tend to react less to fluctuations in interest rate levels than do those
of investment grade securities and the market values of certain of these
securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than below investment grade securities. In
addition, these securities generally present a higher degree of credit risk.
Issuers of these 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 below investment grade
securities generally are unsecured and frequently are subordinated to prior
payment of senior indebtedness. If the issuer of a security owned by a Fund
defaulted, a Fund could incur additional expenses in seeking recovery with no
guarantee of recovery. Also, a 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. Lower-rated securities also present risks based on payment
expectations. For example, lower-rated securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors.

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The Funds may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Funds anticipate that
these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market for these
securities does exist, it generally is not as liquid as the secondary market for
investment grade securities. The lack of a liquid secondary market, as well as
adverse publicity and investor perception with respect to these securities, may
have an adverse impact on market price and a Fund's ability to dispose of
particular issues when necessary to meet 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 Funds to obtain accurate market quotations for
purposes of valuing the Funds and calculating net asset value.

The market value of securities rated below investment grade is more
volatile than that of investment grade securities. Factors adversely impacting
the market value of these securities will adversely impact a Fund's net asset
value. The Funds will rely on the judgment, analysis and experience of their
Advisers in evaluating the creditworthiness of an issuer. In this evaluation, an
Adviser will consider, 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, below
investment grade securities and comparable unrated securities are not intended
for short-term investment. The Funds 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.

Securities of Other Investment Companies. The Funds 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, each 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 each Fund's total assets and
(iii) when added to all other investment company securities held by each Fund,
do not exceed 10% of the value of a Fund's total assets.

Lending of Portfolio Securities. The Funds may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by each
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 50% of a Fund's total assets taken at value. No Fund will lend portfolio
securities to affiliates of Warburg Pincus Asset Management, Inc. ("Warburg"),
or to affiliates of its Adviser 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 102% of the current
market value of loaned U.S. securities and at least 105% of the current market
value of loaned non-U.S. securities. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Funds. From time to time, the Funds 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 Funds and
that is acting as a "finder."

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By lending its securities, each Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Funds, income
received could be used to pay the Funds' expenses and would increase an
investor's total return. Each Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) each Fund must receive 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) each Fund must be able to terminate the loan at any time; (iv)
each 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) each 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.

When-Issued Securities, Delayed-Delivery Transactions and Forward
Commitments. Each Fund may utilize up to 20% of its total assets to purchase
securities on a "when-issued" basis, for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price and yield) or
on a forward commitment basis. Each Fund does not intend to engage in these
transactions for speculative purposes, but only in furtherance of its investment
objectives. These transactions occur when securities are purchased or sold by a
Fund with payment and delivery taking place in the future to secure what is
considered an advantageous yield and price to a Fund at the time of entering
into the transaction. The payment obligation and the interest rate that will be
received on when-issued securities are fixed at the time the buyer enters into
the commitment. Due to fluctuations in the value of securities purchased or sold
on a when-issued, delayed-delivery basis or forward commitment basis, the prices
obtained on such securities may be higher or lower than the prices available in
the market on the dates when the investments are actually delivered to the
buyers.

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

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Brady Bonds. Each Fund may invest in so-called "Brady Bonds," which are
securities created through the exchange of existing commercial bank loans to
public and private entities for new bonds in connection with debt restructurings
under a debt restructuring plan announced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds may be collateralized
or uncollateralized, are issued in various currencies (primarily the U.S.
dollar) and are currently actively traded in the over-the-counter secondary
market for debt instruments.

Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.

Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk").

Repurchase Agreements. Each Fund may agree to purchase securities from
a bank or recognized securities dealer and simultaneously commit to resell the
securities to the bank or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased securities ("repurchase agreements"). Such Fund would maintain custody
of the underlying securities prior to their repurchase; thus, the obligation of
the bank or dealer to pay the repurchase price on the date agreed to would be,
in effect, secured by such securities. If the value of such securities were less
than the repurchase price, plus interest, the other party to the agreement would
be required to provide additional collateral so that at all times the collateral
is at least 102% of the repurchase price plus accrued interest. Default by or
bankruptcy of a seller would expose a Fund to possible loss because of adverse
market action, expenses and/or delays in connection with the disposition of the
underlying obligations. The financial institutions with which a Fund may enter
into repurchase agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed creditworthy by
a Fund's Adviser. A Fund's Adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least 102% of the repurchase price (including accrued
interest). In addition, a Fund's Adviser will require that the value of this
collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to 102% or greater than the
repurchase price (including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference between the purchase price
and the repurchase price specified in the repurchase agreement. A Fund's adviser
will mark-to-market daily the value of the securities. There are no percentage
limits on a Fund's ability to enter into repurchase agreements. Repurchase
agreements are considered to be loans by the Fund under the 1940 Act.

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Loan Participations and Assignments. Each Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign government and one or more financial institutions ("Lenders"). The
majority of the Funds' investments in Loans are expected to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in a
Fund having a contractual relationship only with the Lender, not with the
borrower. A participating Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and a Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, participating Funds will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Funds will acquire Participations only if the
Lender interpositioned between the Funds and the borrower is determined by the
Adviser to be creditworthy. Each Fund currently anticipates that it will not
invest more than 5% of its net assets in Loan Participations and Assignments.

Convertible Securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure but are usually
subordinated to comparable nonconvertible securities. While no securities
investment is completely without risk, investments in convertible securities
generally entail less risk than the corporation's common stock, although the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed-income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed-income characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases. Most convertible securities currently are
issued by U.S. companies, although a substantial Eurodollar convertible
securities market has developed, and the markets for convertible securities
denominated in local currencies are increasing.

The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The

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investment value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. Generally the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of
the convertible security will be increasingly influenced by its conversion
value. A convertible security generally will sell at a premium over its
conversion value by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed-income security.

A convertible security might be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into the underlying common stock or sell it to a third party. The Funds will
invest in convertible securities without regard to their credit rating.

Structured Notes. The Funds may invest in structured notes. The
distinguishing feature of a structured note is that the amount of interest
and/or principal payable on the notes is based on the performance of a benchmark
asset or market other than fixed-income securities or interest rates. Examples
of a benchmark include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows a Fund to gain exposure
to the benchmark asset or market, such as investments in certain emerging
markets that restrict investment by foreigners. The structured note fixes the
maximum loss that a Fund may experience in the event that the market does not
perform as expected. The performance tie can be a straight relationship or
leveraged, although the Adviser generally will not use leverage in its
structured note strategies. Depending on the terms of the note, a Fund may
forego all or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this foregone interest
and/or principal. An investment in a structured note involves risks similar to
those associated with a direct investment in the benchmark asset. Structured
notes will be treated as illiquid securities for investment limitation purposes.

Short Sales. In a short sale, a Fund sells a borrowed security and has
a corresponding obligation to the lender to return the identical security. The
seller does not immediately deliver the securities sold and is said to have a
short position in those securities until delivery occurs. If a Fund engages in a
short sale, the collateral for the short position will be maintained by the
Funds' custodian or qualified sub-custodian. While the short sale is open, a
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 a
Fund's long position.

While a short sale is made by selling a security a Fund does not own, a
short sale is "against the box" to the extent that a Fund contemporaneously owns
or has the right to obtain, at no added cost, securities identical to those sold
short. The Funds do not intend to

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<PAGE> 83
engage in short sales against the box for investment purposes. Each Fund may,
however, make a short sale as a hedge when it believes that the price of a
security may decline, causing a decline in the value of a security owned by a
Fund (or a security convertible or exchangeable for such security). In such
case, any future losses in a Fund's long position should be offset by a gain in
the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount each Fund owns. There will be certain additional
transactions costs associated with short sales against the box, but the Funds
will endeavor to offset these costs with the income from the investment of the
cash proceeds of short sales.

If a Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if a Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Funds may effect short sales.

Emerging Growth and Smaller Capitalization Companies; Unseasoned
Issuers. Investments in securities of small- and medium-sized, emerging growth
companies and companies with continuous operations of less than three years
("unseasoned issuers") involve considerations that are not applicable to
investing in securities of established, larger-capitalization issuers, including
reduced and less reliable information about issuers and markets, less stringent
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of these companies may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile. Because such
companies normally have fewer shares outstanding than larger, more established
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. These
companies may have limited product lines, markets or financial resources and may
lack management depth. In addition, these companies are typically subject to a
greater degree of changes in earnings and business prospects than are larger,
more established companies. Although investing in securities of these companies
offers potential for above-average returns if the companies are successful, the
risk exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value.

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

27
<PAGE> 84
in registered form are designed for use in U.S. securities markets and EDRs and
IDRs in bearer form are designed for use in European and non-U.S. securities
markets, respectively.

Temporary Investments. The short-term and medium-term debt securities
in which each Fund may invest for temporary defensive purposes consist of: (a)
obligations of the United States or foreign governments, their respective
agencies or instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign banks denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations;
and (e) repurchase agreements with banks and broker-dealers with respect to such
securities.

Rights Offerings and Purchase Warrants. Each Fund may invest in rights
and warrants to purchase newly created equity securities consisting of common
and preferred stock. The equity security underlying a right or warrant is
outstanding at the time the right or warrant is issued or is issued together
with the right or warrant.

Investing in rights and 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 right or 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.
Rights and 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 15% of its net assets in non-publicly traded and illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market, repurchase agreements which have a maturity of longer than
seven days, certain Rule 144A Securities (as defined below), 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

28
<PAGE> 85
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.

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

Rule 144A Securities. Rule 144A under the Securities Act adopted by the
SEC allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. Each Fund's
Adviser 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 or 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 Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of a Fund's net 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.

Stand-By Commitments. Each Fund may acquire "stand-by commitments" with
respect to securities held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at a Fund's option specified securities at a specified
price. A Fund's right to exercise stand-by commitments is unconditional and
unqualified. Stand-by commitments acquired by a Fund may also be referred to as
"put" options. A stand-by commitment is not transferable by a Fund, although a
Fund can sell the underlying securities to a third party at any time.

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<PAGE> 86
The principal risk of stand-by commitments is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. The Funds intends to enter into stand-by commitments only with brokers,
dealers and banks that, in the opinion of their Advisers, present minimal credit
risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, each Fund's Adviser will periodically review relevant financial
information concerning the issuer's assets, liabilities and contingent claims. A
Fund will acquire stand-by commitments only in order to facilitate portfolio
liquidity and does not intend to exercise its rights under stand-by commitments
for trading purposes.

The amount payable to a Fund upon its exercise of a stand-by commitment
is normally (i) a Fund's acquisition cost of the securities (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period a Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.

Each Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in a Fund's portfolio will not
exceed 1/2 of 1% of the value of a Fund's total assets calculated immediately
after each stand-by commitment is acquired.

A Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by a Fund would be valued at zero in determining net asset value. Where
a Fund paid any consideration directly or indirectly for a stand-by commitment,
its cost would be reflected as unrealized depreciation for the period during
which the commitment was held by a Fund. Stand-by commitments would not affect
the average weighted maturity of a Fund's portfolio.

Other Investment Limitations

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

Each Fund may not:

1. Borrow money except that the Fund may borrow from banks for
temporary or emergency purposes provided that any such borrowing by the Fund may
not exceed 30% of the value of the Fund's total assets at the time of such
borrowing. For purposes of this restriction, short sales and the entry into
currency transactions, options, futures contracts,

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<PAGE> 87
options on futures contracts, and forward commitment 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 structured securities, lend portfolio securities and enter
into repurchase agreements.

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

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

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

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

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

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

11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the writing of covered put
and call options and purchase of securities on a

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<PAGE> 88
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.

12. Invest more than 15% of the Fund's net assets in securities which
may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.

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

If a percentage restriction (other than the percentage limitation set
forth in No. 1 and No. 12) 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.

Portfolio Valuation

The Prospectus discusses 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 OTC market will be valued at the most recent sale as of the time
the valuation is made or, in the absence of sales, at the mean between the bid
and asked quotations. If there are no such quotations, the value of the
securities will be taken to be the highest bid quotation on the exchange or
market. Options and futures contracts will be valued similarly. A security which
is listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. Short-term
obligations with maturities of 60 days or less are valued at amortized cost,
which constitutes fair value as determined by the Fund's 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.
Notwithstanding the foregoing, in determining the market value of portfolio
investments, the Funds may employ outside organizations (a "Pricing Service")
which may use a matrix, formula or other objective method that takes into
consideration market indexes, matrices, yield curves and other specific
adjustments. The procedures of Pricing Services are reviewed periodically by the
officers of the Funds under the general supervision and responsibility of the
Board, which may replace a Pricing Service at any time. Securities, options and
futures contracts for which market quotations are not available and certain
other assets of the Funds 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.

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Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which The New York Stock Exchange, Inc. (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which a Fund's net asset value is not calculated. As a result,
calculation of a Fund's net asset value does not take place contemporaneously
with the determination of the prices of the majority of a Fund's securities. All
assets and liabilities initially expressed in foreign currency values will be
converted into U.S. dollar values at the prevailing exchange 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

Each Fund's Adviser 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 the Funds 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 OTC markets, but the price of securities traded in OTC 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.

Each Fund's Adviser 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,
the Adviser 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. The Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as
amended) to the Funds and/or other accounts over which the Adviser exercises
investment discretion. The Adviser 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

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<PAGE> 90
the Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of such brokerage and research services
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of the Adviser. Research and
other services received may be useful to the Adviser in serving each Fund and
their other clients and, conversely, research or other services obtained by the
placement of business of other clients may be useful to the Adviser in carrying
out its obligations to the Funds. 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 the Adviser in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to the Adviser's own
research program. The fees paid to the Adviser under its advisory agreement with
a Fund are not reduced by reason of its receiving any brokerage and research
services.

Investment decisions for the Funds concerning specific portfolio
securities are made independently from those for other clients advised by the
Adviser. Such other investment clients may invest in the same securities as the
Funds. 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 the
Adviser believes to be equitable to each client, including a Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold for a Fund. To
the extent permitted by law, the Adviser 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.

The Funds may use Counsellors Securities Inc. ("Counsellors
Securities"), the Distributor, or affiliates of Credit Suisse Group in
connection with the purchase or sale of securities in accordance with rules or
exemptive orders adopted by the SEC when the Adviser believes that the charge
for the transaction does not exceed usual and customary levels. All transactions
with affiliated brokers will comply with Rule 17e-1 under the 1940 Act.

In no instance will portfolio securities be purchased from or sold to
Counsellors Securities, BEA Associates ("BEA"), Credit Suisse Asset Management
Limited ("CSAM"), or any affiliated person of such companies. In addition, the
Funds will not give preference to any institutions with whom a Fund enters into
distribution or shareholder servicing agreements concerning the provision of
administrative and other support services.

Transactions for each Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Funds will

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<PAGE> 91
deal directly with the dealers who make a market in the securities involved,
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Such
portfolio securities are generally traded on a net basis and do not normally
involve brokerage commissions. Securities firms may receive brokerage
commissions on certain portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options.

The Funds may participate, if and when practicable, in bidding for the
purchase of securities for each 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 its Adviser, in
its sole discretion, believes such practice to be otherwise in a Fund's
interest.

Portfolio Turnover

The Funds do not intend to seek profits through short-term trading, but
the rate of turnover will not be a limiting factor when the Funds deem 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 the Funds could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, the Funds will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held. Consequently, the
annual portfolio turnover rate of the Funds may be higher than mutual funds
having a similar objective that do not utilize these strategies. Each Fund
expects its turnover rate for its first year of operation to total approximately
100%.

MANAGEMENT OF THE FUNDS

Officers and Board of Directors

The business and affairs of each Fund is managed by its Board of
Directors in accordance with the laws of the State of Maryland. Each Board
elects officers who are responsible for the day-to-day operations of a Fund and
who execute policies formulated by the Board. Under each Fund's Charter, a Board
may classify or reclassify any unissued shares of the Funds 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. A 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 Funds.

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

<TABLE>
<S> <C>
Richard N. Cooper* (63) Director
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 Circuit City Stores, Inc. (retail electronics and
appliances) and Phoenix Home Life Mutual Insurance
Company; Director/Trustee of other investment
companies advised by Warburg.

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

John L. Furth* (67) Chairman of the Board
466 Lexington Avenue Vice Chairman, Managing Director and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970; Director of Counsellors
Securities; Chairman of the Board of other investment
companies advised by Warburg.

Jeffrey E. Garten (51) Director
Box 208200 Dean of Yale School of Management and William S. Beinecke
New Haven, Connecticut 06520-8200 Professor in the Practice of International Trade and
Finance; Undersecretary of Commerce for International
Trade from November 1993 to October 1995; Professor at
Columbia University from September 1992 to November
1993; Director/Trustee of other investment companies
advised by Warburg.
</TABLE>

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

36
<PAGE> 93
<TABLE>
<S> <C>
Arnold M. Reichman *(50) Director
466 Lexington Avenue Managing Director, Chief Operating Officer and Assistant
New York, New York 10017-3147 Secretary of Warburg; Director of The RBB Fund, Inc.;
Associated with Warburg since 1984; Director and
officer of Counsellors Securities; Director/Trustee of other
investment companies advised by Warburg.

Alexander B. Trowbridge (68) Director
1317 F Street President of Trowbridge Partners, Inc. (business consulting)
5th Floor from January 1990 to November 1996; Director or Trustee of
Washington, DC 20004* New England Mutual Life Insurance Co., ICOS Corporation
(biopharmaceuticals), Waste Management, Inc. (solid and
hazardous waste collection and disposal), IRI International
(energy services), The Rouse Company (real estate
development), Harris Corp. (electronics and communications
equipment), The Gillette Co. (personal care products) and
Sun Company Inc. (petroleum refining and marketing);
Director/Trustee of other investment companies advised by
Warburg.

Eugene L. Podsiadlo (41) President
466 Lexington Avenue Managing Director of Warburg; Associated with Warburg since
New York, New York 10017-3147 1991; Officer of Counsellors Securities and other investment
companies advised by Warburg.

Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director of Warburg; Associated with Warburg since
New York, New York 10017-3147 1984; Treasurer of Counsellors Securities; Officer of other
investment companies advised by Warburg.
</TABLE>

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

37
<PAGE> 94
<TABLE>
<S> <C>
Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg; Associated with Warburg
New York, New York 10017-3147 since April 1994; Attorney-at-law from September 1989-April
1994; Life insurance agent, New York Life Insurance
Company from 1993 to 1994; Officer of Counsellors
Securities and other investment companies advised by Warburg.

Howard Conroy, CPA (44) Vice President and Chief Financial Officer
466 Lexington Avenue Vice President of Warburg; Associated with Warburg since
New York, New York 10017-3147 1992; Officer of other investment companies advised by
Warburg.

Daniel S. Madden, CPA (32) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated with Warburg since
New York, New York 10017-3147 1995; Associated with BlackRock Financial Management, Inc.
from September 1994 to October 1995; Associated
with BEA from April 1993 to September 1994; Associated
with Ernst & Young LLP from 1990 to 1993; Officer of
other investment companies advised by Warburg.

Hal Liebes (34) Assistant Secretary
153 East 53rd Street Senior Vice President and General Counsel of BEA from March
New York, New York 10022 1997 to present; Vice President and Legal Counsel for BEA
from June 1995 to March 1997; Chief Compliance
Officer, CS First Boston Investment Management from
1994 to 1995; Staff Attorney, Division of Enforcement, U.S.
Securities and Exchange Commission from 1991 to
1994; Associate, Morgan, Lewis & Bockius from 1989
to 1991; Officer of other investment companies advised by BEA.

Janna Manes, Esq. (30) Assistant Secretary
466 Lexington Avenue Vice President of Warburg; Associated with Warburg since
New York, New York 10017-3147 1996; Associated with the law firm of Willkie Farr &
Gallagher from 1993 to 1996; Officer of other investment
companies advised by Warburg.
</TABLE>

38
<PAGE> 95
<TABLE>
<S> <C>
Michael A. Pignataro (38) Assistant Secretary
153 East 53rd Street Vice President of BEA from December 1995 to present;
New York, New York 10022 Assistant Vice President and Chief Administrative Officer
for Investment Companies of BEA from 1989 to December
1995; Officer of other investment companies
advised by BEA.

Rocco A. Del Guercio (35) Assistant Treasurer
Administrative Officer for BEA-advised investment
companies from June 1996 to the present; Assistant
Treasurer, Bankers Trust Corp. -- Fund
Administration from March 1994 to June 1996; Mutual
Fund Accounting Supervisor, Dreyfus Corporation from
April 1987 to March 1994; Officer of other investment
companies advised by BEA.

Wendy S. Setnicka ( 33) Assistant Treasurer
Assistant Vice President of BEA from January 1997 to
the present; Administrative Officer for Investment
Companies of BEA from November 1993 to the
present; Supervisor of Fund Accounting and
Administration at Reich & Tang LP from June 1989 to
November 1993; Officer of other investment companies
advised by BEA.
</TABLE>

The Funds pay directors who are not "affiliated persons" (as defined in
the 1940 Act) of its Adviser, co-administrators or distributors an annual fee of
$500 and $250 for each meeting of the Board attended by him for his services as
a Director, and is reimbursed for expenses incurred in connection with his
attendance at Board meetings. Each member of the Audit Committee receives an
annual fee of $250, and the Chairman of the Audit Committee receives an annual
fee of $325.

Directors' Total Compensation:

<TABLE>
<CAPTION>
Total Compensation from the
Name of Director The Fund+ Fund and the Fund Complex++
---------------- --------- ---------------------------
<S> <C> <C>
John L. Furth* None None

Arnold M. Reichman* None None

Richard N. Cooper [insert] [insert]

Jack W. Fritz [insert] [insert]

Jeffrey E. Garten [insert] [insert]

Alexander B. Trowbridge [insert] [insert]
</TABLE>

39
<PAGE> 96
+ Amounts shown are estimates of payments to be made for the remaining
period of the fiscal year ending August 31, 1998 pursuant to existing
arrangements.

++ A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment company. Each Director
serves as a Director or Trustee of [insert] investment companies in the
Fund Complex.

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

Portfolio Managers

The Portfolio Managers of the European Equity Fund are Susan E. Boland
and Patricia Maxwell-Arnot. Ms. Boland joined BEA in 1996, and is a Senior Vice
President. From 1995-1996, Ms. Boland was a Director and Portfolio Manager of
Barran & Partners Limited, and from 1992 to 1995, she was a Partner and European
Portfolio Manager for Teton Partners. Ms. Boland was also a Portfolio Manager
and Analyst with Fidelity Management & Research Company from 1985-1991. Ms.
Maxwell-Arnot joined CSAM in 1995, and is a Managing Director. From 1984-1994,
Ms. Maxwell-Arnot was a Director at Lazard Brothers (London).

The Portfolio Managers of the Central and Eastern Europe Fund are Glenn
Wellman and Isabel Knight. Mr. Wellman joined CSAM in 1993, and is a Managing
Director. From 1987-1993, Mr. Wellman was a Managing Director and Chief
Investment Officer of Alliance Capital Limited. Ms. Knight joined CSAM in 1997,
and is a Director. From 1995-1997, she was a Senior Fund Manager for emerging
Europe with Foreign & Colonial Emerging Markets, and from 1992-1995, she was a
Portfolio Manager for Morgan Stanley Asset Management.

Control Persons and Principal Holders of Securities

CSAM will hold all of the shares of each Fund on the date each Fund's
Registration Statement become effective.

Investment Advisers and Co-Administrators

BEA, located at One Citicorp Center, 153 East 53rd Street, New York,
New York 10022, serves as investment adviser to each Fund pursuant to separate
written agreements (the "Advisory Agreements"). BEA is a diversified investment
adviser, managing global equity, fixed-income and derivative securities accounts
for corporate pension and profit-sharing plans, state pension funds, union
funds, endowments and other charitable institutions. BEA currently manages
approximately $35 billion in assets, and is a member of CSAM and a subsidiary of
Credit Suisse Group, one of the world's leading banks. BEA is a registered
investment adviser under the Investment Advisers Act of 1940, as amended. As an
investment adviser, BEA emphasizes a global investment strategy. BEA currently
acts as investment adviser for eleven other investment companies registered
under the 1940 Act. They are: BEA Strategic Global Income Fund, Inc., BEA Income
Fund, Inc., The Brazilian Equity Fund, Inc., The Chile Fund, Inc., The Emerging
Markets Infrastructure Fund, Inc., The Emerging Markets Telecommunications Fund,
Inc., The First Israel Fund, Inc., The Indonesia Fund,

40
<PAGE> 97
Inc., The Latin America Equity Fund, Inc., The Latin America Investment Fund,
Inc., and The Portugal Fund, Inc. In addition, BEA acts as sub-adviser to
certain portfolios of thirteen other registered investment companies or
portfolios: American Odyssey Funds, Inc. (Global High Yield Bond Fund), American
United Life (Conservative Investor Portfolio, Moderate Investor Portfolio and
Aggressive Investor Portfolio), Frank Russell Investment Company (Fixed Income
III Fund and Multi-strategy Bond Fund), Panorama (LifeSpan Balanced Account,
LifeSpan Capital Appreciation Account and LifeSpan Diversified Income Account),
SEI Institutional Managed Trust (High Yield Bond Fund), AGA Series Trust (Credit
Suisse Growth and Income Fund), Touchstone International Equity Fund and
Touchstone Variable Annuity International Equity Fund.

CSAM, located at Beaufort House, 15 St. Botolph Street, GB-London EC3A
7JJ, serves as sub-investment adviser to each Fund pursuant to separate written
agreements (the "Advisory Agreements"). CSAM is a wholly owned, indirectly held,
subsidiary of Credit Suisse Group. CSAM is a registered investment adviser under
the Investment Advisers Act of 1940, and currently manages $35 billion in
assets. CSAM has offices in Budapest, Moscow, Prague, Warsaw, Frankfurt, Milan,
Paris, Sydney, Tokyo and Zurich (these offices are not registered with the U.S.
Securities and Exchange Commission).

For the services provided by BEA to the European Equity Fund, the Fund
pays a fee calculated at an annual rate of 1.00% of the Fund's average daily net
assets computed daily and payable quarterly (out of which BEA pays CSAM for its
sub-investment advisory services). For the services provided by BEA to the
Central and Eastern Europe Fund, the Fund pays a fee calculated at an annual
rate of 1.25% of the Fund's average daily net assets computed daily and payable
quarterly (out of which BEA pays CSAM for its sub-investment advisory services).
BEA and CSAM may voluntarily waive a portion of their fees from time to time and
temporarily limit the expenses to be borne by a Fund.

Under the Advisory Agreements, neither BEA nor CSAM will be liable for
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which the Advisory Agreements relate. The
Advisory Agreements for the Funds were approved on July 20, 1998 by vote of the
Funds' Board of Directors, including a majority of those directors who are not
parties to the Advisory Agreements or interested persons (as defined in the 1940
Act) of such parties. The Advisory Agreements were also approved by each Fund's
initial shareholder. The BEA Advisory Agreements are terminable by vote of the
Funds' Board of Directors or by the holders of a majority of the outstanding
voting securities of the relevant Fund, and at any time without penalty, on 60
days' written notice to BEA. The BEA Advisory Agreements may also be terminated
by BEA on 90 days' written notice to a fund. The BEA Advisory Agreements
terminate automatically in the event of an assignment. The CSAM Sub-Advisory
Agreements are terminable by BEA on 60 days' written notice to the Fund and
CSAM, by vote of the Funds' Board of Directors or by the holders of a majority
of the outstanding voting securities of the relevant Fund on 60 days' written
notice to BEA and CSAM, or by CSAM upon 60 days' written notice to a Fund and
BEA. The CSAM Sub-Advisory Agreements terminate automatically in the event of an
assignment.

41
<PAGE> 98
Counsellors Funds Service, Inc. ("Counsellors Service"), a wholly owned
subsidiary of Warburg, and PFPC Inc. ("PFPC"), an indirect, wholly owned
subsidiary of PNC Bank serve as co-administrators to each Fund pursuant to
separate written agreements. Counsellors Service provides shareholder liaison
services to each 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 Funds and their various
service providers, furnishing certain corporate secretarial services, which
include preparing materials for meetings of the Board, assisting with proxy
statements and annual and semiannual reports, assisting in the preparation of
tax returns and monitoring and developing certain compliance procedures for the
Funds. As compensation, the Common Shares of each Fund pay Counsellors Service a
fee calculated at an annual rate of .10% of the Common Shares' average daily net
assets. Counsellors Service provides co-administration services to the BEA
Institutional Funds without compensation.

PFPC calculates each Fund's net asset value, provides all accounting
services for each Fund and assists in related aspects of each Fund's operations.
As compensation, each Fund pays PFPC a fee calculated at an annual rate of .12%
of a Fund's first $250 million in average daily net assets, .10% of the next
$250 million in average daily net assets, .08% of the next $250 million in
average daily net assets, and .05% of average daily net assets over $750
million, subject in each case to a minimum annual fee and exclusive of
out-of-pocket expenses.

Each class of Shares of a Fund bears its proportionate share of fees
payable to BEA, CSAM and PFPC in the proportion that its assets bear to the
aggregate assets of a Fund at the time of calculation. These fees are calculated
at an annual rate based on a percentage of a Fund's average daily net assets.
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 a Fund.

Custodians and Transfer Agents

Brown Brothers Harriman & Co. ("BBH") acts as custodian for each Fund
and also acts as the custodian for each Fund's foreign securities pursuant to a
written Custodian Agreement (the "Custodian Agreement"). BBH will (i) maintain a
separate account or accounts in the name of each Fund, (ii) hold and transfer
portfolio securities on account of each Fund, (iii) accept receipts and
disbursements of money on behalf of each Fund, (iv) collect and receive all
income and other payments and distributions for the account of each Fund's
portfolio securities and (v) make periodic reports to the Board concerning each
Fund's custodial arrangements. BBH is authorized to select one or more foreign
banking institutions and foreign securities depositories to serve as
sub-custodian on behalf of the Funds, provided that BBH remains responsible for
the performance of all its duties under the Custodian Agreement and holds the
Funds harmless from the negligent acts and omissions of any sub-custodian. For
its services to the Funds under the Custodian Agreement, BBH receives a fee
which is calculated based upon each Fund's average daily gross assets, exclusive
of transaction charges and out-of-pocket expenses, which are also charged to the
Funds. BBH's principal business address is 40 Water Street, Boston,
Massachusetts 02109.

42
<PAGE> 99
State Street Bank and Trust Company ("State Street") will serve as each
Fund's shareholder servicing, transfer and dividend disbursing agent pursuant to
a Transfer Agency and Service Agreement, under which State Street (i) issues and
redeems shares of the Funds, (ii) addresses and mails all communications by the
Funds to record owners of each Fund shares, including reports to shareholders,
dividend and distribution notices and proxy material for 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 Funds. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
("BFDS"), responsibility for most shareholder servicing functions. State
Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.

Organization of the Funds

Each Fund's Charter authorizes the Board to issue three billion full
and fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares, one billion shares are designated
Institutional Shares and one billion are designated Advisor Shares. The Funds
currently offer Common and Institutional Shares. Shareholders of each Fund in
the class, upon liquidation, will participate ratably in the Fund's net assets.
Shares do not have cumulative voting rights, which means that holders of more
than 50% of the shares voting for the election of Directors can elect all
Directors. Shares are transferable, but have no preemptive, conversion or
subscription rights.

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

Distribution and Shareholder Servicing

Counsellors Securities serves as distributor of the shares of each
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg, and is
located at 466 Lexington Avenue, New York, New York 10017-3147.

Common Shares. Each 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 each 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 each Fund. Services
performed by Counsellors Securities include (i) the

43
<PAGE> 100
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 a 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
a 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 Funds to prospective shareholders of the Funds; and (f) costs
involved in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities that the Funds may, from time to time, deem
advisable.

Pursuant to the 12b-1 Plan, Counsellors Securities will provide each
Fund's Board with periodic reports of amounts expended under the 12b-1 Plan and
the purpose for which the expenditures were made.

Advisor Shares. Each Fund may, in the future, enter into agreements
("Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and financial
intermediaries ("Institutions") to provide certain distribution, shareholder
servicing, administrative and/or accounting services for their clients or
customers (or participants in the case of retirement plans) ("Customers") who
are beneficial owners of Advisor Shares. 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 purpose for which such expenditures were made.

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 Prospectus and this Statement of
Additional Information in conjunction with the Agreement and other literature
describing the services and related fees that would be provided by the
Institution to its Customers prior to any

44
<PAGE> 101
purchase of Fund shares. Prospectuses are available from a Fund's distributor
upon request. No preference will be shown in the selection of a Fund's portfolio
investments for the instruments of Institutions.

General. The Distribution Plan and the 12b-1 Plan will continue in
effect for so long as their continuance is specifically approved at least
annually by each Board, including a majority of the Directors who are not
interested persons of a Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plans or the 12b-1 Plans, as the
case may be ("Independent Directors"). Any material amendment of the
Distribution Plan or 12b-1 Plan would require the approval of the Board in the
same manner. Neither the Distribution Plan nor the 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Distribution Plan or 12b-1 Plan
may be terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of each Fund.

Institutional Shares. The Institutional Shares will be distributed
under the name "BEA Institutional Funds." Counselors Securities serves without
compensation as distributor of the Institutional Shares.

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 a Fund.

Under the 1940 Act, the Funds 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 a 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. The Funds will comply with Rule 18f-1 promulgated under the 1940 Act
with respect to redemptions in kind.

As stated in the Prospectus, with respect to the Central and Eastern
Europe Fund only, a short-term trading fee of 1.0% of the amount of shares
redeemed will be deducted from the redemption amount if a shareholder sells
shares of the Central and Eastern Europe Fund after holding them less than six
months. This fee, which is currently being waived, is paid to the Central and
Eastern Europe Fund to offset costs associated with short-term shareholder
trading. It does not apply to shares acquired through reinvestment of

45
<PAGE> 102
distributions. If a shareholder purchased shares of the Central and Eastern
Europe Fund on different days, any shares purchased through reinvestment of
distributions would be redeemed first, followed by the shares of the Central and
Eastern Europe Fund held the longest.

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

EXCHANGE PRIVILEGE

Investors can exchange their Fund Common Shares for Common Shares of
other Warburg Pincus Funds. Investors in the BEA Institutional Funds can
exchange their shares for those of other BEA Institutional 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. Subject to the restrictions on
exchange purchases contained in the Prospectus and any other applicable
restrictions, this privilege is available to shareholders residing in any state
in which the Common Shares, Institutional 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 a Fund into which an exchange is being considered. Shareholders may obtain a
prospectus of the relevant class of a Fund into which they are contemplating an
exchange by calling (800) 927-2874 (Common Shares) or (800) 401-22033
(Institutional Shares).

Subject to the restrictions described above, 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 a Fund being acquired. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.

46
<PAGE> 103
ADDITIONAL INFORMATION CONCERNING TAXES

The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of shares
in the Funds. Each prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in the Funds. The summary is based on the laws in
effect on the date of this Statement of Additional Information, which are
subject to change.

The Funds and Their Investments

Each Fund intends to qualify to be treated as a regulated investment
company each taxable year under the Code. To so qualify, a Fund must, among
other things: (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities, loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; and (b) diversify its holdings so that, at the
end of each quarter of a Fund's taxable year, (i) at least 50% of the market
value of a Fund's assets is represented by cash, securities of other regulated
investment companies, United States government securities and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of a Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of the
value of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that a Fund controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. Each Fund expects that all of its foreign currency gains
will be directly related to its principal business of investing in stocks and
securities.

As a regulated investment company, each Fund will not be subject to
United States federal income tax on its net investment income (i.e., income
other than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that it distributes to its
shareholders, provided that an amount equal to at least 90% of the sum of its
investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in the Code) and its net
tax-exempt income for the taxable year is distributed, but will be subject to
tax at regular corporate rates on any taxable income or gains that it does not
distribute. Furthermore, each Fund will be subject to a United States corporate
income tax with respect to such distributed amounts in any year that it fails to
qualify as a regulated investment company or fails to meet this distribution
requirement. Any dividend declared by a Fund in October, November or December of
any calendar year and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by a Fund not later than
such December 31, provided that such dividend is actually paid by a Fund during
January of the following calendar year.

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<PAGE> 104
Each Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. Each Board will
determine annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses (including any capital
loss carryovers). Each Fund currently expects to distribute any excess annually
to its shareholders. However, if a Fund retains for investment an amount equal
to all or a portion of its net long-term capital gains in excess of its net
short-term capital losses and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of 35%) on the amount retained. In that
event, each Fund will designate such retained amounts as undistributed capital
gains in a notice to its shareholders who (a) will be required to include in
income for United Stares federal income tax purposes, as long-term capital
gains, their proportionate shares of the undistributed amount, (b) will be
entitled to credit their proportionate shares of the 35% tax paid by a Fund on
the undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their pro rata share of
such taxes paid by a Fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS"). Even if a Fund makes such an
election, it is possible that a Fund may incur an excise tax as a result of not
having distributed net capital gains.

The Code imposes a 4% nondeductible excise tax on each Fund to the
extent a Fund does not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by a Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. Each Fund anticipates that it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.

With regard to a Fund's investments in foreign securities, exchange
control regulations may restrict repatriations of investment income and capital
or the proceeds of securities sales by foreign investors such as each Fund and
may limit a Fund's ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution requirements.

If, in any taxable year, a Fund fails to qualify as a regulated
investment company under the Code, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by a Fund in computing its taxable income. In addition, in the event
of a failure to qualify, each Fund's distributions, to the extent derived from
each Fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If a Fund fails to

48
<PAGE> 105
qualify as a regulated investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to qualify again as a
regulated investment company. In addition, if a Fund failed to qualify as a
regulated investment company for a period greater than one taxable year, a Fund
may be required to recognize any net built-in gains (the excess of the aggregate
gains, including items of income, over aggregate losses that would have been
realized if it had been liquidated) in order to qualify as a regulated
investment company in a subsequent year.

Each Fund's short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Funds (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to a Funds and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require each
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause each 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 in order to mitigate the effect of these rules and
prevent disqualification of a Fund as a regulated investment company.

Passive Foreign Investment Companies. If a Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income tax on
a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by a Fund to its
shareholders. Additional charges in the nature of interest may be imposed on a
Fund in respect of deferred taxes arising from such distributions or gains. Any
tax paid by a Fund as a result of its ownership of shares in a PFIC will not
give rise to any deduction or credit to a Fund or any shareholder. If a Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified electing
fund" under the Code, in lieu of the foregoing requirements, a Fund might be
required to include in income each year a portion of the ordinary earnings and
net capital gains of the qualified election fund, even if not distributed to a
Fund, and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, each Fund would be
required to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or not possible
to obtain. If a Fund were able to make the election described in this paragraph,
a Fund would not be able to treat any portion of the long-term capital gains
included in income pursuant to the election as eligible for the 20% maximum
capital gains rate. On October 9, 1997, the Ways and Means Committee of the U.S.
Congress approved technical corrections legislation that would treat PFICs as
pass-through entities for purposes of applying the 20% rate to the portion of a
PFIC's long-term gain attributable to assets held more than 18 months.

Recently, legislation was enacted that provides a mark-to-market
election for

49
<PAGE> 106
regulated investment companies effective for taxable years beginning after
December 31, 1997. This election would result in a Fund being treated as if it
had sold and repurchased all of the PFIC stock at the end of each year. In this
case, each Fund would report gains as ordinary income and would deduct losses as
ordinary losses to the extent of previously recognized gains. The election, once
made, would be effective for all subsequent taxable years of a Fund, unless
revoked with the consent of the IRS. By making the election, each Fund could
potentially ameliorate the adverse tax consequences with respect to its
ownership of shares in a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. Each Fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. Each Fund will make
the appropriate tax elections, if possible, and take any additional steps that
are necessary to mitigate the effect of these rules.

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

Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.

Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable to them.

If a Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
a Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date a Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, each Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.

Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will

50
<PAGE> 107
realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in a Fund, within a
61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such a case, the basis of the shares acquired will be
increased to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of a Fund share held by the shareholder for six months or less will be
treated for United States federal income tax purposes as a long-term capital
loss to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.

Backup Withholding. Each Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and distributions
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.

Notices. Shareholders will be notified annually by each Fund as to the
United States federal income tax status of the dividends, distributions and
deemed distributions attributable to undistributed capital gains (discussed
above in "The Funds and Their Investments") made by the Fund to its
shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of a Fund's taxable year regarding the
United States federal income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as having been paid) by
the Funds to its shareholders during the preceding taxable year.

Other Taxation

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

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

51
<PAGE> 108
DETERMINATION OF PERFORMANCE

From time to time, each Fund may quote the total return of its Common
Shares, Institutional Shares and/or Advisor Shares in advertisements or in
reports and other communications to shareholders. These figures are calculated
by finding the average annual compounded rates of return for the one-, five- and
ten- (or such shorter period as the relevant class of shares has been offered)
year periods that would equate the initial amount invested to the ending
redeemable value according to the following formula: P (1 + T)(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.

Each Fund may advertise, from time to time, comparisons of the
performance of its Common Shares, Institutional Shares and/or Advisor Shares
with that of one or more other mutual funds with similar investment objectives.
Each 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 a Fund's total return in longer market cycles.

The performance of a class of a Fund's 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.

In its reports, investor communications or advertisements, each Fund
may include: (i) its total return performance; (ii) its performance compared
with various indexes or other mutual funds; (iii) published evaluations by
nationally recognized ranking services and financial publications; (iv) updates
concerning its strategies and portfolio investments; (v) information about its
goals, risk factors and expenses including comparisons with other mutual funds;
(vi) analysis of its investments by industry, country, credit quality and other
characteristics; (vii) a discussion of the risk/return continuum relating to
different investments; (viii) the potential impact of adding foreign stocks to
a domestic portfolio and (ix) portfolio manager quotations and commentary.

52
<PAGE> 109
INDEPENDENT ACCOUNTANTS AND COUNSEL

PricewaterhouseCoopers LLP ("Pricewaterhouse"), with principal offices
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the
independent accountant for each Fund. The statements of assets and liabilities
of each Fund, as of [insert], 1998, that appear in this Statement of Additional
Information have been audited by Pricewaterhouse, whose report thereon appears
elsewhere herein and has been included herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.

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

FINANCIAL STATEMENTS

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

53
<PAGE> 110
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.

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

A-1
<PAGE> 111
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.

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

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

Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

A-2
<PAGE> 112
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

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

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

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "B." The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.

Caa - Bonds that are rated Caa are of poor standing. These issues may
be in default or present elements of danger may exist with respect to principal
or interest.

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

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

A-3
<PAGE> 113
PART C
OTHER INFORMATION

Item 23. Exhibits

Exhibit No. Description of Exhibit

(a) Articles of Incorporation.

(b) By-Laws.

(d) (1) Investment Advisory Agreement.*
(2) Sub-Advisory Agreement.*

(e) Distribution Agreement.*

(f) Not applicable.

(g) Custodian Agreement with Brown Brothers Harriman & Co.*

(h) (1) Transfer Agency and Service Agreement.*
(2) Co-Administration Agreement with Counsellors Funds
Service, Inc.*
(3) Co-Administration Agreement with PFPC Inc.*

(i) (1) Opinion and Consent of Willkie Farr & Gallagher, counsel
to the Fund.*
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund.*

(j) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.*

(k) Not applicable.

(l) Purchase Agreement.*

(m) (1) Shareholder Servicing and Distribution Plan.*
(2) Distribution Plan.*
(3) Distribution Agreement*
(4) Fund/SERV Agreement*

(n) Not applicable.

- ----------
* To be filed by amendment.
<PAGE> 114
(o) 18f-3 Plan.*

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

All of the outstanding shares of common stock of Registrant on the
date Registrant's Registration Statement becomes effective will be owned by
Credit Suisse Asset Management Limited ("Credit Suisse"), a corporation formed
under English law.

Item 25. Indemnification

Registrant, officers and directors of BEA Associates ("BEA"), Credit
Suisse, 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. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, director or
trustee in connection with the operation of Registrant. Insurance coverage does
not extend to (a) conflicts of interest or gain in fact any profit or advantage
to which one is not legally entitled, (b) intentional non-compliance with any
statute or regulation or (c) commission of dishonest, fraudulent acts or
omissions. Insofar as it related to Registrant, the coverage is limited in
amount and, in certain circumstances, is subject to a deductible.

Under Article VIII of the Articles of Incorporation (the
"Articles"), the Directors and officers of Registrant shall not have any
liability to Registrant or its stockholders for money damages, to the fullest
extent permitted by Maryland law. This limitation on liability applies to events
occurring at the time a person serves as a Director or officer of Registrant
whether or not such person is a Director or officer at the time of any
proceeding in which liability is asserted. No provision of Article VIII shall
protect or purport to protect any Director or officer of Registrant against any
liability to Registrant or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Registrant shall indemnify and advance expenses to its currently acting and its
former Director to the fullest extent that indemnification of Directors and
advancement of expenses to Directors is permitted by the Maryland General
Corporation Law.

Registrant shall indemnify and advance expenses to its officers to
the same extent as its Directors and to such further extent as is consistent
with such law. The Board of Directors may, through a by-law, resolution or
agreement, make further provisions for indemnification of directors, officers,
employees
<PAGE> 115
and agents to the fullest extent permitted by the Maryland General Corporation
Law.

Article V of the By-Laws further limits the liability of the
Directors by providing that any person who was or is a party or is threatened to
be made a party in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is a current or former director or officer of
Registrant, or is or was serving while a director or officer of Registrant at
the request of Registrant as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by Registrant against
judgments, penalties, fines, excise taxes, settlements and reasonable expenses
(including attorneys' fees)actually incurred by such person in connection with
such action, suit or proceeding to the full extent permissible under the
Maryland General Corporation Law, the 1993 Act and the 1940 Act, as such
statutes are now or hereafter in force, except that such indemnity shall not
protect any such person against any liability to Registrant or any stockholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of this office.

Item 26. Business and Other Connections of Investment Adviser

BEA acts as investment adviser to the Registrant. BEA renders
investment advice to a wide variety of individual and institutional clients.
Credit Suisse acts as sub-advisor to the Registrant. Credit Suisse renders
investment advice and provides full-service private equity programs to clients.
The list required by this Item 26 of officers and directors of BEA and Credit
Suisse, together with information as to their other businesses, professions,
vocations 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 BEA (SEC
File No. 801-37170), and to Schedules A and D of Form ADV filed by Credit Suisse
(SEC File No. 801-40177).

Item 27. Principal Underwriter

(a) Counsellors Securities will act as distributor for
Registrant, as well as for Warburg Pincus Balanced Fund; Warburg Pincus Capital
Appreciation Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Central and
Eastern Europe Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus
Emerging Markets Fund; Warburg Pincus Emerging Markets II Fund; Warburg Pincus
European Equity Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Global
Fixed Income Fund; Warburg Pincus Global Post-Venture Capital Fund; Warburg
Pincus Global Telecommunications Fund; Warburg Pincus Growth & Income Fund;
Warburg Pincus Health Sciences Fund; Warburg Pincus High Yield

<PAGE> 116
Fund; Warburg Pincus Institutional Fund; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus
International Growth Fund; Warburg Pincus International Small Company Fund;
Warburg Pincus Japan Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus
Long-Short Equity Fund; Warburg Pincus Long-Short Market Neutral Fund; Warburg
Pincus Major Foreign Markets Fund; Warburg Pincus Money Market Fund; Warburg
Pincus Municipal Bond Fund; Warburg Pincus New York Intermediate Municipal Fund;
Warburg Pincus New York Tax Exempt Fund; Warburg Pincus Post-Venture Capital
Fund; Warburg Pincus Select Economic Value Equity Fund; Warburg Pincus Small
Company Growth Fund; Warburg Pincus Small Company Value Fund; Warburg Pincus
Strategic Global Fixed Income Fund; Warburg Pincus Strategic Value Fund; Warburg
Pincus Tax Free Money Market Fund; Warburg Pincus Trust; Warburg Pincus Trust
II; Warburg Pincus U.S. Core Fixed Income Fund and Warburg Pincus U.S.
Core Equity Fund.

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

Item 28. Location of Accounts and Records

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

(2) BEA Associates
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(records relating to its functions as investment adviser)

(3) Credit Suisse Asset Management Limited
Beaufort House
15 St. Botolph Street
GB-London
EC3A 7JJ
(records relating to its functions as sub-adviser)

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

(5) Counsellors Funds Service, Inc.
<PAGE> 117
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)

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

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

(8) Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(records relating to its functions as custodian)

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

Item 29. Management Services

Not applicable.

Item 30. Undertakings.

Not applicable.
<PAGE> 118
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Registration Statement 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 July, 1998.

WARBURG, PINCUS EUROPEAN EQUITY FUND, INC.

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

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

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

/s/John L. Furth Chairman of the Board July 20, 1998
John L. Furth of Directors

/s/Eugene L. Podsiadlo President July 20, 1998
Eugene L. Podsiadlo

/s/Howard Conroy Vice President and July 20, 1998
Howard Conroy Chief Financial
Officer

/s/Daniel S. Madden Treasurer and Chief July 20, 1998
Daniel S. Madden Accounting Officer

/s/Richard N. Cooper Director July 20, 1998
Richard N. Cooper

/s/Jack W. Fritz Director July 20, 1998
Jack W. Fritz

/s/Jeffrey E. Garten Director July 20, 1998
Jeffrey E. Garten

/s/Arnold M. Reichman Director July 20, 1998
Arnold M. Reichman

/s/Alexander B. Trowbridge Director July 20, 1998
Alexander B. Trowbridge

<PAGE> 119
INDEX TO EXHIBITS

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

(a) Articles of Incorporation
(b) By-Laws

<PAGE> 1
ARTICLES OF INCORPORATION

WARBURG, PINCUS EUROPEAN EQUITY FUND, INC.

ARTICLE I

INCORPORATOR

The undersigned, Yvette M. Garcia, whose post office address is c/o
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
being at least 18 years of age, does hereby act as an incorporator and forms a
corporation under the Maryland General Corporation Law.

ARTICLE II

NAME

The name of the corporation is Warburg, Pincus European Equity
Fund, Inc. (the "Corporation").

ARTICLE III

PURPOSES AND POWERS

To conduct and carry on the business of an investment company.

(1) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.

(2) To issue and sell shares of its capital stock in such amounts, on such
terms and conditions, for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.

(3) To redeem, purchase or acquire in any other manner, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of
the stockholders of the Corporation) shares of its capital stock, in any
manner and to the extent now or hereafter permitted by law and by this
Charter.

(4) To do any and all additional acts and to exercise any and all additional
powers or rights as may be necessary, incidental, appropriate or desirable
for the accomplishment of all or any of the foregoing purposes.

(5) The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or
<PAGE> 2
conferred upon, corporations by the Maryland General Corporation Law now
or hereafter in force, and the enumeration of the foregoing shall not be
deemed to exclude any powers, rights or privileges so granted or
conferred.

ARTICLE IV

PRINCIPAL OFFICE AND RESIDENT AGENT

The post office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Company Incorporated, 32
South Street, Baltimore, Maryland 21202. The name and address of the resident
agent of the Corporation in the State of Maryland is The Corporation Trust
Company Incorporated, a Maryland corporation, 32 South Street, Baltimore,
Maryland 21202.

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<PAGE> 3
ARTICLE V

CAPITAL STOCK

(1)

(A) The total number of shares of capital stock that the Corporation
shall have authority to issue is three billion (3,000,000,000)
shares, of the par value of one tenth of one cent ($.001) per share
and of the aggregate par value of three million dollars
($3,000,000), all of which three billion (3,000,000,000) shares are
designated Common Stock.

(B)

(i) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a
series of Common Stock, designated "Common Shares."

(ii) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a
series of Common Stock, designated "Advisor Shares."

(iii) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a
series of Common Stock, designated "Institutional
Shares."

(C) Each Common Share will have 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 Common Stock, except that, subject to the
provisions of any governing order, rule or regulation issued
pursuant to the Investment Company Act of 1940, as amended (the
"1940 Act"):

(i) Common Shares will share equally with Common Stock
other than Common Shares ("Non-Common Shares") in the
income, earnings and profits derived from investment
and reinvestment of the assets belonging to the
Corporation and will be charged equally with
Non-Common Shares with the liabilities and expenses
of the Corporation, except that Common Shares will
bear the expense of payments made pursuant to any
agreements entered into by the Corporation pursuant
to any shareholder services plan and/or distribution
plan adopted by the Corporation with respect to
Common Shares;

(ii) On any matter submitted to a vote of shareholders of
the Corporation that pertains

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<PAGE> 4
to the agreements or expenses described in clause (C)(i)
above (or to any plan adopted by the Corporation
relating to said agreements or expenses), only Common
Shares will be entitled to vote, except that if said
matter affects Non-Common Shares, Non-Common Shares will
also be entitled to vote, and in such case Common Shares
will be voted in the aggregate together with such
Non-Common Shares and not by series except where
otherwise required by law. Common Shares will not be
entitled to vote on any matter that does not affect
Common Shares (except where otherwise required by law)
even though the matter is submitted to a vote of the
holders of Non-Common Shares; and

(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a
particular class or series of Corporation shares.

(D) Each Institutional Share will have 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 Common Stock, except that,
subject to the provisions of any governing order, rule or regulation
issued pursuant to the 1940 Act:

(i) Institutional Shares will share equally with Common
Stock other than Institutional Shares
("Non-Institutional Shares") in the income, earnings
and profits derived from investment and reinvestment
of the assets belonging to the Corporation and will
be charged equally with Non-Institutional Shares with
the liabilities and expenses of the Corporation,
except that Institutional Shares will bear the
expense of payments made pursuant to any agreements
entered into by the Corporation pursuant to any
shareholder services plan and/or distribution plan
adopted by the Corporation with respect to
Institutional Shares;

(ii) On any matter submitted to a vote of shareholders of
the Corporation that pertains to the agreements or
expenses described in clause (D)(i) above (or to any
plan adopted by the Corporation relating to said
agreements or expenses), only Institutional Shares
will be entitled to vote, except that if said matter
affects Non-Institutional

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<PAGE> 5
Shares, Non-Institutional Shares will also be entitled
to vote, and in such case Institutional Shares will be
voted in the aggregate together with such
Non-Institutional Shares and not by series except where
otherwise required by law. Institutional Shares will not
be entitled to vote on any matter that does not affect
Institutional Shares (except where otherwise required by
law) even though the matter is submitted to a vote of
the holders of Non- Institutional Shares; and

(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a
particular class or series of Corporation shares.

(E) Each Advisor Share will have 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 Common Stock, except that, subject to the
provisions of any governing order, rule or regulation issued
pursuant to the 1940 Act:

(i) Advisor Shares will share equally with Common Stock
other than Advisor Shares ("Non-Advisor Shares") in
the income, earnings and profits derived from
investment and reinvestment of the assets belonging
to the Corporation and will be charged equally with
Non-Advisor Shares with the liabilities and expenses
of the Corporation, except that Advisor Shares will
bear the expense of payments made pursuant to any
agreements entered into by the Corporation pursuant
to any shareholder services plan and/or distribution
plan adopted by the Corporation with respect to
Advisor Shares;

(ii) On any matter submitted to a vote of shareholders of
the Corporation that pertains to the agreements or
expenses described in clause (E)(i) above (or to any
plan adopted by the Corporation relating to said
agreements or expenses), only Advisor Shares will be
entitled to vote, except that if said matter affects
Non-Advisor Shares, Non-Advisor Shares will also be
entitled to vote, and in such case Advisor Shares
will be voted in the aggregate together with such
Non-Advisor Shares and not by series except where
otherwise required by law. Advisor Shares

-5-
<PAGE> 6
will not be entitled to vote on any matter that does not
affect Advisor Shares (except where otherwise required
by law) even though the matter is submitted to a vote of
the holders of Non-Advisor Shares; and

(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a
particular class or series of Corporation shares.

(2) Any fractional share shall carry proportionately the rights of a whole
share including, without limitation, the right to vote and the right to
receive dividends. A fractional share shall not, however, have the right
to receive a certificate evidencing it.

(3) All persons who shall acquire stock in the Corporation shall acquire the
same subject to the provisions of this Charter and the By-Laws of the
Corporation.

(4) No holder of stock of the Corporation by virtue of being such a holder
shall have any preemptive or other right to purchase or subscribe for any
shares of the Corporation's capital stock or any other security that the
Corporation may issue or sell (whether out of the number of shares
authorized by this Charter or out of any shares of the Corporation's
capital stock that the Corporation may acquire) other than a right that
the Board of Directors in its discretion may determine to grant.

(5) The Board of Directors shall have authority by resolution to classify or
to reclassify, as the case may be, any authorized but unissued shares of
capital stock from time to time by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of the capital stock.

(6) Notwithstanding any provision of law requiring any action to be taken or
authorized by the affirmative vote of a greater proportion of the votes of
all classes or of any class of stock of the Corporation, such action shall
be effective and valid if taken or authorized by the affirmative vote of a
majority of the total number of votes entitled to be cast thereon, except
as otherwise provided in this Charter.

(7) The presence in person or by proxy of the holders of one-third of the
shares of stock of the Corporation entitled to vote (without regard to
class) shall constitute a quorum at any meeting of the stockholders,
except with respect to any matter which, under applicable statutes or
regulatory requirements, requires approval by a separate vote of one or
more classes of stock, in which case the presence in person

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<PAGE> 7

or by proxy of the holders of one-third of the shares of stock of each
class required to vote as a class on the matter shall constitute a
quorum.

ARTICLE VI

REDEMPTION

Each holder of shares of the Corporation's capital stock shall
be entitled to require the Corporation to redeem all or any part of the shares
of capital stock of the Corporation standing in the name of the holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of the shares as in effect from time to time as may be determined by or
pursuant to the direction of the Board of Directors of the Corporation in
accordance with the provisions of Article VII, subject to the right of the Board
of Directors of the Corporation to suspend the right of redemption or postpone
the date of payment of the redemption price in accordance with provisions of
applicable law. Without limiting the generality of the foregoing, the
Corporation shall, to the extent permitted by applicable law, have the right at
any time to redeem the shares owned by any holder of capital stock of the
Corporation (i) if the redemption is, in the opinion of the Board of Directors
of the Corporation, desirable in order to prevent the Corporation from being
deemed a "personal holding company" within the meaning of the Internal Revenue
Code of 1986, as amended, or (ii) if the value of the shares in the account
maintained by the Corporation or its transfer agent for any class of stock for
the stockholder is below an amount determined from time to time by the Board of
Directors of the Corporation (the "Minimum Account Balance") and the stockholder
has been given notice of the redemption and has failed to make additional
purchases of shares in an amount sufficient to bring the value in his account to
at least the Minimum Account Balance before the redemption is effected by the
Corporation. Payment of the redemption price shall be made in cash by the
Corporation at the time and in the manner as may be determined from time to time
by the Board of Directors of the Corporation unless, in the opinion of the Board
of Directors, which shall be conclusive, conditions exist that make payment
wholly in cash unwise or undesirable; in such event the Corporation may make
payment wholly or partly by securities or other property included in the assets
belonging or allocable to the class of the shares for which redemption is being
sought, the value of which shall be determined as provided herein. The Board of
Directors may establish procedures for redemption of shares.

ARTICLE VII

BOARD OF DIRECTORS

(1) The number of directors constituting the Board of Directors shall be
one or such other number as may be set forth in the

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<PAGE> 8
By-Laws or determined by the Board of Directors pursuant to the
By-Laws. The number of Directors shall at no time be less than the
minimum number required under the Maryland General Corporation Law.
Arnold M. Reichman has been appointed director of the Corporation to
hold office until the first annual meeting of stockholders or until his
successor is elected and qualified.

(2) In furtherance, and not in limitation, of the powers conferred by the
Maryland General Corporation Law, the Board of Directors is expressly
authorized:

(i) To make, alter or repeal the By-Laws of the
Corporation, except where such power is
reserved by the By-Laws to the stockholders,
and except as otherwise required by the 1940
Act.

(ii) From time to time to determine whether and
to what extent and at what times and places
and under what conditions and regulations
the books and accounts of the Corporation,
or any of them other than the stock ledger,
shall be open to the inspection of the
stockholders. No stockholder shall have any
right to inspect any account or book or
document of the Corporation, except as
conferred by law or authorized by resolution
of the Board of Directors or of the
stockholders.

(iii) Without the assent or vote of the
stockholders, to authorize the issuance from
time to time of shares of the stock of any
class of the Corporation, whether now or
hereafter authorized, and securities
convertible into shares of stock of the
Corporation of any class or classes, whether
now or hereafter authorized, for such
consideration as the Board of Directors may
deem advisable.

(iv) Without the assent or vote of the
stockholders, to authorize and issue
obligations of the Corporation, secured and
unsecured, as the Board of Directors may
determine, and to authorize and cause to be
executed mortgages and liens upon the real
or personal property of the Corporation.

(v) Notwithstanding anything in this Charter to
the contrary, to establish in its absolute
discretion the basis or method for
determining the value of the assets
belonging to any class, the value of the
liabilities

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<PAGE> 9
belonging to any class and the net asset
value of each share of any class of the
Corporation's stock.

(vi) To determine in accordance with generally
accepted accounting principles and practices
what constitutes net profits, earnings,
surplus or net assets in excess of capital,
and to determine what accounting periods
shall be used by the Corporation for any
purpose; to set apart out of any funds of
the Corporation reserves for such purposes
as it shall determine and to abolish the
same; to declare and pay any dividends and
distributions in cash, securities or other
property from surplus or any other funds
legally available therefor, at such
intervals as it shall determine; to declare
dividends or distributions by means of a
formula or other method of determination, at
meetings held less frequently than the
frequency of the effectiveness of such
declarations; and to establish payment dates
for dividends or any other distributions on
any basis, including dates occurring less
frequently than the effectiveness of
declarations thereof.

(vii) In addition to the powers and authorities
granted herein and by statute expressly
conferred upon it, the Board of Directors is
authorized to exercise all powers and do all
acts that may be exercised or done by the
Corporation pursuant to the provisions of
the laws of the State of Maryland, this
Charter and the By-Laws of the Corporation.

(3) Any determination made in good faith, and in accordance with applicable
law and generally accepted accounting principles and practices, if
applicable, by or pursuant to the direction of the Board of Directors,
with respect to the amount of assets, obligations or liabilities of the
Corporation, as to the amount of net income of the Corporation from
dividends and interest for any period or amounts at any time legally
available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of
or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation
or liability for which the reserves or charges have been created has
been paid or discharged or is then or thereafter required to be paid or
discharged), as to the value of any security owned by the Corporation,
the determination of the net asset value of shares of any class

-9-
<PAGE> 10
of the Corporation's capital stock, or as to any other matters relating
to the issuance, sale or other acquisition or disposition of securities
or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors regarding
whether any transaction constitutes a purchase of securities on
"margin," a sale of securities "short," or an underwriting of the sale
of, or a participation in any underwriting or selling group in
connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of
the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of
capital stock or acceptance of share certificates, that any and all
such determinations shall be binding as aforesaid. No provision of this
Charter shall be effective to (i) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the 1940
Act, or of any valid rule, regulation or order of the Securities and
Exchange Commission under those Acts or (ii) protect or purport to
protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.

ARTICLE VIII

INDEMNIFICATION AND LIMITATION OF LIABILITY

(1) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for money damages. This limitation on
liability applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.

(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that
indemnification of directors and advancement of expenses to directors
is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent
as its directors and to such further extent as is consistent with such
law. The Board of Directors may, through a by-law, resolution or
agreement, make further provisions for indemnification of directors,
officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law.

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<PAGE> 11
(3) No provision of this Article VIII shall be effective to protect or
purport to protect any director or officer of the Corporation against
any liability to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.

(4) References to the Maryland General Corporation Law in this Article VIII
are to the law as from time to time amended. No amendment to this
Charter shall affect any right of any person under this Article VIII
based on any event, omission or proceeding prior to such amendment. The
term "Charter" as used herein shall have the meaning set forth in the
Maryland General Corporation Law and includes these Articles of
Incorporation and all amendments thereto.

ARTICLE IX

AMENDMENTS

The Corporation reserves the right from time to time to make
any amendment to its Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth in this
Charter, of any outstanding stock, and all rights at any time conferred upon the
stockholders of the Corporation by its Charter are granted subject to the
provisions of this Article and the reservation of the right to amend the Charter
herein contained.

IN WITNESS WHEREOF, I have adopted and signed these Articles
of Incorporation and do hereby acknowledge that the adoption and signing are my
act.

/s/Yvette M. Garcia

Yvette M. Garcia
Incorporator

Dated the 24th day of July, 1998

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<PAGE> 1
BY-LAWS

WARBURG, PINCUS EUROPEAN EQUITY FUND, INC.

A Maryland Corporation

ARTICLE I

STOCKHOLDERS

SECTION 1. Annual Meetings. No annual meeting of the
stockholders of the Warburg, Pincus European Equity Fund, Inc. (the
"Corporation") shall be held in any year in which the election of directors is
not required to be acted upon under the Investment Company Act of 1940, as
amended (the "1940 Act"), unless otherwise determined by the Board of Directors.
An annual meeting may be held at any place within the United States as may be
determined by the Board of Directors and as shall be designated in the notice of
the meeting, at the time specified by the Board of Directors. Any business of
the Corporation may be transacted at an annual meeting without being
specifically designated in the notice unless otherwise provided by statute, the
Corporation's Charter or these By-Laws.

SECTION 2. Special Meetings. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Corporation's Charter, may be held at any place within the United
States, and may be called at any time by the Board of Directors or by the
President, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors or at the request in writing of
stockholders entitled to cast at least 10% (ten percent) of the votes entitled
to be cast at the meeting upon payment by such stockholders to the Corporation
of the reasonably estimated cost of preparing and mailing a notice of the
meeting (which estimated cost shall be provided to such stockholders by the
Secretary of the Corporation). Notwithstanding the foregoing, unless requested
by stockholders entitled to cast a majority of the votes entitled to be cast at
the meeting, a special meeting of the stockholders need not be called at the
request of stockholders to consider any matter which is substantially the same
as a matter voted on at any special meeting of the stockholders held during the
preceding 12 (twelve) months. A written request shall state the purpose or
purposes of the proposed meeting.

SECTION 3. Notice of Meetings. Written or printed notice of
the purpose or purposes and of the time and place of every meeting of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting, by placing the notice in
the mail at least 10 (ten) days, but not more than 90 (ninety) days, prior to
the date
<PAGE> 2
designated for the meeting addressed to each stockholder at his address
appearing on the books of the Corporation or supplied by the stockholder to the
Corporation for the purpose of notice. The notice of any meeting of stockholders
may be accompanied by a form of proxy approved by the Board of Directors in
favor of the actions or the election of persons as the Board of Directors may
select. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who attends the meeting in person or by proxy, or who before or
after the meeting submits a signed waiver of notice that is filed with the
records of the meeting.

SECTION 4. Quorum. Except as otherwise provided by statute or
by the Corporation's Charter, the presence in person or by proxy of stockholders
of the Corporation entitled to cast at least one-third of the votes to be cast
shall constitute a quorum at each meeting of the stockholders and all questions
shall be decided by majority of the votes cast (except with respect to the
election of directors, which shall be by a plurality of votes cast). In the
absence of a quorum, the stockholders present in person or by proxy, by majority
vote and without notice other than by announcement, may adjourn the meeting from
time to time as provided in Section 5 of this Article I until a quorum shall
attend. The stockholders present at any duly organized meeting may continue to
do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. The absence from any meeting in person
or by proxy of holders of the number of shares of stock of the Corporation in
excess of a majority that may be required by Maryland law, the 1940 Act, or any
other applicable statute, the Corporation's Charter or these By-Laws, for action
upon any given matter shall not prevent action at the meeting on any other
matter or matters that may properly come before the meeting, so long as there
are present, in person or by proxy, holders of the number of shares of stock of
the Corporation required for action upon such other matter or matters.

SECTION 5. Adjournment. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which the adjournment is taken. At any adjourned meeting at which a
quorum shall be present, any action may be taken that could have been taken at
the meeting originally called. A meeting of the stockholders may not be
adjourned without further notice to a date more than 120 (one hundred twenty)
days after the original record date determined pursuant to Section 9 of this
Article I.

SECTION 6. Organization. At every meeting of the stockholders,
the Chairman of the Board, or in his absence or inability to act (or if there is
none), the President, or in his absence or inability to act, a Vice President,
or in the absence or inability to act of the Chairman of the Board, the
President and all the Vice Presidents, a chairman chosen by the stockholders
shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, a person

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<PAGE> 3
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes of the meeting.

SECTION 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.

SECTION 8. Voting. Except as otherwise provided by statute or
the Corporation's Charter, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the Corporation as of the record date determined pursuant to Section
9 of this Article I.

Each stockholder entitled to vote at any meeting of
stockholders may authorize another person to act as proxy for the stockholder
by, (a) signing a writing authorizing another person to act as proxy, or (b) any
other means permitted by law. Signing may be accomplished by the stockholder or
the stockholder's authorized agent signing the writing or causing the
stockholder's signature to be affixed to the writing by any reasonable means,
including facsimile signature.

If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, and shall state the
number of shares voted.

SECTION 9. Fixing of Record Date. The Board of Directors may
set a record date for the purpose of determining stockholders entitled to vote
at any meeting of the stockholders. The record date for a particular meeting
shall be not more than 90 (ninety) nor fewer than 10 (ten) days before the date
of the meeting. All persons who were holders of record of shares as of the
record date of a meeting, and no others, shall be entitled to vote at such
meeting and any adjournment thereof.

SECTION 10. Inspectors. The Board of Directors may, in advance
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may, and on the request of any stockholder entitled to vote at the
meeting shall, appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector at the meeting with strict impartiality and according to the
best of his ability. The inspectors shall determine the number of shares
outstanding and the voting power of each share, the number of shares represented
at the meeting, the existence of a quorum and

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the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do those acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the chairman of the
meeting or any stockholder entitled to vote at the meeting, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders of the Corporation.

SECTION 11. Consent of Stockholders in Lieu of Meeting. Except
as otherwise provided by statute or the Corporation's Charter, any action
required to be taken at any meeting of stockholders, or any action that may be
taken at any meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders' meetings: (a) a unanimous written consent that sets
forth the action and is signed by each stockholder entitled to vote on the
matter; and (b) a written waiver of notice and any right to dissent signed by
each stockholder entitled to notice of the meeting but not entitled to vote at
the meeting.

SECTION 12. Notice of Stockholder Business.

(a) At any annual or special meeting of the stockholders, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual or special meeting business
must be, (i), (A) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (B) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(C) subject to the provisions of Section 13 of this Article I, otherwise
properly brought before the meeting by a stockholder, and (ii) a proper subject
under applicable law for stockholder action.

(b) For business to be properly brought before an annual or
special meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, any such
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not later than 60 (sixty) days prior to the date of
the meeting; provided, however, that if less than 70 (seventy) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, any such notice by a stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
notice of the date of the annual or special meeting was given or such public
disclosure was made.

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(c) Any such notice by a stockholder shall set forth as to
each matter the stockholder proposes to bring before the annual or special
meeting, (i) a brief description of the business desired to be brought before
the annual or special meeting and the reasons for conducting such business at
the annual or special meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the capital stock of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.

(d) Notwithstanding anything in the By-Laws to the contrary,
no business shall be conducted at any annual or special meeting except in
accordance with the procedures set forth in this Section 12. The chairman of the
annual or special meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 12, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be considered or transacted.

SECTION 13. Stockholder Business not Eligible for
Consideration.

(a) Notwithstanding anything in these By-Laws to the contrary,
any proposal that is otherwise properly brought before an annual or special
meeting by a stockholder will not be eligible for consideration by the
stockholders at such annual or special meeting if such proposal is substantially
the same as a matter properly brought before such annual or special meeting by
or at the direction of the Board of Directors of the Corporation. The chairman
of such annual or special meeting shall, if the facts warrant, determine and
declare that a stockholder proposal is substantially the same as a matter
properly brought before the meeting by or at the direction of the Board of
Directors, and, if he should so determine, he shall so declare to the meeting
and any such stockholder proposal shall not be considered at the meeting.

(b) This Section 13 shall not be construed or applied to make
ineligible for consideration by the stockholders at any annual or special
meeting any stockholder proposal required to be included in the Corporation's
proxy statement relating to such meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule
thereto.

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ARTICLE II

BOARD OF DIRECTORS

SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Charter, the business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law, by the
Corporation's Charter or by these By-Laws.

SECTION 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that the number of
directors shall in no event be fewer than one nor more than fifteen. Any vacancy
created by an increase in directors may be filled in accordance with Section 7
of this Article II. No reduction in the number of directors shall have the
effect of removing any director from office prior to the expiration of his term
unless the director is specifically removed pursuant to Section 6 of this
Article II at the time of the decrease. A director need not be a stockholder of
the Corporation, a citizen of the United States or a resident of the State of
Maryland.

SECTION 3. Election and Term of Directors. The term of office
of each director shall be from the time of his election and qualification until
his successor shall have been elected and shall have qualified, or until his
death, or until his resignation or removal as provided in these By-Laws, or as
otherwise provided by statute or the Corporation's Charter.

SECTION 4. Director Nominations.

(a) Only persons who are nominated in accordance with the
procedures set forth in this Section 4 shall be eligible for election or
re-election as directors. Nominations of persons for election or re-election to
the Board of Directors of the Corporation may be made at a meeting of
stockholders by or at the direction of the Board of Directors or by any
stockholder of the Corporation who is entitled to vote for the election of such
nominee at the meeting and who complies with the notice procedures set forth in
this Section 4.

(b) Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice
delivered in writing to the Secretary of the Corporation. To be timely, any such
notice by a stockholder must be delivered to or mailed and received at the
principal executive offices of the Corporation not later than 60 (sixty) days
prior to the meeting; provided, however, that if less than 70 (seventy) days'
notice or prior public disclosure of the date of the

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meeting is given or made to stockholders, any such notice by a stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which notice of the date of the meeting was given or such
public disclosure was made.

(c) Any such notice by a stockholder shall set forth, (i) as
to each person whom the stockholder proposes to nominate for election or
re-election as a director, (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person, and (D) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of directors pursuant to Regulation
14A under the Exchange Act or any successor regulation thereto (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected and whether any
person intends to seek reimbursement from the Corporation of the expenses of any
solicitation of proxies should such person be elected a director of the
Corporation); and (ii) as to the stockholder giving the notice, (A) the name and
address, as they appear on the Corporation's books, of such stockholder, and (B)
the class and number of shares of the capital stock of the Corporation which are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.

(d) If a notice by a stockholder is required to be given
pursuant to this Section 4, no person shall be entitled to receive reimbursement
from the Corporation of the expenses of a solicitation of proxies for the
election as a director of a person named in such notice unless such notice
states that such reimbursement will be sought from the Corporation. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 4. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the By-Laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded for all purposes.

SECTION 5. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to the Board of
Directors or the Chairman of the Board or to the President or the Secretary of
the Corporation. Any resignation shall take effect at the time specified in it
or, should the time when it is to become effective not be specified in it,
immediately upon its receipt. Acceptance of a resignation

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shall not be necessary to make it effective unless the resignation states
otherwise.

SECTION 6. Removal of Directors. Any director of the
Corporation may be removed by the stockholders with or without cause at any time
by a vote of a majority of the votes entitled to be cast for the election of
directors.

SECTION 7. Vacancies. Subject to the provisions of the 1940
Act, any vacancies in the Board of Directors, whether arising from death,
resignation, removal or any other cause except an increase in the number of
directors, shall be filled by a vote of the majority of the Board of Directors
then in office even though that majority is less than a quorum, provided that no
vacancy or vacancies shall be filled by action of the remaining directors if,
after the filling of the vacancy or vacancies, fewer than two-thirds of the
directors then holding office shall have been elected by the stockholders of the
Corporation. A majority of the entire Board as calculated prior to Board
expansion may fill a vacancy which results from an increase in the number of
directors. In the event that at any time a vacancy exists in any office of a
director that may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
60 (sixty) days, for the purpose of filling the vacancy or vacancies. Any
director elected or appointed to fill a vacancy shall hold office until a
successor has been chosen and qualifies or until his earlier death, resignation
or removal.

SECTION 8. Place of Meetings. Meetings of the Board may be
held at any place that the Board of Directors may from time to time determine or
that is specified in the notice of the meeting.

SECTION 9. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at the time and place determined by the
Board of Directors.

SECTION 10. Special Meetings. Special meetings of the Board of
Directors may be called by two or more directors of the Corporation or by the
Chairman of the Board or the President.

SECTION 11. Notice of Special Meetings. Notice of each special
meeting of the Board of Directors shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place of the meeting and shall be
delivered to each director, either personally or by telephone, facsimile
transmission or other standard form of telecommunication, at least 24
(twenty-four) hours before the time at which the meeting is to be held, or by
first-class mail, postage prepaid, addressed to the director at his residence or
usual place of business, and mailed at least 3 (three) days before the day on
which the meeting is to be held.

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SECTION 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall, either before or
after the meeting, sign a written waiver of notice that is filed with the
records of the meeting or who shall attend the meeting.

SECTION 13. Quorum and Voting. One-third (but not fewer than
two unless there be only one director) of the members of the entire Board of
Directors shall be present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at the meeting, and except
as otherwise expressly required by statute, the Corporation's Charter, these
By-Laws, the 1940 Act, or any other applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present may adjourn the meeting to another time and
place until a quorum shall be present. Notice of the time and place of any
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless the time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally called.

SECTION 14. Organization. The Board of Directors may, by
resolution adopted by a majority of the entire Board, designate a Chairman of
the Board, who shall preside at each meeting of the Board. In the absence or
inability of the Chairman of the Board to act or if there is none, the
President, or, in his absence or inability to act, another director chosen by a
majority of the directors present, shall act as chairman of the meeting and
preside at the meeting. The Secretary, or, in his absence or inability to act,
any person appointed by the chairman, shall act as secretary of the meeting and
keep the minutes thereof.

SECTION 15. Committees. The Board of Directors may designate
one or more committees of the Board of Directors, each consisting of 2 (two) or
more directors. To the extent provided in the resolution, and permitted by law,
the committee or committees shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers that
may require it. Any committee or committees shall have the name or names
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a director to act
in the place of an absent member.

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SECTION 16. Written Consent of Directors in Lieu of a Meeting.
Subject to the provisions of the 1940 Act, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee of the
Board may be taken without a meeting if all members of the Board or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the records of the Board's or such committee's meetings.

SECTION 17. Telephone Conference. Members of the Board of
Directors or any committee of the Board may participate in any Board or
committee meeting by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation by such means shall constitute
presence in person at the meeting.

SECTION 18. Compensation. Each director shall be entitled to
receive compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.

ARTICLE III

OFFICERS, AGENTS AND EMPLOYEES

SECTION 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint any other officers,
agents and employees it deems necessary or proper. Any two or more offices may
be held by the same person, except the offices of President and Vice President,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity. Officers shall be elected by the Board of Directors, each to hold
office until his successor shall have been duly elected and shall have
qualified, or until his death, or until his resignation or removal as provided
in these By-Laws. The Board of Directors may from time to time elect, or
designate to the President the power to appoint, such officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.

SECTION 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of

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his resignation to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Any resignation shall take effect at the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. Acceptance of a resignation
shall not be necessary to make it effective unless the resignation states
otherwise.

SECTION 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate the power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Removal shall be without prejudice to the person's contract rights,
if any, but the appointment of any person as an officer, agent or employee of
the Corporation shall not of itself create contract rights.

SECTION 4. Vacancies. A vacancy in any office whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office that shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to the
office.

SECTION 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.

SECTION 6. Bonds or Other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.

SECTION 7. President. The President shall be the chief
executive officer of the Corporation. In the absence or inability of the
Chairman of the Board to act (or if there is none), the President shall preside
at all meetings of the stockholders and of the Board of Directors. The President
shall have, subject to the control of the Board of Directors, general charge of
the business and affairs of the Corporation, and may employ and discharge
employees and agents of the Corporation, except those elected or appointed by
the Board, and he may delegate these powers.

SECTION 8. Vice President. Each Vice President shall have the
powers and perform the duties that the Board of Directors or the President may
from time to time prescribe.

SECTION 9. Treasurer. Subject to the provisions of any
contract that may be entered into with any custodian pursuant to authority
granted by the Board of Directors, the Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody

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of the Corporation's funds and securities; he shall have full authority
to receive and give receipts for all money due and payable to the Corporation,
and to endorse checks, drafts and warrants, in its name and on its behalf and to
give full discharge for the same; he shall deposit all funds of the Corporation,
except those that may be required for current use, in such banks or other places
of deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be assigned to him by the Board of
Directors or the President.

SECTION 10. Secretary. The Secretary shall:

(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board and the stockholders;

(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;

(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;

(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and

(e) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors or the President.

SECTION 11. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any director.

ARTICLE IV

STOCK

SECTION 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon specific written request to such person as
may be designated by the Corporation to

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have a certificate or certificates, in a form approved by the Board,
representing the number of shares of stock of the Corporation owned by him;
provided, however, that certificates for fractional shares will not be delivered
in any case. The certificates representing shares of stock shall be signed by or
in the name of the Corporation by the Chairman of the Board, President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and sealed with the seal of the Corporation. Any or all of
the signatures or the seal on the certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate shall be issued, it may be
issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still in office at the date of issue.

SECTION 2. Books of Account and Record of Stockholders. There
shall be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation. There shall be made available upon request of any stockholder,
in accordance with Maryland law, a record containing the number of shares of
stock issued during a specified period not to exceed 12 (twelve) months and the
consideration received by the Corporation for each such share.

SECTION 3. Transfers of Shares. Transfers of shares of stock
of the Corporation shall be made on the stock records of the Corporation only by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates, if
issued, for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.

SECTION 4. Regulations. The Board of Directors may make any
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation. It may appoint, or authorize any officer
or officers to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates for shares of
stock to bear the signature or signatures of any of them.

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SECTION 5. Stolen, Lost, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of its theft, loss, destruction or
mutilation and the Corporation may issue a new certificate of stock in the place
of any certificate issued by it that has been alleged to have been stolen, lost
or destroyed or that shall have been mutilated. The Board may, in its
discretion, require the owner (or his legal representative) of a stolen, lost,
destroyed or mutilated certificate to give to the Corporation a bond in a sum,
limited or unlimited, and in a form and with any surety or sureties, as the
Board in its absolute discretion shall determine or to indemnify the Corporation
against any claim that may be made against it on account of the alleged theft,
loss, destruction or the mutilation of any such certificate, or issuance of a
new certificate. Anything herein to the contrary notwithstanding, the Board of
Directors, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the Maryland General
Corporation Law.

SECTION 6. Fixing of Record Date for Dividends, Distributions,
etc. The Board may fix, in advance, a date not more than 90 (ninety) days
preceding the date fixed for the payment of any dividend or the making of any
distribution or the allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of common stock or
other securities, as the record date for the determination of the stockholders
entitled to receive any such dividend, distribution, allotment, rights or
interests, and in such case only the stockholders of record at the time so fixed
shall be entitled to receive such dividend, distribution, allotment, rights or
interests.

SECTION 7. Information to Stockholders and Others. Any
stockholder of the Corporation or his agent may inspect and copy during the
Corporation's usual business hours the Corporation's By-Laws, minutes of the
proceedings of its stockholders, annual statements of its affairs and voting
trust agreements on file at its principal office.

ARTICLE V

INDEMNIFICATION AND INSURANCE

SECTION 1. Indemnification of Directors and Officers. Any
person who was or is a party or is threatened to be made a party in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is a current or former director or officer of the Corporation, or is or
was serving while a director or officer of the Corporation at the request of the
Corporation as a director, officer, partner,

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trustee, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, enterprise or employee benefit plan, shall be indemnified by the
Corporation against judgments, penalties, fines, excise taxes, settlements and
reasonable expenses (including attorneys' fees) actually incurred by such person
in connection with such action, suit or proceeding to the full extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933, as amended (the "Securities Act"), and the 1940 Act, as such statutes are
now or hereafter in force, except that such indemnity shall not protect any such
person against any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").

SECTION 2. Advances. Any current or former director or officer
of the Corporation claiming indemnification within the scope of this Article V
shall be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act and the 1940 Act, as such statutes are now
or hereafter in force; provided however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance unless it is
ultimately determined that he is entitled to indemnification, and provided
further that at least one of the following additional conditions is met: (a) the
person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

SECTION 3. Procedure. At the request of any current or former
director or officer, or any employee or agent whom the Corporation proposes to
indemnify, the Board of Directors shall determine, or cause to be determined, in
a manner consistent with the Maryland General Corporation Law, the Securities
Act and the 1940 Act, as such statutes are now or hereafter in force, whether
the standards required by this Article V have been met; provided, however, that
indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was

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not liable by reason of disabling conduct; or (b) in the absence of such a
decision, a reasonable determination, based upon a review of the facts, that the
person to be indemnified was not liable by reason of disabling conduct by, (i)
the vote of a majority of a quorum of disinterested non-party directors, or (ii)
an independent legal counsel in a written opinion.

SECTION 4. Indemnification of Employees and Agents. Employees
and agents who are not officers or directors of the Corporation may be
indemnified, and reasonable expenses may be advanced to such employees or
agents, in accordance with the procedures set forth in this Article V to the
extent permissible under the 1940 Act, the Securities Act and Maryland General
Corporation Law, as such statutes are now or hereafter in force, to the extent,
consistent with the foregoing, as may be provided by action of the Board of
Directors or by contract.

SECTION 5. Other Rights. The indemnification provided by this
Article V shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.

SECTION 6. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who, while a
director, officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, enterprise or employee benefit plan, against any liability asserted
against and incurred by him in any such capacity, or arising out of his status
as such, provided that no insurance may be obtained by the Corporation for
liabilities against which it would not have the power to indemnify him under
this Article V or applicable law.

SECTION 7. Constituent, Resulting or Surviving Corporations.
For the purposes of this Article V, references to the "Corporation" shall
include all constituent corporations absorbed in a consolidation or merger as
well the resulting or surviving corporation so that any person who is or was a
director, officer, employee or agent of a constituent corporation or is or was
serving at the request of a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under this Article V with
respect to the

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resulting or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity.

ARTICLE VI

SEAL

The seal of the Corporation shall be circular in form and
shall bear the name of the Corporation, the year of its incorporation, the words
"Corporate Seal" and "Maryland" and any emblem or device approved by the Board
of Directors. The seal may be used by causing it or a facsimile to be impressed
or affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.

ARTICLE VII

FISCAL YEAR

The Corporation's fiscal year shall be fixed by the Board of
Directors.

ARTICLE VIII

AMENDMENTS

These By-Laws may be amended or repealed by the affirmative
vote of a majority of the Board of Directors at any regular or special meeting
of the Board of Directors, subject to the requirements of the 1940 Act.

As adopted, July 20, 1998

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