WARBURG PINCUS INTERNATIONAL EQUITY FUND /PA/, 497, 1998-03-05

WARBURG PINCUS INTERNATIONAL EQUITY FUND /PA/
497, 1998-03-05

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<PAGE> 1

PROSPECTUS

February 27, 1998

WARBURG PINCUS
EMERGING MARKETS FUND

WARBURG PINCUS
INTERNATIONAL EQUITY FUND

WARBURG PINCUS
JAPAN GROWTH FUND

WARBURG PINCUS
JAPAN OTC FUND

[WARBURG PINCUS FUNDS LOGO]
<PAGE> 2

PROSPECTUS February 27, 1998

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

WARBURG PINCUS EMERGING MARKETS FUND seeks growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets.

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

WARBURG PINCUS JAPAN GROWTH FUND seeks long-term growth of capital by investing
primarily in equity securities of Japanese issuers.

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

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

NO LOAD CLASS OF COMMON SHARES
- --------------------------------------------------------------------------------

Common Shares that are "no load" are offered by this Prospectus (i) directly
from the Funds' distributor, Counsellors Securities Inc., and (ii) through
various brokerage firms including Charles Schwab & Company, Inc. Mutual Fund
OneSource(TM) Program; Fidelity Brokerage Services, Inc. FundsNetwork(TM)
Program; Jack White & Company, Inc.; and Waterhouse Securities, Inc.

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

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

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

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 3

THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
Each of the Warburg Pincus Emerging Markets Fund ("Emerging Markets Fund"),
Warburg Pincus International Equity Fund ("International Equity Fund"), Warburg
Pincus Japan Growth Fund ("Japan Growth Fund") and Warburg Pincus Japan OTC Fund
("Japan OTC Fund") (each a "Fund") currently offers two separate classes of
shares: Common Shares and Advisor Shares. For a description of Advisor Shares
see "General Information." Common Shares of each of the Emerging Markets Fund,
the Japan Growth Fund and the Japan OTC Fund pay the Funds' distributor a 12b-1
fee. See "Management of the Funds -- Distributor."

<TABLE>
<CAPTION>
Emerging International Japan Japan
Markets Equity Growth OTC
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............. 0 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.................................. .80% 1.00% .56% .77%
12b-1 Fees....................................... .25% 0 .25% .25%
Other Expenses................................... .61% .33% .94% .74%
---- ---- ---- ----
Total Fund Operating Expenses (after fee
waivers)+...................................... 1.66%* 1.33%* 1.75% 1.76%*
==== ==== ==== ====
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 year.......................................... $ 17 $ 14 $ 18 $ 18
3 years......................................... $ 52 $ 42 $ 55 $ 55
5 years......................................... $ 90 $ 73 $ 95 $ 95
10 years......................................... $197 $160 $206 $207
</TABLE>

- --------------------------------------------------------------------------------
+ Annual Fund Operating Expenses for the Funds are based on actual expenses for
the fiscal year ended October 31, 1997, net of any applicable fee waivers or
expense reimbursements. Absent such waivers and/or reimbursements, Management
Fees for the Emerging Markets, International Equity, Japan Growth and Japan
OTC Funds would have equalled 1.25%, 1.00%, 1.25% and 1.25%, respectively;
Other Expenses would have equalled .62%, .33%, 1.06% and .77%, respectively;
and Total Fund Operating Expenses would have equalled 2.12%, 1.33%, 2.56% and
2.27%, respectively. The investment adviser and co-administrator are under no
obligation to continue waivers and/or reimbursements.
* Operating expenses for the Emerging Markets Fund, International Equity Fund
and Japan OTC Fund were each reduced by .01% for the fiscal year ended October
31, 1997 as a result of certain arrangements that served to offset portions of
the Funds' transfer agent expense. After reflecting these arrangements, "Total
Fund Operating Expenses (after fee waivers)" for these Funds were 1.65%, 1.32%
and 1.75%, respectively, for the fiscal year ended October 31, 1997.

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

2
<PAGE> 4

shareholders of the Emerging Markets Fund, the Japan Growth Fund and the Japan
OTC Fund may pay more than the economic equivalent of the maximum sales charges
permitted by the National Association of Securities Dealers, Inc.

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

The following information for the five fiscal years ended October 31, 1997 has
been derived from information audited by Coopers & Lybrand L.L.P., independent
accountants, whose report dated December 19, 1997 is incorporated by reference
in the Statement of Additional Information. Further information about the
performance of the Funds is contained in the Funds' annual report, dated October
31, 1997, copies of which may be obtained without charge by calling Warburg
Pincus Funds at (800) 927-2874.

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
For the Period
For the Year Ended December 30, 1994
October 31, (Commencement of
--------------------------------------- Operations) through
1997 1996 October 31, 1995
---- ---- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $12.19 $11.28 $10.00
--------- ---------- -----------
Income from Investment Operations:
Net Investment Income (Loss)........ 0.04 0.07 0.08
Net Gain (Loss) from Securities and
Foreign Currency Related Items
(both realized and unrealized).... (1.34) 0.99 1.25
--------- ---------- -----------
Total from Investment Operations.... (1.30) 1.06 1.33
--------- ---------- -----------
Less Distributions:
Dividends from Net Investment
Income............................ (0.03) (0.08) (0.05)
Distributions from Realized Gains... (0.04) (0.07) 0.00
--------- ---------- -----------
Total Distributions................. (0.07) (.15) (0.05)
--------- ---------- -----------
NET ASSET VALUE, END OF PERIOD........ $10.82 $12.19 $11.28
========= ========== ===========
Total Return.......................... (10.71%) 9.46% 13.33%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)...... $155,806 $218,421 $6,780
Ratios to Average Daily Net Assets:
Operating Expenses.................. 1.66%@ 1.62%@ 1.00%*
Net Investment Income (Loss)........ .24% .31% 1.25%*
Decrease reflected in above
operating expense ratios due to
waivers/reimbursements............ .46% .77% 11.08%*
Portfolio Turnover Rate............... 92.48% 61.84% 57.76%+
Average Commission Rate#.............. $0.0053 $0.0135 --
</TABLE>

- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' expenses by .01% and .01%, for the years ending October 31,
1997 and 1996, respectively. The Common Shares' operating expense ratio after
reflecting these arrangements were 1.65% and 1.61% for the years ended October
31, 1997 and 1996, respectively.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.
+ Non-annualized.
* Annualized.

3
<PAGE> 5

INTERNATIONAL EQUITY FUND

<TABLE>
<CAPTION>
For the Period
May 2, 1989
(Commencement
of Operations)
For the Year Ended October 31, through
------------------------------------------------------------------------------------------- October 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- -------- -------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.............. $20.69 $19.30 $20.51 $17.00 $12.22 $13.66 $11.81 $11.35 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
Investment
Operations:
Net Investment
Income............ 0.04 0.22 0.12 0.09 0.09 0.15 0.19 0.13 0.05
Net Gain (Loss) from
Securities and
Foreign Currency
Related Items
(both realized and
unrealized)....... 0.88 1.73 (0.67) 3.51 4.84 (1.28) 2.03 0.55 1.30
---- ---- ----- ---- ------- ------ ------ ------ ------
Total from
Investment
Operations........ 0.92 1.95 (0.55) 3.60 4.93 (1.13) 2.22 0.68 1.35
---- ---- ----- ---- ------ ------ ------ ------ ------
Less Distributions:
Dividends from Net
Investment
Income............ (0.11) (0.56) (0.13) (0.04) (0.02) (0.16) (0.33) (0.10) 0.00
Distributions in
Excess of Net
Investment
Income............ 0.00 0.00 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00
Distributions from
Realized Gains.... (0.74) 0.00 (0.53) (0.04) (0.13) (0.15) (0.04) (0.12) 0.00
----- ---- ----- ----- ------ ------ ------ ------ ------
Total
Distributions..... (0.85) (0.56) (0.66) (0.09) (0.15) (0.31) (0.37) (0.22) 0.00
----- ----- ----- ----- ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD........... $20.76 $20.69 $19.30 $20.51 $17.00 $12.22 $13.66 $11.81 $11.35
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return......... 4.54% 10.35% (2.55%) 21.22% 40.68% (8.44%) 19.42% 5.92% 28.73%*
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of
Period (000s)....... $2,312,042 $2,885,453 $2,068,207 $1,533,872 $378,661 $101,763 $72,553 $38,946 $13,260
Ratios to Average
Daily Net Assets:
Operating
Expenses.......... 1.33%@ 1.38%@ 1.39% 1.44% 1.48% 1.49% 1.50% 1.46% 1.50%*
Net Investment
Income (Loss)..... .56% .62% .69% .19% .38% .88% 1.19% 1.58% 1.33%*
Decrease reflected
in above operating
expense ratios due
to waivers/
reimbursements.... .00% .00% .00% .00% .00% .07% .17% .38% .89%*
Portfolio Turnover
Rate................ 61.80% 32.49% 39.24% 17.02% 22.60% 53.29% 54.95% 66.12% 27.32%
Average Commission
Rate#............... $0.0169 $0.0170 -- -- -- -- -- -- --
</TABLE>

- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' expenses by .01% and .01%, for the years ending October 31,
1997 and 1996, respectively. The Common Shares' operating expense ratio after
reflecting these arrangements were 1.32% and 1.37% for the years ended October
31, 1997 and 1996, respectively.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.
* Annualized.

4
<PAGE> 6

JAPAN GROWTH FUND

<TABLE>
<CAPTION>
For the Period
December 29, 1995
(Commencement of
For the Year Ended Operations) through
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $9.85 $10.00
------ ------
Income from Investment Operations:
Net Investment Loss...................................... (0.07) (0.06)
Net Gain (Loss) from Securities and Foreign Currency
Related Items (both realized and unrealized)........... 0.21 (0.09)
------ ------
Total from Investment Operations......................... 0.14 (0.15)
------ ------
Less Distributions:
Distributions in Excess of Net Investment Income......... (0.20) 0.00
Distributions in Excess of Realized Gains................ (0.05) 0.00
------ ------
Total Distributions...................................... (0.25) 0.00
------ ------
NET ASSET VALUE, END OF PERIOD............................. $9.74 $9.85
====== ======
Total Return............................................... 1.47% (1.50%)+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)........................... $24,954 $20,157
Ratios to Average Daily Net Assets:
Operating Expenses....................................... 1.75%@ 1.76%*@
Net Investment Income (Loss)............................. (1.03)% (1.03%)*
Decrease reflected in above operating expense ratios due
to waivers/ reimbursements............................. .81% 1.79%*
Portfolio Turnover Rate.................................... 93.84% 51.72%+
Average Commission Rate#................................... $0.0530 $0.0717
</TABLE>

5
<PAGE> 7

JAPAN OTC FUND

<TABLE>
<CAPTION>
For the Period
For the Year Ended September 30, 1994
October 31, (Commencement of
----------------------------- Operations) through
1997** 1996 1995 October 31, 1994
------- -------- -------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $8.47 $9.09 $9.85 $10.00
------ ----- ----- -----
Income from Investment Operations:
Net Investment Income (Loss).................. (1.22) (0.23) 0.00 0.00
Net Gain (Loss) from Securities and Foreign
Currency Related Items (both realized and
unrealized)................................. (0.79) (0.01) (0.76) (0.15)
------ ----- ----- -----
Total from Investment Operations.............. (2.01) (0.24) (0.76) (0.15)
------ ----- ----- -----
Less Distributions:
Dividends from Net Investment Income.......... 0.00 (0.38) 0.00 0.00
Distributions from Realized Gains............. (0.09) 0.00 0.00 0.00
------ ----- ----- -----
Total Distributions........................... (0.09) (0.38) 0.00 0.00
------ ----- ----- -----
NET ASSET VALUE, END OF PERIOD................. $6.37 $8.47 $9.09 $9.85
====== ===== ===== =====
Total Return................................... (23.98%) (2.79%) (7.72%) (1.50%)+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)............... $41,627 $154,460 $178,568 $19,878
Ratios to Average Daily Net Assets:
Operating Expenses............................ 1.76%@ 1.76%@ 1.41% 1.00%*
Net Investment Income (Loss).................. (1.10%) (1.22%) (.15%) .49%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements........ .51% .29% 1.35% 4.96%*
Portfolio Turnover Rate........................ 100.60% 95.23% 82.98% .00%
Average Commission Rate#....................... $0.0742 $0.0968 -- --
</TABLE>

- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' expenses by .01% and .01%, for the years ending October 31,
1997 and 1996, respectively. The Common Shares' operating expense ratio after
reflecting these arrangements were 1.75% and 1.75% for the years ended October
31, 1997 and 1996, respectively.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.
+ Non-annualized.
* Annualized.
** Effective at the close of business on May 23, 1997, the investment adviser
of the Fund ceased to engage a sub-investment adviser to the Fund and
assumed all of the Fund's investment management responsibilities.

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

EMERGING MARKETS FUND
The Emerging Markets Fund seeks growth of capital. The Fund is a non-
diversified management investment company that pursues its investment objective
by investing primarily in equity securities of non-United States issuers
consisting of companies in emerging securities markets. An investment in the
Fund may involve a greater degree of risk than investment in other mutual funds
that seek capital appreciation by investing in larger, more developed markets.
Under normal market conditions, the Fund will invest at least 65% of its

6
<PAGE> 8

total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Fund intends to acquire securities of many issuers located in a
number of foreign countries. The Fund will not necessarily seek to diversify
investments on a geographical basis or on the basis of the level of economic
development of any particular country and the Emerging Markets in which the Fund
invests will vary from time to time. However, the Fund will at all times, except
during defensive periods, maintain investments in at least three countries
outside the United States. An equity security of an issuer in an Emerging Market
is defined as common stock and preferred stock (including convertible preferred
stock); bonds, notes and debentures convertible into common or preferred stock;
stock purchase warrants and rights; equity interests in trusts and partnerships;
and depositary receipts of an issuer: (i) the principal securities trading
market for which is in an Emerging Market; (ii) which derives at least 50% of
its revenues or earnings, either alone or on a consolidated basis, from goods
produced or sold, investments made or services performed in an Emerging Market,
or which has at least 50% of its total or net assets situated in one or more
Emerging Markets; or (iii) that is organized under the laws of, and with a
principal office in, an Emerging Market. Determinations as to whether an issuer
is an Emerging Markets issuer will be made by the Fund's investment adviser
based on publicly available information and inquiries made to the issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the "IFC") or by the United Nations,
(ii) which is included in the IFC Investable Index or the Morgan Stanley Capital
International Emerging Markets Index or (iii) which has a gross national product
("GNP") per capita of $2,000 or less, in each case at the time of the Fund's
investment. Among the countries which Warburg Pincus Asset Management, Inc., the
Fund's investment adviser ("Warburg"), currently considers to be Emerging
Markets are the following: Algeria, Angola, Antigua, Argentina, Armenia,
Azerbaijan, Bangladesh, Barbuda, Barbados, Belarus, Belize, Bhutan, Bolivia,
Botswana, Brazil, Bulgaria, Cambodia, Chile, People's Republic of China,
Republic of China (Taiwan), Colombia, Cyprus, Czech Republic, Dominica, Ecuador,
Egypt, Estonia, Georgia, Ghana, Greece, Grenada, Guyana, Hong Kong, Hungary,
India, Indonesia, Israel, Ivory Coast, Jamaica, Jordan, Kazakhstan, Kenya,
Republic of Korea (South Korea), Latvia, Lebanon, Lithuania, Malawi, Malaysia,
Mauritius, Mexico, Moldova, Mongolia, Montserrat, Morocco, Mozambique, Myanmar
(Burma), Namibia, Nepal, Nigeria, Pakistan, Panama, Papua New Guinea, Paraguay,
Peru, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Singapore,
Slovakia, Slovenia, South Africa, Sri Lanka, St. Kitts and Nevis, St. Lucia, St.
Vincent and the Grenadines, Swaziland, Tanzania, Thailand, Trinidad and Tobago,
Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uruguay, Uzbekistan, Venezuela,
Vietnam, Yugoslavia, Zambia and Zimbabwe. Among the countries that will not be
considered Emerging Markets are: Australia, Aus-

7
<PAGE> 9

tria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan,
Luxembourg, The Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland,
the United Kingdom and the United States.
The Fund may invest in securities of companies of any size, whether traded on
or off a national securities exchange. Fund holdings may include emerging growth
companies, which are small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects for achieving
profit and gain in a relatively short period of time.
In appropriate circumstances, such as when a direct investment by the Fund in
the securities of a particular country cannot be made or when the securities of
an investment company are more liquid than the underlying portfolio securities,
the Fund may, consistent with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act"), invest in the securities of closed-end
investment companies that invest in foreign securities. As a shareholder in a
closed-end investment company, the Fund will bear its ratable share of the
investment company's expenses, including management fees, and will remain
subject to payment of the Fund's administration fees and other expenses with
respect to assets so invested.

INTERNATIONAL EQUITY FUND
The International Equity Fund seeks long-term capital appreciation. The Fund
is a diversified management investment company that pursues its investment
objective by investing primarily in a broadly diversified portfolio of equity
securities of companies, wherever organized, that in Warburg's judgment, have
their principal business activities and interests outside of the United States.
The Fund will ordinarily invest substantially all of its assets -- but no less
than 65% of its total assets -- in common stocks, warrants and securities
convertible into or exchangeable for common stocks. Ordinarily the Fund will
hold no less than 65% of its total assets in at least three countries other than
the United States. The Fund intends to be widely diversified across securities
of many corporations located in a number of foreign countries. Warburg
anticipates, however, that the Fund may from time to time invest a significant
portion of its assets in a single country such as Japan, which may involve
special risks. See "Risk Factors and Special Considerations -- Japanese
Investments" below. In appropriate circumstances, such as when a direct
investment by the Fund in the securities of a particular country cannot be made
or when the securities of an investment company are more liquid than the
underlying portfolio securities, the Fund may, consistent with the provisions of
the 1940 Act, invest in the securities of closed-end investment companies that
invest in foreign securities.
The Fund intends to invest principally in the securities of financially strong
companies with opportunities for growth within growing international economies
and markets through increased earning power and improved utilization or
recognition of assets. Investment may be made in equity securities of companies
of any size, whether traded on or off a national securities exchange.

8
<PAGE> 10

JAPAN GROWTH FUND
The Japan Growth Fund seeks long-term growth of capital. The Fund is a
non-diversified management investment company that pursues its objective by
investing primarily in equity securities of Japanese issuers that present
attractive opportunities for growth. Under current market conditions the Fund
intends to invest at least 80% of its total assets -- but will invest no less
than 65% of its assets under normal market conditions -- in common and preferred
stocks, warrants and other rights, securities convertible into or exchangeable
for common stocks and American Depository Receipts ("ADRs") of Japanese issuers.
Warburg believes that Japanese industry is in the process of deregulation and
restructuring. The Fund is designed to provide an opportunity to participate in
the dynamic structural changes in the Japanese industrial system through
investment in higher growth companies that can be expected to benefit from these
changes. The Fund will seek to identify and invest in Japanese issuers that are
showing or are expected to show a rapid or high rate of growth, based on
comparisons with Japanese or non-Japanese companies in the same industry or
other considerations. The Fund will also invest in Japanese companies that
Warburg believes are undervalued based on price/earnings ratios, comparisons
with Japanese or non-Japanese companies or other factors.
Unlike the Warburg Pincus Japan OTC Fund, which invests primarily in
over-the-counter securities, the Fund may invest in companies of any size,
whether traded on an exchange or over-the-counter. Currently, there are eight
exchanges in Japan -- the Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka,
Niigata and Sapporo exchanges -- and two over-the-counter markets -- JASDAQ and
the Japanese Second Section OTC Market (the "Frontier Market"). The Fund
considers Japanese issuers to be (i) companies (A) organized under the laws of
Japan, or (B) whose principal business activities are conducted in Japan and
which derive at least 50% of their revenues or profits from goods produced or
sold, investments made, or services performed in Japan, or have at least 50% of
their assets in Japan, or (C) which have issued securities which are traded
principally in Japan, and (ii) Japanese governmental entities or political
subdivisions. Determinations as to the eligibility of issuers under the
foregoing definition will be made by Warburg based on publicly available
information and inquiries made to the companies. The portion of the Fund's
assets not invested in Japanese issuers may be invested in securities of other
Asian issuers. The Fund does not, except during temporary defensive periods,
intend to invest in securities of non-Asian issuers. From time to time, the Fund
may hedge part or all of its exposure to the Japanese yen, thereby reducing or
substantially eliminating any favorable or unfavorable impact of changes in the
value of the yen in relation to the U.S. dollar.

JAPAN OTC FUND
The Japan OTC Fund seeks long-term capital appreciation. The Fund is a
non-diversified management investment company that pursues its investment
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objective by investing in a portfolio of securities traded in the Japanese over-
the-counter market. The Fund is designed to provide an opportunity to
participate in the dynamic structural changes in the Japanese industrial system
through investment in less-established, higher growth companies that can be
expected to benefit from these changes. At all times, except during temporary
defensive periods, the Fund will maintain at least 65% of its total assets in
securities of companies traded through JASDAQ, the primary Japanese over-
the-counter market, or the Frontier Market. The portion of the Fund's assets
that is not invested through JASDAQ or the Frontier Market may be invested in
securities of Japanese issuers that are not traded through JASDAQ or the
Frontier Market or exchange-traded and over-the-counter securities of issuers in
other Asian markets, in addition to the other instruments described below. The
Fund may invest up to 35% of its total assets in securities of other Asian
issuers, with no more than 10% invested in any one country. The Fund will not
invest in securities of non-Asian issuers, except that the Fund may, for
defensive purposes, invest in U.S. debt securities and money market obligations.
The Fund intends its portfolio to consist principally of equity securities
(common stock, warrants and securities convertible into common stock), which may
include shares of closed-end investment companies investing in Asia. The Japan
OTC Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital appreciation by investing in better-known, larger
companies. From time to time, the Fund may hedge part or all of its exposure to
the Japanese yen, thereby reducing or substantially eliminating any favorable or
unfavorable impact of changes in the value of the yen in relation to the U.S.
dollar.

PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The International Equity Fund, the Japan Growth Fund and the
Japan OTC Fund may each invest up to 35% of its total assets in investment grade
debt securities (other than money market obligations) and, in the case of the
International Equity and Japan OTC Funds, preferred stocks that are not
convertible into common stock for the purpose of seeking capital appreciation.
The Emerging Markets Fund may invest up to 35% of its total assets in debt
securities (other than money market obligations) for the purpose of seeking
growth of capital. The interest income to be derived may be considered as one
factor in selecting debt securities for investment by Warburg. Because the
market value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital appreciation when interest rates are expected to
decline. The success of such a strategy is dependent upon Warburg's ability to
forecast accurately changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the

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<PAGE> 12

four highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Services ("S&P") or, if unrated, is determined to be of
comparable quality by Warburg. Bonds rated in the fourth highest grade have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by a Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities, although Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities. The Japan Growth Fund does not currently intend during the
coming year to hold more than 5% of its net assets in securities rated below
investment grade, including convertible and non-convertible debt securities
downgraded below investment grade subsequent to acquisition by the Fund. The
Japan OTC Fund does not currently intend during the coming year to hold more
than 5% of its net assets in securities downgraded below investment grade
subsequent to acquisition by the Fund.
When Warburg believes that a defensive posture is warranted, each Fund other
than the Japan OTC Fund may invest temporarily without limit in U.S. and foreign
investment grade debt obligations, other securities of U.S. companies and in
domestic and foreign money market obligations, including repurchase agreements.
The Japan OTC Fund may, for temporary defensive purposes, invest without limit
in U.S. debt securities and money market obligations.
EMERGING MARKETS FUND. The Fund may invest or hold up to 35% of its net assets
in fixed-income securities (including convertible bonds) rated below investment
grade (commonly referred to as "junk bonds") and as low as C by Moody's or D by
S&P, or in unrated securities considered to be of equivalent quality. Securities
that are rated C by Moody's are the lowest rated class and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated D by S&P is in default or is expected to default upon maturity or
payment date.
Among the types of debt securities in which the Emerging Markets Fund may
invest are Brady Bonds, loan participations and assignments, asset-backed
securities and mortgage-backed securities:
Brady Bonds are collateralized or uncollateralized securities created through
the exchange of existing commercial bank loans to public and private Latin
American entities for new bonds in connection with certain debt restructurings.
Brady Bonds have been issued only recently and therefore do not have a long
payment history. However, in light of the history of commercial bank loan
defaults by Latin American public and private entities, investments in Brady
Bonds may be viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans arranged
through private negotiations between a foreign government as borrower and one or
more financial institutions as lenders will typically result in the Fund

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<PAGE> 13

having a contractual relationship only with the lender, in the case of a
participation, or the borrower, in the case of an assignment. The Fund may not
directly benefit from any collateral supporting a participation, and in the
event of the insolvency of a lender will be treated as a general creditor of the
lender. As a result, the Fund assumes the risk of both the borrower and the
lender of a participation. The Fund's rights and obligations as the purchaser of
an assignment may differ from, and be more limited than, those held by the
assigning lender. The lack of a liquid secondary market for both participations
and assignments will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of participations or assignments.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and for temporary
defensive purposes may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, its agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Funds may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement, a
Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the "Board"), monitors the creditworthiness of those
bank and non-bank dealers with which each Fund enters into repur-

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<PAGE> 14

chase agreements to evaluate this risk. A repurchase agreement is considered to
be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity,
each Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund or Warburg. As a shareholder in any
mutual fund, a Fund will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Fund's
administration fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which a Fund may
invest include: direct obligations of the U.S. Treasury, and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which a Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.
WARRANTS. Each Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.

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<PAGE> 15

have a large position in Japanese securities, these Funds will be subject to
general economic and political conditions in Japan. The Japan Growth Fund and
the Japan OTC Fund should each be considered a vehicle for diversification, but
the Funds themselves are not diversified.
Securities in Japan are denominated and quoted in "yen." Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of each
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of each Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in the value of Japanese yen relative
to the U.S. dollar.
A significant portion of the Japan OTC Fund's assets will be, and assets of
the Japan Growth Fund may be, invested in securities traded through JASDAQ.
JASDAQ traded securities can be volatile, which may result in a Fund's net asset
value fluctuating in response. Trading of equity securities through the JASDAQ
market is conducted by securities firms in Japan, primarily through an
organization which acts as a "matching agent," as opposed to a recognized stock
exchange. Consequently, securities traded through JASDAQ may, from time to time,
and especially in falling markets, become illiquid and experience short-term
price volatility and wide spreads between bid and offer prices. This combination
of limited liquidity and price volatility may have an adverse effect on the
investment performance of a Fund. In periods of rapid price increases, the
limited liquidity of JASDAQ restricts the Fund's ability to adjust its portfolio
quickly in order to take full advantage of a significant market increase, and
conversely, during periods of rapid price declines, it restricts the ability of
the Fund to dispose of securities quickly in order to realize gains previously
made or to limit losses on securities held in its portfolio. In addition,
although JASDAQ has generally experienced sustained growth in aggregate market
capitalization and trading volume, there have been periods in which aggregate
market capitalization and trading volume have declined. The Frontier Market is
expected to present greater liquidity and volatility considerations than JASDAQ.
At December 31, 1997, 831 issues were traded through JASDAQ, having an
aggregate market capitalization in excess of 9.2 trillion yen (approximately
$70.5 billion as of such date). The entry requirements for JASDAQ generally
require a minimum of two million shares outstanding at the time of registration,
a minimum of 200 shareholders (if less than 20 million shares outstanding on the
day of registration) or 400 shareholders (if 20 million or more shares
outstanding on the day of registration), minimum pre-tax profits of 10 yen per
share (approximately $.08 per share as of January 30, 1998) for the prior fiscal
year, and net assets of 200 million yen (approximately $1.6 million as of
January 30, 1998) at the end of the prior fiscal year. JASDAQ has generally

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<PAGE> 16

attracted small growth companies or companies whose major shareholders wish to
sell only a small portion of the company's equity.
The Frontier Market is a second over-the-counter market and is under the
jurisdiction of JASDAQ, which is overseen by the Japanese Securities and
Exchange Commission. The Frontier Market has less stringent entry requirements
than those described above for JASDAQ and is designed to enable early stage
companies access to capital markets. Frontier Market companies need not have a
history of earnings, provided their spending on research and development equals
at least 3% of net sales. In addition, companies traded through the Frontier
Market are not required to have two million shares outstanding at the time of
registration. As a result, investments in companies traded through the Frontier
Market may involve a greater degree of risk than investments in companies traded
through JASDAQ. The Frontier Market was created in July 1995, and as of the date
of this Prospectus, a limited number of issues were traded through this market.
The decline in the Japanese securities markets since 1989 has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those in the United States, even
after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993, a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms in the Japanese economy cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect the Funds investing there. For
additional information, see "Japan and its Securities Markets" in the Statement
of Additional Information.
EMERGING MARKETS. The Funds may invest in securities of issuers located in
less developed countries considered to be "emerging markets." Investing in
securities of issuers located in emerging markets involves not only the risks
described below, with respect to investing in foreign securities, but also other
risks, including exposure to economic structures that are generally less diverse
and mature than, and to political systems that can be expected to have less

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<PAGE> 17

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 market countries during the latter part of 1997.
Other characteristics of emerging markets that may affect investment there
include certain national policies that may restrict investment by foreigners in
issuers or industries deemed sensitive to relevant national interests and the
absence of developed legal structures governing private and foreign investments
and private property. The typically small size of the markets for securities of
issuers located in emerging markets and the possibility of a low or nonexistent
volume of trading in those securities may also result in a lack of liquidity and
in price volatility of those securities.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES; UNSEASONED
ISSUERS. Investing in securities of emerging growth, small- and medium-sized
companies and companies with continuous operations of less than three years
("unseasoned issuers"), which may include JASDAQ and Frontier Market securities,
may involve greater risks than investing in larger, more established companies
since these securities may have limited marketability and, thus, may be more
volatile than securities of larger, more established companies or the market
averages in general. Because such companies normally have fewer shares
outstanding than larger companies, it may be more difficult for a Fund to buy or
sell significant amounts of such shares without an unfavorable impact on
prevailing prices. 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. There is typically less
publicly available information concerning these companies than for larger, more
established ones. 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. Therefore, an investment in the
Funds may involve a greater degree of risk than an investment in other mutual
funds that seek capital appreciation by investing in more established, larger
companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the "Securities Act"), but that can be sold to "qualified institutional buyers"
in accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to each Fund's limitation on the purchase of illiquid securities, unless
the Fund's Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, each Fund's
Board will also consider factors such as trading activity, availability of
reliable price information and other relevant information in determining whether
a Rule 144A Security is liquid. This investment practice could have the effect
of increasing the level of illiquidity in the Funds

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<PAGE> 18

to the extent that qualified institutional buyers become uninterested for a time
in purchasing Rule 144A Securities. The Board of each Fund will carefully
monitor any investments by the Fund in Rule 144A Securities. The Boards may
adopt guidelines and delegate to an Adviser the daily function of determining
and monitoring the liquidity of Rule 144A Securities, although each Board will
retain ultimate responsibility for any determination regarding liquidity. In the
case of the Japan OTC Fund, all Rule 144A Securities will be limited to 10% of
the Fund's net assets, included within the Fund's limit on illiquid securities.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and a Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Emerging Markets Fund, the Japan Growth Fund and
the Japan OTC Fund are classified as non-diversified investment companies under
the 1940 Act, which means that each Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. Each Fund will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. As a non-diversified investment
company, each Fund may invest a greater proportion of its assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that a Fund
assumes large positions in the securities of a small number of issuers, its
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
BELOW INVESTMENT GRADE SECURITIES. Securities rated below investment grade and
comparable unrated securities (commonly referred to as "junk bonds") (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The market values of certain of
these securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than higher-quality securities.
In addition, these securities generally present a higher degree of

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<PAGE> 19

credit risk. The risk of loss due to default is significantly greater because
these securities generally are unsecured and frequently are subordinated to the
prior payment of senior indebtedness.
The market value of below investment grade securities is more volatile than
that of investment grade securities. In addition, a Fund may have difficulty
disposing of certain of these securities because there may be a thin trading
market. The lack of a liquid secondary market for certain securities may have an
adverse impact on the Fund's ability to dispose of particular issues and may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment but increases an
investor's risk in the event of a decline in the value of the underlying
security and can result in a complete loss of the amount invested in the
warrant. In addition, the price of a warrant tends to be more volatile than, and
may not correlate exactly to, the price of the underlying security. If the
market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.

PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
A Fund will attempt to purchase securities with the intent of holding them for
investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the relevant Fund. A Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. High portfolio
turnover rates (100% or more) may result in higher dealer mark-ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" below and "Investment
Policies -- Portfolio Transactions" in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of a Fund are
placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ("Counsellors Securities"). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.

and (iii) except for the International Equity Fund, enter into reverse
repurchase agreements and dollar rolls. The Emerging Markets Fund, Japan Growth
Fund and Japan OTC Fund may also invest in asset-backed securities and
mortgaged-backed securities, and the International Equity Fund may invest in
such securities that are issued or guaranteed by the U.S. government, its
agencies or instrumentalities, although each Fund currently anticipates that
during the coming year such investments will each not exceed 5% of net assets.
The Emerging Market Fund, Japan Growth Fund and Japan OTC Fund may also invest
in zero coupon securities, although each Fund currently anticipates that during
the coming year investments in zero coupon securities will not exceed 5% of net
assets. The Emerging Markets Fund may invest in stand-by commitments, although
the Fund currently anticipates that during the coming year investments in
stand-by commitments will not exceed 5% of net assets. Detailed information
concerning each Fund's strategies and related risks is contained below and in
the Statement of Additional Information.
FOREIGN SECURITIES. Each Fund will ordinarily hold no less than 65% of its
total assets in foreign securities. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Funds, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher valuation
and communications costs and the expense of maintaining securities with foreign
custodians. The risks associated with investing in securities of non-U.S.
issuers are generally heightened for investments in securities of issuers in
Emerging Markets.

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DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
International Depositary Receipts ("IDRs"), instruments that evidence ownership
in underlying securities issued by a foreign corporation. ADRs, EDRs and IDRs
may not necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe, and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, each Fund may,
but is not required to, engage in a number of strategies involving options,
futures, forward currency contracts and swaps. These strategies, commonly
referred to as "derivatives," may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE A FUND'S INVESTMENT RISK. Transaction costs and any premiums associated
with these strategies, and any losses incurred, will affect a Fund's net asset
value and performance. Therefore, an investment in a Fund may involve a greater
risk than an investment in other mutual funds that do not utilize these
strategies. The Funds' use of these strategies may be limited by position and
exercise limits established by securities and commodities exchanges and other
applicable regulatory authorities.
Securities Options and Stock Index Options. The International Equity, Japan
Growth and Japan OTC Funds may each write covered call options, and the Japan
Growth and Japan OTC Funds may write put options, on up to 25% of the net asset
value of the stock and debt securities in its portfolio and will realize fees
(referred to as "premiums") for granting the rights evidenced by the options.
Each Fund may also utilize up to 10% of its assets to purchase options on stocks
and debt securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ("OTC") options. The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option on a security has the right to purchase the
underlying security from the writer. In addition to purchasing and writing
options on securities, each Fund may also utilize up to 10% of its total assets
(15% in the case of the Emerging Markets Fund) to purchase exchange-listed and
OTC put and call options on stock indexes, and may also write such options. A
stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price

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<PAGE> 22

movements in the underlying security or index is potentially unlimited during
the exercise period. Writing securities options may result in substantial losses
to a Fund, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the Fund
could realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Funds will conduct their currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) in the case of the
Emerging Markets, Japan Growth and Japan OTC Funds, by purchasing exchange-
traded currency options. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date at a price set at the time
of the contract. An option on a foreign currency operates similarly to an option
on a security. Risks associated with currency forward contracts and purchasing
currency options are similar to those described in this Prospectus for futures
contracts and securities and stock index options. In addition, the use of
currency transactions could result in losses from the imposition of foreign
exchange controls, suspension of settlement or other governmental actions or
unexpected events. The International Equity Fund may only enter into forward
currency contracts for hedging purposes.
Swaps. The Funds 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 the Funds with another
party of the respective amounts payable with respect to a no-

21
<PAGE> 23

tional 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 the Fund anticipates purchasing at a later date. The Funds 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 where, 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, 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.
The Funds 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, the
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, Warburg 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
its entitlements with respect to each swap on a daily basis.
Hedging Considerations. The Funds may engage in options, futures, currency
transactions and swaps for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts, currency exchange
transactions and swaps for hedging purposes could limit any potential gain from
an increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. A Fund will engage in hedging transactions only when deemed advisable by
Warburg, and successful use of hedging transactions will depend on Warburg's
ability to predict correctly movements in the hedge and the hedged position and
the correlation between them, which could prove to be

22
<PAGE> 24

inaccurate. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends.
Additional Considerations. To the extent that a Fund engages in the strategies
described above, the Fund may experience losses greater than if these strategies
had not been utilized. In addition to the risks described above, these
instruments may be illiquid and/or subject to trading limits, and the Fund may
be unable to close out a position without incurring substantial losses, if at
all. The Fund is also subject to the risk of a default by a counterparty to an
off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts and swaps. The use of these strategies may require that the Fund
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Fund's obligations with respect to
these strategies are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
SHORT SALES AGAINST THE BOX. Both the Emerging Markets Fund and the Japan
Growth Fund may enter into a short sale of securities such that when the short
position is open the Fund owns an equal amount of the securities sold short or
owns preferred stocks or debt securities, convertible or exchangeable without
payment of further consideration, into an equal number of securities sold short.
This kind of short sale, which is referred to as one "against the box," may be
entered into by the Fund, for example, to lock in a sale price for a security
the Fund does not wish to sell immediately. The Fund will deposit, in a
segregated account with its custodian or a qualified subcustodian, the
securities sold short or convertible or exchangeable preferred stocks or debt
securities in connection with short sales against the box. Not more than 10% of
each Fund's net assets (taken at current value) may be held as collateral for
short sales against the box at any one time.

INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
The Emerging Markets Fund and the Japan OTC Fund may each invest up to 15% of
its net assets; the International Equity Fund may invest up to 10% of its total
assets; and the Japan Growth Fund may invest up to 10% of its net assets, in
securities with contractual or other restrictions on resale and other
instruments that are not readily marketable ("illiquid securities"), including
(i) securities issued as part of a privately negotiated transaction between an

23
<PAGE> 25

issuer and one or more purchasers; (ii) repurchase agreements with maturities
greater than seven days; (iii) time deposits maturing in more than seven
calendar days; and (iv) certain Rule 144A Securities. Each Fund may borrow from
banks for temporary or emergency purposes, such as meeting anticipated
redemption requests, provided that reverse repurchase agreements and any other
borrowing by the Fund may not exceed 30% of total assets, and may pledge its
assets to the extent necessary to secure permitted borrowings (up to 10% of its
assets in the case of the International Equity Fund). Whenever borrowings
(including reverse repurchase agreements) exceed 5% of a Fund's assets, the Fund
will not make any investments (including roll-overs). Except for the limitations
on borrowing, the investment guidelines set forth in this paragraph may be
changed at any time without shareholder consent by vote of the Board of each
Fund, subject to the limitations contained in the 1940 Act. A complete list of
investment restrictions that each Fund has adopted identifying additional
restrictions that cannot be changed without the approval of the majority of the
Fund's outstanding shares is contained in the Statement of Additional
Information.

MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. Each Fund employs Warburg as investment adviser to the
Fund. Warburg, subject to the control of each Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Funds in accordance
with each Fund's investment objective and stated investment policies. Warburg
makes investment decisions for each Fund and places orders to purchase or sell
securities on behalf of each such Fund. Warburg also employs a support staff of
management personnel to provide services to the Funds and furnishes each Fund
with office space, furnishings and equipment.
For the services provided by Warburg, the Emerging Markets Fund, the Japan
Growth Fund and the Japan OTC Fund each pay Warburg a fee calculated at an
annual rate of 1.25% of the Fund's average daily net assets, and the
International Equity Fund pays Warburg an advisory fee calculated at an annual
rate of 1.00% of the Fund's average daily net assets. Warburg and each Fund's
co-administrators may voluntarily waive a portion of their fees from time to
time and temporarily limit the expenses to be borne by the Fund.
Warburg is a professional investment advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of January 31, 1998,
Warburg managed approximately $19.9 billion of assets, including approximately
$11.2 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS. Emerging Markets Fund. Richard H. King and Vin-

24
<PAGE> 26

cent J. McBride have been Co-Portfolio Managers of the Fund since the Fund's
inception and since September 1997, respectively. Harold W. Ehrlich is an
Associate Portfolio Manager and Research Analyst.
International Equity Fund. Richard H. King has been Portfolio Manager of the
Fund since the Fund's inception. P. Nicholas Edwards, Harold W. Ehrlich and
Vincent J. McBride are Associate Portfolio Managers and Research Analysts.
Japan Growth Fund. P. Nicholas Edwards has been Portfolio Manager of the Fund
since the Fund's inception.
Japan OTC Fund. Richard H. King and P. Nicholas Edwards have been Co-
Portfolio Managers of the Fund since the Fund's inception and since May 1997,
respectively.
Mr. King has been a Managing Director of Warburg since 1989. Mr. Edwards, a
Managing Director of Warburg, has been with Warburg since August 1995, before
which time he was a director at Jardine Fleming Investment Advisers, Tokyo. Mr.
Ehrlich, a Managing Director of Warburg, has been with Warburg and the Funds
since February 1995, before which time he was a senior vice president, portfolio
manager and analyst at Templeton Investment Counsel Inc. Mr. McBride, a Senior
Vice President of Warburg, has been with Warburg and the Funds since 1994. Prior
to joining Warburg, Mr. McBride was an international equity analyst at Smith
Barney Inc.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
("Counsellors Service"), a wholly owned subsidiary of Warburg, as a
coadministrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual and semiannual reports, assisting in the preparation of tax returns and
monitoring and developing compliance procedures for the Funds. As compensation,
each Fund pays Counsellors Service a fee calculated at an annual rate of .10% of
the Fund's average daily net assets.
Each Fund employs PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of
PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Funds
each pay PFPC a fee calculated at an annual rate of .12% of each Fund's first
$250 million in average daily net assets, .10% of the next $250 million in
average daily net assets, .08% of the next $250 million in average daily net
assets, and .05% of average daily net assets over $750 million, subject in each
case to a minimum annual fee and exclusive of out-of-pocket expenses. PFPC has
its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.

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<PAGE> 27

CUSTODIANS. State Street Bank and Trust Company ("State Street") serves as
custodian of each Fund's non-U.S. assets. PNC Bank, National Association ("PNC")
serves as custodian of each Fund's U.S. assets. State Street's principal
business address is 225 Franklin Street, Boston, Massachusetts 02110. Like PFPC,
PNC is a subsidiary of PNC Bank Corp. and its principal business address is 1600
Market Street, Philadelphia, Pennsylvania 19103.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the International Equity Fund to Counsellors Securities for
distribution services. Counsellors Securities receives a fee at an annual rate
equal to .25% of the average daily net assets of each of the Emerging Markets,
Japan Growth and Japan OTC Fund's Common Shares for distribution services,
pursuant to a shareholder servicing and distribution plan (the "12b-1 Plan")
adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to
Counsellors Securities under a 12b-1 Plan may be used by Counsellors Securities
to cover expenses that are primarily intended to result in, or that are
primarily attributable to, (i) the sale of the Common Shares, (ii) ongoing
servicing and/or maintenance of the accounts of Common Shareholders of a Fund
and (iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Common Shares, all as set forth in the 12b-1
Plans. Payments under the 12b-1 Plans are not tied exclusively to the
distribution expenses actually incurred by Counsellors Securities and the
payments may exceed distribution expenses actually incurred. The Boards of the
Emerging Markets Fund, the Japan Growth Fund and the Japan OTC Fund evaluate the
appropriateness of the 12b-1 Plans on a continuing basis and in doing so
consider all relevant factors, including expenses borne by Counsellors
Securities and amounts received under the 12b-1 Plans.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of a Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Funds. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. In some instances, these
incentives may be offered only to certain institutions whose representatives
provide services in connection with the sale or expected sale of

26
<PAGE> 28

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

HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 927-2874. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
OR
Overnight to:
BFDS
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, Massachusetts 02171
Completed and signed account applications should be sent to the above.
RETIREMENT PLANS AND UTMA/UGMA ACCOUNTS. For information (i) about investing
in the Funds through a tax-advantaged retirement plan, such as an Individual
Retirement Account ("IRA"), or (ii) about opening a Uniform Transfers to Minors
Act ("UTMA") account or Uniform Gifts to Minors Act ("UGMA") account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874 or write to
Warburg Pincus Funds at an address set forth above. Investors should consult
their own tax advisers about the establishment of retirement plans and UTMA or
UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, an
investor should telephone Warburg Pincus Funds at (800) 927-2874. Shareholders
are responsible for maintaining current account registration and addresses with
a Fund. No interest will be paid on amounts represented by uncashed distribution
or redemption checks.

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire and automated clearing house transactions ("ACH on
Demand").
The minimum initial investment in each Fund is $2,500 and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Plan or by ACH on Demand,
as described below. For certain retirement plans (described
27
<PAGE> 29

above) and UTMA/UGMA accounts, the minimum initial investment is $500. The Fund
reserves the right to change the initial and subsequent investment minimum
requirements at any time. In addition, the Fund may, in its sole discretion,
waive the initial and subsequent investment minimum requirements with respect to
investors who are employees of Warburg or its affiliates or persons with whom
Warburg has entered into an investment advisory agreement. Existing investors
will be given 15 days' notice by mail of any increase in investment minimum
requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined below. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. The Fund reserves
the right to suspend the offering of shares for a period of time or to reject
any specific purchase order. In the interest of economy and convenience,
physical certificates representing shares in the Funds are not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check or
money order made payable to the Fund or Warburg Pincus Funds (in U.S. currency)
should be sent along with the completed account application to Warburg Pincus
Funds through its distributor, Counsellors Securities at an address set forth
above. Checks payable to the investor and endorsed to the order of the Fund or
Warburg Pincus Funds will not be accepted as payment and will be returned to the
sender. If payment is received in proper form prior to the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m.,
Eastern time) on a day that the Fund calculates its net asset value (a "business
day"), the purchase will be made at the Fund's net asset value calculated at the
end of that day. If payment is received at or after the close of regular trading
on the NYSE, the purchase will be effected at the Fund's net asset value
determined for the next business day after payment has been received. Checks or
money orders that are not in proper form or that are not accompanied or preceded
by a complete account application will be returned to the sender. Shares
purchased by check or money order are entitled to receive dividends and
distributions beginning on the day payment is received. Checks or money orders
in payment for shares of more than one Warburg Pincus Fund should be made
payable to Warburg Pincus Funds and should be accompanied by a breakdown of
amounts to be invested in each fund. If a check used for purchase does not
clear, the Fund will cancel the purchase and the investor may be liable for
losses or fees incurred. For a description of the manner of calculating the
Fund's net asset value, see "Net Asset Value" below.
BY WIRE. Investors may also purchase Common Shares in a Fund by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the

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<PAGE> 30

Fund prior to wiring funds by telephoning (800) 927-2874. Federal funds may be
wired using the following wire address:
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
[Insert Warburg Pincus Fund name(s) here]
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the Fund on that day and are entitled to
dividends and distributions beginning on that day. However, if a wire in proper
form that is not preceded by a telephone order is received at or after the close
of regular trading on the NYSE, the payment will be held uninvested until the
order is effected at the close of business on the next business day. Payment for
orders that are not accepted will be returned to the prospective investor after
prompt inquiry. If a telephone order is placed and payment by wire is not
received on the same day, the Fund will cancel the purchase and the investor may
be liable for losses or fees incurred.
AUTOMATIC MONTHLY INVESTMENT PLAN AND ACH ON DEMAND. The Automatic Monthly
Investment Plan allows shareholders to authorize a Fund or its agent to debit
their bank account monthly ($50 minimum) for the purchase of Fund shares on or
about either the tenth or twentieth calendar day of each month. Shareholders may
also purchase shares by calling Warburg Pincus Funds at (800) 927-2874 on any
business day to request direct debit or credit (for redemptions) of their bank
account through an ACH on Demand transaction.
To establish the Automatic Monthly Investment Plan and/or ACH on Demand
option, obtain a separate application or complete the relevant section of the
account application. Only an account maintained at a financial institution which
is an automated clearing house member may be used, and one common name must
appear on both the shareholder's Fund registration and bank account
registration. Shareholders using this service must satisfy the initial
investment minimum for the Fund prior to or concurrent with the start of any
Automatic Monthly Investment Plan or ACH on Demand transaction. Please contact
Warburg Pincus Funds at (800) 927-2874 for additional information. Investors
should allow a period of up to 30 days in order to implement an Automatic
Investment Plan. The failure to provide complete information could result in
further delays.
If an ACH on Demand transaction request is received prior to the close of
regular trading on the NYSE, the shares will be priced according to the net
asset value of Fund shares on that day and are entitled to dividends and
distributions beginning on that day. If a request is received at or after the
close of regular trading on the NYSE, the shares will be priced at the relevant

29
<PAGE> 31

Fund's net asset value on the following business day.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application
or if the ACH on Demand option is elected, an investor may request transactions
by telephone. Investors should realize that in conducting transactions by
telephone they may be giving up a measure of security that they may have if they
were to conduct such transactions in writing. Neither a Fund nor its agents will
be liable for following instructions communicated by telephone that it
reasonably believes to be genuine. Reasonable procedures will be employed on
behalf of each Fund designed to give reasonable assurance that instructions
communicated by telephone are genuine. Such procedures include providing written
confirmation of telephone transactions, tape recording telephone instructions
and requiring specific personal information prior to acting upon telephone
instructions.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of each Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSource(TM) Program;
Fidelity Brokerage Services, Inc. Funds-Network(TM) Program; Jack White &
Company, Inc.; and Waterhouse Securities, Inc. Generally, these programs require
customers to pay either no or low transaction fees in connection with purchases,
exchanges or redemptions. The Funds are also available through certain
broker-dealers, financial institutions and other industry professionals
(including the brokerage firms offering the programs described above,
collectively, "Service Organizations"), which may impose certain conditions on
their clients or customers that invest in the Funds, which are in addition to or
different than those described in this Prospectus, and may charge their clients
or customers direct fees. Certain features of the Funds, such as the initial and
subsequent investment minimums, redemption fees and certain trading
restrictions, may be modified or waived by Service Organizations. Service
Organizations may impose transaction or administrative charges or other direct
fees, which charges and fees would not be imposed if Fund shares are purchased
directly from the Funds. Therefore, a client or customer should contact the
Service Organization acting on his behalf concerning the fees (if any) charged
in connection with a purchase, exchange or redemption of Fund shares and should
read this Prospectus in light of the terms governing his accounts with the
Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Funds in
accordance with their agreements with the Funds and with clients or customers.
Service Organizations or, if applicable, their designees may enter confirmed
purchase or redemption orders on behalf of clients and customers, with payment
to follow no later than the Funds' pricing on the following business day. If
payment is not received by such time, the Service Organization could be held
liable for resulting fees or losses. A Fund may be deemed to have received a
purchase or redemption order when a Service Organization, or, if applicable, its
authorized designee, accepts the order. Such orders received by a Fund in proper
form will be priced at the Fund's net asset value next

30
<PAGE> 32

computed after they are accepted by the Service Organization or its authorized
designee.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Service Organizations and
certain recordkeeping organizations a fee of up to .40% (the "Service Fee") of
the average annual value of accounts with the Funds maintained by such Service
Organizations or recordkeepers. A portion of the Service Fee may be borne by the
Funds as a transfer agency fee. In addition, a Service Organization or
recordkeeper may directly or indirectly pay a portion of its Service Fee to the
Funds' custodian or transfer agent for costs related to accounts of its clients
or customers. The Service Fee payable to any one Service Organization is
determined based upon a number of factors, including the nature and quality of
services provided, the operations processing requirements of the relationship
and the standardized fee schedule of the Service Organization or recordkeeper.
GENERAL. Each Fund reserves the right to reject any specific purchase order,
including certain purchases made by exchange (see "How to Redeem and Exchange
Shares -- Exchange of Shares" below). Purchase orders may be refused if, in
Warburg's judgment, a Fund would be unable to invest the money effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A Fund may discontinue sales of its shares if
management believes that a substantial further increase in assets may adversely
affect that Fund's ability to achieve its investment objective. In such event,
however, it is anticipated that existing shareholders would be permitted to
continue to authorize investment in such Fund and to reinvest any dividends or
capital gains distributions.

HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see "Net Asset Value"
below).
Common Shares of the Funds may either be redeemed by mail or by telephone. If
an investor desires to redeem his shares by mail, a written request for
redemption should be sent to Warburg Pincus Funds at an address indicated above
under "How to Open an Account." An investor should be sure that the redemption
request identifies the Fund, the number of shares to be redeemed and the
investor's account number. Payment of redemption proceeds may be delayed in
connection with account changes. Each mail redemption request must be signed by
the registered owner(s) (or his legal representative(s)) exactly as the shares
are registered. If an investor has applied for the telephone redemption feature
on his account application, he may redeem his shares by calling Warburg Pincus
Funds at (800) 927-2874. An investor making a telephone withdrawal should state
(i) the name of the Fund, (ii) the account number of the Fund, (iii) the name of
the investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn
and (v) the name of

31
<PAGE> 33

the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
an address shown above under "How to Open an Account." Although each Fund will
redeem shares purchased by check, through the Automatic Monthly Investment Plan
or by ACH on Demand before the check or funds clear, payments of the redemption
proceeds will be delayed for up to five days (for funds received through the
Automatic Monthly Investment Plan or by ACH on Demand) or up to ten days (for
check purchases) from the date of purchase. Investors should consider purchasing
shares using a certified or bank check, money order or federal funds wire if
they anticipate an immediate need for redemption proceeds.
If a redemption order is received by a Fund or its agent prior to the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received at or after the close of regular trading on the NYSE, the redemption
order will be effected at the net asset value as next determined. Except as
noted above, redemption proceeds will normally be mailed or wired to an investor
on the next business day following the date a redemption order is effected. If,
however, in the judgment of Warburg, immediate payment would adversely affect a
Fund, each Fund reserves the right to pay the redemption proceeds within seven
days after the redemption order is effected. Furthermore, each Fund may suspend
the right of redemption or postpone the date of payment upon redemption (as well
as suspend or postpone the recordation of an exchange of shares) for such
periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount invested
depending upon a share's net asset value at the time of redemption. If an
investor redeems all the shares in his account, all dividends and distributions
declared up to and including the date of redemption are paid along with the
proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less than
$2,000 ($250 in the case of a retirement plan or UTMA or UGMA account), each
Fund reserves the right to redeem the shares in that account at net asset value.
Prior to any redemption, the Fund will notify an investor in writing that this
account has a value of less than the minimum. The investor will then have 60
days to make an additional investment before a redemption will be processed by
the Fund.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic

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cash withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the "Automatic Withdrawal Plan" section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for
Common Shares of another Fund or for Common Shares of another Warburg Pincus
Fund at their respective net asset values. Exchanges may be effected by mail or
by telephone in the manner described under "Redemption of Shares" above. If an
exchange request is received by Warburg Pincus Funds or its agent prior to the
close of regular trading on the NYSE, the exchange will be made at each fund's
net asset value determined at the end of that business day. Exchanges will be
effected without a sales charge but must satisfy the minimum dollar amount
necessary for new purchases. A Fund may refuse exchange purchases at any time
without prior notice. Currently, exchanges may be made among the Funds and with
the following other funds:
- - WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
- - WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
- - WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
- - WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
- - WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
- - WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies,
including U.S. dollars;
- - WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
- - WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term growth
of capital and income and a reasonable current return;
- - WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in a broadly diversified

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<PAGE> 35

portfolio of equity securities of domestic companies;
- - WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing in undervalued companies and market sectors;
- - WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
- - WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
- - WARBURG PINCUS SMALL COMPANY GROWTH FUND* -- an equity fund seeking capital
growth by investing in equity securities of small-sized domestic companies;
- - WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;
- - WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
- - WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity securities of
U.S. and foreign issuers in their post-venture capital stage of development;
and
- - WARBURG PINCUS MAJOR FOREIGN MARKETS FUND -- an equity fund seeking long-term
capital appreciation by investing in equity securities of issuers consisting
of companies in major foreign securities markets.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.
Each Fund reserves the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when a Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a

- ---------------
* Warburg Pincus Small Company Growth Fund is currently closed to certain new
investors; the Small Company Growth Fund's prospectus describes the types of
investors that may purchase shares.
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<PAGE> 36

"market timing" strategy) is discerned. Each Fund reserves the right to
terminate or modify the exchange privilege at any time upon 30 days' notice to
shareholders.

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

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<PAGE> 37

The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as "mid-term gain" at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after December 31, 2000 for
assets held for more than five years. However, the 18% rate applies only to
assets acquired after December 31, 2000 unless the taxpayer elects to treat an
asset held prior to such date as sold for fair market value on January 1, 2001.
In the case of individuals whose ordinary income is taxed at a 15% rate, the 20%
rate is reduced to 10% and the 10% rate for assets held for more than five years
is reduced to 8%. Each Fund will provide information relating to that portion of
a "capital gain dividend" that may be treated by investors as eligible for the
reduced capital gains rate for capital assets held for more than 18 months.
Investors may be proportionately liable for taxes on income and gains of the
Funds, but investors not subject to tax on their income will not be required to
pay tax on amounts distributed to them. A Fund's investment activities,
including short sales of securities, will not result in unrelated business
taxable income to a tax-exempt investor. A Fund's dividends may qualify for the
dividends received deduction for corporations to the extent they are derived
from dividends attributable to certain types of stock issued by U.S. domestic
corporations.
Dividends and interest received by the Funds may be subject to withholding and
other taxes imposed by foreign countries. However, tax conventions between
certain countries and the United States may reduce or eliminate such taxes. If a
Fund qualifies as a regulated investment company, if certain asset and
distribution requirements are satisfied and if more than 50% of the Fund's total
assets at the close of its fiscal year consists of stock or securities of
foreign corporations, the Fund may elect for U.S. income tax purposes to treat
foreign income taxes paid by it as paid by its shareholders. A Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. If a Fund were to make an election, shareholders of the Fund would be
required to take into account an amount equal to their pro rata portions of such
foreign taxes in computing their taxable income and then treat an amount equal
to those foreign taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, each Fund will report to its shareholders the
amount per share of such foreign income tax that must be included in each
shareholder's gross income and the amount which will be available for the deduc-

36
<PAGE> 38

tion or credit. No deduction for foreign taxes may be claimed by a shareholder
who does not itemize deductions. Certain limitations will be imposed on the
extent to which the credit (but not the deduction) for foreign taxes may be
claimed.
Special Tax Matters Relating to the Emerging Markets Fund and the Japan Growth
Fund. Certain provisions of the Code may require that a gain recognized by a
Fund upon the closing of a short sale be treated as a short-term capital gain,
and that a loss recognized by the Fund upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Fund held the securities used to close the short sale. A Fund's use of short
sales may also affect the holding periods of certain securities held by the Fund
if such securities are "substantially identical" to securities used by the Fund
to close the short sale. The Funds' short selling activities will not result in
unrelated business taxable income to a tax-exempt investor.
Special Tax Matters Relating to the Japan Growth Fund and the Japan OTC Fund.
In the opinion of Japanese counsel for the Funds, the operations of the Funds
will not subject a Fund to any Japanese income, capital gains or other taxes
except for withholding taxes on interest and dividends paid to the Fund by
Japanese corporations and securities transaction taxes payable in the event of
sales of portfolio securities in Japan. In the opinion of such counsel, under
the tax convention between the United States and Japan (the "Convention") as
currently in force, a Japanese withholding tax at a rate of 15% is, with certain
exceptions, imposed upon dividends paid by Japanese corporations to the Fund.
Pursuant to the present terms of the Convention, interest received by a Fund
from sources within Japan is subject to a Japanese withholding tax at a rate of
10%.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.

NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of each Fund generally changes each day.
The net asset value per Common Share of each Fund is computed by adding

37
<PAGE> 39

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

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

38
<PAGE> 40

Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Funds'
Statement of Additional Information describes the method used to determine the
total return. Current total return figures may be obtained by calling Warburg
Pincus Funds at (800) 927-2874.
Each Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) in the case of the Emerging Markets Fund,
with the IFC Emerging Market Free Index, the IFC Investible Index or the Morgan
Stanley Capital International Emerging Markets Index; in the case of the
International Equity Fund, the Morgan Stanley Capital International Europe,
Australasia, Far East ("EAFE") Index and/or other indexes prepared by Morgan
Stanley relating to securities represented in the Fund, the Salomon Russell
Global Equity Index, the FT-Actuaries World Indices (jointly compiled by The
Financial Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.) and the
S&P 500 Index; and in the case of the Japan Growth Fund and the Japan OTC Fund,
the indexes noted above for the International Equity Fund, as well as the Nikkei
over-the-counter average, the JASDAQ Index, the Nikkei 225 and 300 Stock Indexes
and the Topix Index; all of which are unmanaged indexes of common stocks; or
(iii) other appropriate indexes of investment securities or with data developed
by Warburg derived from such indexes. A Fund may include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Mutual Fund Magazine, SmartMoney, The Wall
Street Journal and Worth. Morningstar, Inc. rates funds in broad categories
based on risk/reward analyses over various time periods. In addition, each Fund
may from time to time compare the expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
In reports or other communications to investors or in advertising, each Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Fund with respect
to relevant market and industry benchmarks. Each Fund may also discuss measures
of risk, the continuum of risk and return relating to different investments and
the potential impact of foreign stocks on a portfolio otherwise composed of
domestic securities.

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<PAGE> 41

GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Emerging Markets Fund was incorporated on December 23, 1993
under the laws of the State of Maryland under the name "Warburg, Pincus Emerging
Markets Fund, Inc." The International Equity Fund was incorporated on February
9, 1989 under the laws of the State of Maryland under the name "Counsellors
International Equity Fund, Inc." On October 27, 1995 the Fund amended its
charter to change its name to "Warburg, Pincus International Equity Fund, Inc."
The Japan Growth Fund was incorporated on October 10, 1995 under the laws of the
State of Maryland under the name "Warburg, Pincus Japan Growth Fund, Inc.," and
the Japan OTC Fund was incorporated on July 26, 1994 under the laws of the State
of Maryland under the name "Warburg, Pincus Japan OTC Fund, Inc."
Each Fund's charter authorizes its Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and two billion shares are
designated Advisor Shares. Under each Fund's charter documents, the Board has
the power to classify or reclassify any unissued shares of the Fund into one or
more additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. 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 Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the
Advisor Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries. Shares of each class represent equal pro
rata interests in the respective Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Advisor Shares from their investment professional or
by calling Counsellors Securities at (800) 369-2728.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the 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

40
<PAGE> 42

member at the written request of holders of 10% of the outstanding shares of a
Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Monthly
Investment Plan). Each Fund will also send to its investors a semiannual report
and an audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund, as well as
certain statistical characteristics of the Fund, may be obtained by calling
Warburg Pincus Funds at (800) 927-2874 or on the Warburg Pincus Funds Web site
at www.warburg.com.
The Common Share prospectuses of the Funds are combined in this Prospectus.
Each Fund offers only its own shares, yet it is possible that a Fund might
become liable for a misstatement, inaccuracy or omission in this Prospectus with
regard to another Fund.

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

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

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<PAGE> 44

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 45

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Funds' Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 6
Portfolio Investments.................................... 10
Risk Factors and Special Considerations.................. 13
Portfolio Transactions and Turnover Rate................. 18
Certain Investment Strategies............................ 18
Investment Guidelines.................................... 23
Management of the Funds.................................. 24
How to Open an Account................................... 27
How to Purchase Shares................................... 27
How to Redeem and Exchange Shares........................ 31
Dividends, Distributions and Taxes....................... 35
Net Asset Value.......................................... 37
Performance.............................................. 38
General Information...................................... 40
</TABLE>

[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
www.warburg.com

COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPISF-1-0298
<PAGE> 46

WARBURG PINCUS ADVISOR FUNDS FEBRUARY 27, 1998

INTERNATIONAL EQUITY FUND

[LOGO]
<PAGE> 47

PROSPECTUS February 27, 1998

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

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

NO MINIMUM INVESTMENT
- --------------------------------------------------------------------------------

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

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

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

THE FUND'S EXPENSES
- --------------------------------------------------------------------------------
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See "General Information." Because of the higher fees paid by
Advisor Shares, the total return on such shares can be expected to be lower than
the total return on Common Shares.

<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees................................................................. 1.00%
12b-1 Fees...................................................................... .50%*
Other Expenses.................................................................. .26%
----
Total Fund Operating Expenses+.................................................. 1.76%
====
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 year......................................................................... $ 18
3 years........................................................................ $ 55
5 years........................................................................ $ 95
10 years........................................................................ $207
</TABLE>

- --------------------------------------------------------------------------------
* 12b-1 fees are .50% out of a maximum .75% authorized under the Advisor Shares'
Distribution Plan.
+ Annual Fund Operating Expenses for the Fund are based on actual expenses for
the fiscal year ended October 31, 1997.

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

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

2
<PAGE> 49

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following information regarding the Fund for the five fiscal years ended
October 31, 1997 has been derived from information audited by Coopers & Lybrand
L.L.P., independent accountants, whose report dated December 19, 1997 is
incorporated by reference in the Statement of Additional Information. Further
information about the performance of the Fund is contained in the annual report,
dated October 31, 1997, copies of which may be obtained without charge by
calling the Fund at (800) 369-2728.

<TABLE>
<CAPTION>
For the Period
April 4, 1997
For the Year Ended (Initial Issuance)
October 31, through
------------------------------------------------------------- October 31,
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $20.50 $19.16 $20.38 $16.91 $12.20 $13.66 $13.14
---- ---- ---- ---- ---- ---- ----------
Income from Investment Operations:
Net Investment Income (Loss)......... 0.04 0.18 0.03 0.16 (0.01) 0.13 0.00
Net Gain (Loss) from Securities and
Foreign Currency Related Items
(both realized and unrealized)..... 0.78 1.68 (0.67) 3.35 4.86 (1.32) 0.58
---- ---- ---- ---- ---- ---- ----------
Total from Investment Operations..... 0.82 1.86 (0.64) 3.51 4.85 (1.19) 0.58
---- ---- ---- ---- ---- ---- ----------
Less Distributions:
Dividends from Net Investment
Income............................. (0.04) (0.52) (0.05) 0.00 (0.01) (0.12) (0.06)
Distributions from Realized Gains.... (0.74) 0.00 (0.53) (0.04) (0.13) (0.15) 0.00
---- ---- ---- ---- ---- ---- ----------
Total Distributions.................. (0.78) (0.52) (0.58) (0.04) (0.14) (0.27) (0.06)
---- ---- ---- ---- ---- ---- ----------
NET ASSET VALUE, END OF PERIOD........ $20.54 $20.50 $19.16 $20.38 $16.91 $12.20 $13.66
==== ==== ==== ==== ==== ==== ==========
Total Return.......................... 4.04% 9.89% (3.04%) 20.77% 40.06% (8.86%) 7.85%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)...... $500,473 $500,465 $317,736 $199,404 $44,244 $1,472 $153
Ratios to Average Daily Net Assets:
Operating Expenses................... 1.76%@ 1.81%@ 1.89% 1.94% 2.00% 2.00% 2.23%*
Net Investment Income (Loss)......... .15% .18% .20% (.29%) (.36%) .54% .30%*
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements............. .00% .00% .00% .00% .00% .07% .17%*
Portfolio Turnover Rate............... 61.80% 32.49% 39.24% 17.02% 22.60% 53.29% 54.95%
Average Commission Rate#.............. $0.0169 $0.0170 -- -- -- -- --
</TABLE>

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

@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the
Advisor Shares' expenses by .00% and .01%, for the years ending October 31,
1997 and 1996, respectively. The Advisor Shares' operating expense ratio
after reflecting these arrangements were 1.76% and 1.80% for the years ended
October 31, 1997 and 1996, respectively.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.
* Annualized.

3
<PAGE> 50

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund seeks long-term capital appreciation. This objective is a fundamental
policy and may not be amended without first obtaining the approval of a majority
of the outstanding shares of the Fund. Any investment involves risk and,
therefore, there can be no assurance that the Fund will achieve its investment
objective. See "Portfolio Investments" and "Certain Investment Strategies" for
descriptions of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
investment objective by investing primarily in a broadly diversified portfolio
of equity securities of companies, wherever organized, that in the judgment of
Warburg Pincus Asset Management, Inc., the Fund's investment adviser
("Warburg"), have their principal business activities and interests outside of
the United States. The Fund will ordinarily invest substantially all of its
assets -- but no less than 65% of its total assets -- in common stocks, warrants
and securities convertible into or exchangeable for common stocks. Ordinarily
the Fund will hold no less than 65% of its total assets in at least three
countries other than the United States. The Fund intends to be widely
diversified across securities of many corporations located in a number of
foreign countries. Warburg anticipates, however, that the Fund may from time to
time invest a significant portion of its assets in a single country such as
Japan, which may involve special risks. See "Risk Factors and Special
Considerations -- Japanese Investments" below. In appropriate circumstances,
such as when a direct investment by the Fund in the securities of a particular
country cannot be made or when the securities of an investment company are more
liquid than the underlying portfolio securities, the Fund may, consistent with
the provisions of the Investment Company Act of 1940, as amended (the "1940
Act"), invest in the securities of closed-end investment companies that invest
in foreign securities.
The Fund intends to invest principally in the securities of financially strong
companies with opportunities for growth within growing international economies
and markets through increased earning power and improved utilization or
recognition of assets. Investment may be made in equity securities of companies
of any size, whether traded on or off a national securities exchange.

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

4
<PAGE> 51

obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Services ("S&P") or, if unrated, is determined to be of
comparable quality by Warburg. Bonds rated in the fourth highest grade have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities, although Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in U.S. and foreign investment grade debt
obligations, other securities of U.S. companies and in domestic and foreign
money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
circumstances, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) or medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, its agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loans and similar institutions) that are
high quality investments or, if unrated, deemed by Warburg to be high quality
investments; commercial paper rated no lower than A-2 by S&P or Prime-2 by
Moody's or the equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain non-
bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying

5
<PAGE> 52

securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the "Board"), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund or Warburg. As a shareholder in any
mutual fund, the Fund will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Fund's
administration fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by the Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require the sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.
WARRANTS. The Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.

6
<PAGE> 53

RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see "Portfolio
Investments" and "Certain Investment Strategies" in this Prospectus.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described below associated with investing in foreign securities generally. In
addition, because the Fund may from time to time have a large position in
Japanese securities, the Fund will be subject to general economic and political
conditions in Japan.
Securities in Japan are denominated and quoted in "yen." Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of the
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, the value of the Fund's assets as measured in U.S.
dollars may be affected favorably or unfavorably by fluctuations in the value of
Japanese yen relative to the U.S. dollar.
The decline in the Japanese securities markets since 1989 has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those in the United States, even
after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993, a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms in the Japanese economy cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect the Fund to the extent it
invests there. For additional information, see "Japan and its Securities
Markets" in the Statement of Additional Information.
EMERGING MARKETS. The Fund may invest in securities of issuers located in less
developed countries considered to be "emerging markets." Investing in

7
<PAGE> 54

securities of issuers located in emerging markets involves not only the risks
described below with respect to investing in foreign securities, but also other
risks, including exposure to economic structures that are generally less diverse
and mature than, and to political systems that can be expected to have less
stability than, those of developed countries. For example, many investments in
emerging markets experienced significant declines in value due to political and
currency volatility in emerging market countries during the latter part of 1997.
Other characteristics of emerging markets that may affect investment there
include certain national policies that may restrict investment by foreigners in
issuers or industries deemed sensitive to relevant national interests and the
absence of developed legal structures governing private and foreign investments
and private property. The typically small size of the markets for securities of
issuers located in emerging markets and the possibility of a low or nonexistent
volume of trading in those securities may also result in a lack of liquidity and
in price volatility of those securities.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES; UNSEASONED
ISSUERS. Investing in securities of emerging growth, small- and medium-sized
companies and companies with continuous operations of less than three years
("unseasoned issuers") may involve greater risks than investing in larger, more
established companies since these securities may have limited marketability and,
thus, may be more volatile than securities of larger, more established companies
or the market averages in general. Because 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.
There is typically less publicly available information concerning these
companies than for larger, more established ones. 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.
Therefore, an investment in the Fund may involve a greater degree of risk than
an investment in other mutual funds that seek growth of capital by investing in
more established, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the "Securities Act"), but that can be sold to "qualified institutional buyers"
in accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availabil-

8
<PAGE> 55

ity of reliable price information and other relevant information in determining
whether a Rule 144A Security is liquid. This investment practice could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become uninterested for a time in purchasing Rule
144A Securities. The Board will carefully monitor any investments by the Fund in
Rule 144A Securities. The Board may adopt guidelines and delegate to Warburg the
daily function of determining and monitoring the liquidity of Rule 144A
Securities, although the Board will retain ultimate responsibility for any
determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment but increases an
investor's risk in the event of a decline in the value of the underlying
security and can result in a complete loss in the amount invested in the
warrant. In addition, the price of a warrant tends to be more volatile than, and
may not correlate exactly to, the price of the underlying security. If the
market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.

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

9
<PAGE> 56

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

CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, the Fund is
authorized to: (i) purchase securities on a when-issued basis and purchase or
sell securities for delayed delivery, and (ii) lend portfolio securities. The
Fund may also invest in asset-backed and mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, although
the Fund currently anticipates that during the coming year investments in
asset-backed and mortgage-backed securities will each not exceed 5% of net
assets. Detailed information concerning the Fund's strategies and related risks
is contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The Fund will ordinarily hold no less than 65% of its
total assets in foreign securities. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Fund, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commis-

10
<PAGE> 57

sions on U.S. exchanges, higher valuation and communications costs and the
expense of maintaining securities with foreign custodians.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
International Depositary Receipts ("IDRs"), instruments that evidence ownership
in underlying securities issued by a foreign corporation. ADRs, EDRs and IDRs
may not necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe, and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options,
futures, forward currency contracts and swaps. These strategies, commonly
referred to as "derivatives," may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE FUND'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities exchanges
and other applicable regulatory authorities.
Securities Options and Stock Index Options. The Fund may write covered call
options on up to 25% of the net asset value of the stock and debt securities in
its portfolio and will realize fees (referred to as "premiums") for granting the
rights evidenced by the options; the Fund may also utilize up to 10% of its
assets to purchase options on stocks and debt securities that are traded on U.S.
and foreign exchanges, as well as over-the-counter ("OTC") options. The
purchaser of a put option on a security has the right to compel the purchase by
the writer of the underlying security, while the purchaser of a call option on a
security has the right to purchase the underlying security from the writer. In
addition to purchasing and writing options on securities, the Fund may utilize
up to 10% of its total assets to purchase exchange-listed and OTC put and call
options on stock indexes, and may also write such options. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during

11
<PAGE> 58

the exercise period. Writing securities options may result in substantial losses
to the Fund, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the Fund
could realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above) or (iii) through entering into
forward contracts to purchase or sell currency. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. Risks associated with currency
forward contracts are similar to those described in this Prospectus for futures
contracts. In addition, the use of currency transactions could result in losses
from the imposition of foreign exchange controls, suspension of settlement or
other governmental actions or unexpected events.
Swaps. The Fund may enter into swaps relating to indexes, currencies and
equity interests of foreign issuers without limit. A swap transaction is an
agreement between the Fund and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by the 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. The Fund may enter into these
transactions to preserve a return or spread on a

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<PAGE> 59

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 the Fund anticipates purchasing at a later
date. The 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 where, 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, 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.
The 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 the 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, the
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, Warburg 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, the Fund will segregate an amount of cash or liquid
securities having a value equal to the accrued excess of its obligations over
its entitlements with respect to each swap on a daily basis.
Hedging Considerations. The Fund may engage in options, futures, currency
transactions and swaps for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts, currency exchange
transactions and swaps for hedging purposes could limit any potential gain from
an increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. The Fund will engage in hedging transactions only when deemed advisable
by Warburg, and successful use of hedging transactions will depend on Warburg's
ability to predict correctly movements in the hedge and the hedged position and
the correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund

13
<PAGE> 60

may be unable to close out a position without incurring substantial losses, if
at all. The Fund is also subject to the risk of a default by a counterparty to
an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts and swaps. The use of these strategies may require that the Fund
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Fund's obligations with respect to
these strategies are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.

INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
The Fund may invest up to 10% of its total assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including (i) securities issued as part of a privately
negotiated transaction between an issuer and one or more purchasers; (ii)
repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
Securities. The Fund may borrow from banks for temporary or emergency purposes,
such as meeting anticipated redemption requests, provided that borrowings by the
Fund may not exceed 30% of its total assets and may pledge up to 10% of its
assets in connection with borrowings. Whenever borrowings exceed 5% of the value
of the Fund's total assets, the Fund will not make any investments (including
roll-overs). Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board, subject to the limitations contained in the 1940
Act. A complete list of investment restrictions that the Fund has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Fund's outstanding shares is contained in the Statement
of Additional Information.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Fund employs Warburg as investment adviser to the
Fund. Warburg, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Fund in accordance
with the Fund's investment objective and stated investment policies. Warburg
makes investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a
14
<PAGE> 61

support staff of management personnel to provide services to the Fund and
furnishes the Fund with office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate of 1.00% of the Fund's average daily net assets. Warburg and
the Fund's co-administrators may voluntarily waive a portion of their fees from
time to time and temporarily limit the expenses to be borne by the Fund.
Warburg is a professional investment advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of January 31, 1998,
Warburg managed approximately $19.9 billion of assets, including approximately
$11.2 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS. Richard H. King has been Portfolio Manager of the Fund
since the Fund's inception. Mr. King has been a Managing Director of Warburg
since 1989.
P. Nicholas Edwards, Harold W. Ehrlich and Vincent J. McBride are Associate
Portfolio Managers and Research Analysts of the Fund. Mr. Edwards has been with
Warburg and the Fund since August 1995, before which time he was a director at
Jardine Fleming Investment Advisers, Tokyo. Mr. Ehrlich, a Managing Director of
Warburg, has been with Warburg and the Fund since February 1995, before which
time he was a senior vice president, portfolio manager and analyst at Templeton
Investment Counsel Inc. Mr. McBride, a Senior Vice President of Warburg, has
been with Warburg and the Fund since 1994. Prior to joining Warburg, Mr. McBride
was an international equity analyst at Smith Barney Inc.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
("Counsellors Service"), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the governing Board, preparing proxy
statements and annual and semiannual reports, assisting in the preparation of
tax returns and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of its average daily net assets.
The Fund employs PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of
PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC

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<PAGE> 62

calculates the Fund's net asset value, provides all accounting services for the
Fund and assists in related aspects of the Fund's operations. As compensation,
the Fund pays to PFPC a fee calculated at an annual rate of .12% of the 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 to a
minimum annual fee and exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. State Street Bank and Trust Company ("State Street") serves as
custodian of the Fund's non-U.S. assets, and PNC Bank, National Association
("PNC") serves as custodian of the Fund's U.S. assets. State Street's principal
business address is 225 Franklin Street, Boston, Massachusetts 02110. Like PFPC,
PNC is a subsidiary of PNC Bank Corp. and its principal business address is 1600
Market Street, Philadelphia, Pennsylvania 19103.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Fund to Counsellors Securities for distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Funds. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. In some instances, these
incentives may be offered only to certain institutions whose representatives
provide services in connection with the sale or expected sale of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.

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<PAGE> 63

HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
In order to invest in the Fund, an account application must first be completed
and signed. To obtain an application, telephone the Fund at (800) 369-2728. An
application may also be obtained by writing to:
Warburg Pincus Advisor Funds
P.O. Box 4906
Grand Central Station
New York, New York 10163
Attn: Institutional Services
OR
Overnight to:
Warburg Pincus Advisor Funds
335 Madison Avenue
15th Floor
New York, New York 10017
Attn: Institutional Services
Completed and signed applications should be mailed to the above. References in
this Prospectus to shareholders or investors also include Institutions which may
act as record holders of the Advisor Shares.
UTMA/UGMA ACCOUNTS. For information about opening a Uniform Transfers to
Minors Act ("UTMA") account or Uniform Gifts to Minors Act ("UGMA") account, an
Institution should telephone the Fund at (800) 369-2728 or write to the Fund at
an address set forth above. Individual investors should consult their own tax
advisors about the establishment of UTMA or UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, telephone
the Fund at (800) 369-2728. Institutions and their customers are responsible for
maintaining current account registrations and addresses with the Fund. No
interest will be paid on amounts represented by uncashed distribution or
redemption checks.

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future.
Each Institution separately determines the rules applicable to its customers
investing in the Fund, including minimum initial and subsequent investment
requirements and the procedures to be followed to effect purchases, redemptions
and exchanges of Advisor Shares. There is no minimum amount of initial or
subsequent purchases of Advisor Shares imposed on Institutions, although the
Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.

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<PAGE> 64

Advisor Shares may be purchased at any time by mail or by wire in the manner
outlined below. Wire payments for initial and subsequent investments should be
preceded by an order placed with the Fund and should clearly indicate the
account number and the name of the Fund in which shares are being purchased. In
the interest of economy and convenience, physical certificates representing
shares in the Fund are not normally issued.
BY MAIL. To purchase Advisor Shares by mail, a check or money order made
payable to the Fund or Warburg Pincus Advisor Funds (in U.S. currency) should be
sent along with a completed account application to Warburg Pincus Advisor Funds
at an address set forth above. Checks payable to the investor and endorsed to
the order of the Fund or Warburg Pincus Advisor Funds will not be accepted as
payment and will be returned to the sender. If payment is received in proper
form prior to the close of regular trading on The New York Stock Exchange, Inc.
(the "NYSE") (currently 4:00 p.m., Eastern time) on a day that the Fund
calculates its net asset value (a "business day"), the purchase will be made at
the Fund's net asset value calculated at the end of that day. If payment is
received at or after the close of regular trading on the NYSE, the purchase will
be effected at the Fund's net asset value determined for the next business day
after payment has been received. Checks or money orders that are not in proper
form or that are not accompanied or preceded by a complete account application
will be returned to the sender. Shares purchased by check or money order are
entitled to receive dividends and distributions beginning on the day payment is
received. Checks or money orders in payment for shares of more than one Fund
should be made payable to Warburg Pincus Advisor Funds and should be accompanied
by a breakdown of amounts to be invested in each Fund. If a check used for
purchase does not clear, the Fund will cancel the purchase and the investor may
be liable for losses or fees incurred. For a description of the manner of
calculating the Fund's net asset value, see "Net Asset Value" below.
BY WIRE. Advisor Shares in the Fund may also be purchased by wired funds from
a bank. Telephone orders by wire will not be accepted until a completed account
application in proper form has been received and an account number has been
established. Orders should be placed with the Fund prior to wiring funds by
telephoning (800) 369-2728. Federal funds may be wired using the following wire
address:
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
Warburg Pincus Advisor International Equity Fund
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the Fund on that day and are entitled to
dividends

18
<PAGE> 65

and distributions beginning on that day. However, if a wire in proper form that
is not preceded by a telephone order is received at or after the close of
regular trading on the NYSE, the payment will be held uninvested until the order
is effected at the close of business on the next business day. Payment for
orders that are not accepted will be returned to the prospective investor after
prompt inquiry. If a telephone order is placed and payment by wire is not
received on the same day, the Fund will cancel the purchase and the investor may
be liable for losses or fees incurred.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application,
transactions may be conducted by telephone. Institutions should realize that in
conducting transactions by telephone they may be giving up a measure of security
that they may have if they were to conduct these transactions in writing.
Neither the Fund nor its agents will be liable for following instructions
communicated by telephone that it reasonably believes to be genuine. Reasonable
procedures will be employed on behalf of the Fund designed to give reasonable
assurance that instructions communicated by telephone are genuine. Such
procedures include providing written confirmation of telephone transactions,
tape recording telephone instructions and requiring specific personal
information prior to acting upon telephone instructions.
GENERAL. The Fund understands that some Institutions may impose certain
conditions on their clients or customers that invest in the Fund, which are in
addition to or different than those described in this Prospectus, and may charge
their clients or customers transaction or administrative charges or other direct
fees. Certain features of the Fund, such as the initial and subsequent
investment minimums, redemption fees and certain trading restrictions, may be
modified or waived by Institutions. Therefore, a client or customer should
contact the Institution acting on his behalf concerning the fees (if any)
charged in connection with a purchase, exchange or redemption of Fund shares and
should read this Prospectus in light of the terms governing his accounts with
the Institution. Institutions will be responsible for promptly transmitting
client or customer purchase and redemption orders to the Fund in accordance with
their agreements with the Fund and with clients or customers.
Institutions or, if applicable, their designees may enter confirmed purchase,
exchange or redemption orders on behalf of clients and customers, with payment
to follow no later than the Fund's pricing on the following business day. If
payment is not received by such time, the Institution could be held liable for
resulting fees or losses. The Fund may be deemed to have received a purchase or
redemption order when an Institution, or, if applicable, its authorized
designee, accepts the order. Such orders received by the Fund in proper form
will be priced at the Fund's net asset value next computed after they are
accepted by the Institution or its authorized designee.
The Fund reserves the right to reject any specific purchase order, including
certain purchases made by exchange (see "How to Redeem and Exchange
Shares -- Exchange of Shares" below). Purchase orders may be refused if, in

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<PAGE> 66

Warburg's judgment, the Fund would be unable to invest the money effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. The Fund may discontinue sales of its shares
if management believes that a substantial further increase in assets may
adversely affect the Fund's ability to achieve its investment objective. In such
event, however, it is anticipated that existing shareholders would be permitted
to continue to authorize investment in the Fund and to reinvest any dividends or
capital gains distributions.

HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see "Net Asset Value" below). Requests for
the redemption (or exchange) of Advisor Shares are placed with an Institution by
its customers, which is then responsible for the prompt transmission of the
request to the Fund or its agent.
Advisor Shares of the Fund may either be redeemed by mail or by telephone. If
an investor desires to redeem his shares by mail, a written request for
redemption should be sent to Warburg Pincus Advisor Funds at an address
indicated above under "How to Open an Account." An investor should be sure that
the redemption request identifies the Fund, the number of shares to be redeemed
and the investor's account number. Payment of redemption proceeds may be delayed
in connection with account changes. Each mail redemption request must be signed
by the registered owner(s) (or his legal representative(s)) exactly as the
shares are registered. Institutions may redeem Advisor Shares by calling Warburg
Pincus Advisor Funds at (800) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern
time) on any business day. An Institution making a telephone withdrawal should
state (i) the name of the Fund, (ii) the account number of the Fund, (iii) the
name of the investor(s) appearing on the Fund's records, (iv) the amount to be
withdrawn and (v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out. The Fund currently does not
impose a service charge for effecting wire transfers but reserves the right to
do so in the future. During periods of significant economic or market change,
telephone redemptions may be difficult to implement. If an investor is unable to
contact Warburg Pincus Advisor Funds by telephone, an investor may deliver the
redemption request to Warburg Pincus Advisor Funds by mail at an address shown
above under "How to Open an Account." Although the Fund will redeem shares
purchased by check before the funds or check clear, payments of the redemption
proceeds will be delayed for up to 10 days from the date of purchase. Investors
should consider purchasing shares using a certified or bank check, money order
or federal funds wire if they anticipate an immediate need for redemption
proceeds.

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<PAGE> 67

If a redemption order is received by the Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received at or after the close of regular trading on the NYSE, the redemption
order will be effected at the net asset value as next determined. Except as
noted above, redemption proceeds will normally be mailed or wired to an investor
on the next business day following the date a redemption order is effected. If,
however, in the judgment of Warburg, immediate payment would adversely affect
the Fund, the Fund reserves the right to pay the redemption proceeds within
seven days after the redemption order is effected. Furthermore, the Fund may
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend or postpone the recordation of an exchange of shares) for
such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount invested
depending upon a share's net asset value at the time of redemption. If an
investor redeems all the shares in his account, all dividends and distributions
declared up to and including the date of redemption are paid along with the
proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
"Redemption of Shares" above. If an exchange request is received by Warburg
Pincus Advisor Funds or its agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges will be effected without a sales charge. The
Fund may refuse exchange purchases at any time without prior notice.
The exchange privilege is available to shareholders residing in any state in
which the Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact the Fund at
(800) 369-2728.
The Fund reserves the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. The Fund reserves the right to termi-

21
<PAGE> 68

nate or modify the exchange privilege at any time upon 30 days' notice to
shareholders.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Advisor Funds
at an address set forth under "How to Open an Account" or by calling Warburg
Pincus Advisor Funds at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a "regulated investment
company" within the meaning of the Internal Revenue Code of 1986, as amended
(the "Code"). The Fund, if it qualifies as a regulated investment company, will
be subject to a 4% non-deductible excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gain. The Fund expects to
pay such additional dividends and to make such additional distributions as are
necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions derived from net
realized short-term capital gains are taxable to investors as ordinary income
whether received in cash or reinvested in additional Fund shares. Distributions
derived from net realized long-term capital gains will be taxable to investors
as long-term capital gains, regardless of how long investors have held Fund
shares or whether such distributions are received in cash or reinvested in Fund
shares. As a general rule, an investor's gain or loss on a sale or redemption of
Fund shares will be a long-term capital gain or loss if the investor has held
the shares for more than one year and will be a short-term capital gain or loss
if the investor has held the shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain during such
six-month period with respect to such shares.

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<PAGE> 69

The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as "mid-term gain" at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after December 31, 2000 for
assets held for more than five years. However, the 18% rate applies only to
assets acquired after December 31, 2000 unless the taxpayer elects to treat an
asset held prior to such date as sold for fair market value on January 1, 2001.
In the case of individuals whose ordinary income is taxed at a 15% rate, the 20%
rate is reduced to 10% and the 10% rate for assets held for more than five years
is reduced to 8%. The Fund will provide information relating to that portion of
a "capital gain dividend" that may be treated by investors as eligible for the
reduced capital gains rate for capital assets held for more than 18 months.
Investors may be proportionately liable for taxes on income and gains of the
Fund, but investors not subject to tax on their income will not be required to
pay tax on amounts distributed to them. The Fund's investment activities,
including short sales of securities, will not result in unrelated business
taxable income to a tax-exempt investor. The Fund's dividends may qualify for
the dividends received deduction for corporations to the extent they are derived
from dividends attributable to certain types of stock issued by U.S. domestic
corporations.
Dividends and interest received by the Fund may be subject to withholding and
other taxes imposed by foreign countries. However, tax conventions between
certain countries and the United States may reduce or eliminate such taxes. If
the Fund qualifies as a regulated investment company, if certain asset and
distribution requirements are satisfied and if more than 50% of the Fund's total
assets at the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign income tax that must be included in each shareholder's
gross income and the amount which will be available for the

23
<PAGE> 70

deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Certain limitations will be imposed
on the extent to which the credit (but not the deduction) for foreign taxes may
be claimed.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.

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

PERFORMANCE
- --------------------------------------------------------------------------------
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor
24
<PAGE> 71

Funds. From time to time, the Fund may advertise the average annual total return
of Advisor Shares over various periods of time. These total return figures show
the average percentage change in value of an investment in the Advisor Shares
from the beginning of the measuring period to the end of the measuring period.
The figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as on a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling the Fund at (800)
369-2728.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Morgan Stanley Capital International
Europe, Australia, Far East ("EAFE") Index and/or other indexes prepared by
Morgan Stanley relating to securities represented in the Fund, the Salomon
Russell Global Equity Index and the FT-Actuaries World Indices (jointly compiled
by The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.)
and the S&P 500, which are unmanaged indexes of common stocks; or (iii) other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. The Fund may also include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Mutual Fund Magazine, SmartMoney, The Wall
Street Journal and Worth. Morningstar, Inc. rates funds in

25
<PAGE> 72

broad categories based on risk/reward analyses over various time periods. In
addition, the Fund may from time to time compare the expense ratio of Advisor
Shares to that of investment companies with similar objectives and policies,
based on data generated by Lipper Analytical Services, Inc. or similar
investment services that monitor mutual funds.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Fund with respect
to relevant market and industry benchmarks. The Fund may also discuss measures
of risk, the continuum of risk and return relating to different investments and
the potential impact of foreign stocks on a portfolio otherwise composed of
domestic securities.

GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fund was incorporated on February 9, 1989 under the laws of
the State of Maryland under the name "Counsellors International Equity Fund,
Inc." On October 27, 1995, the Fund amended its charter to change its name to
"Warburg, Pincus International Equity Fund, Inc." The Fund's charter authorizes
the governing Board to issue three billion full and fractional shares of capital
stock, $.001 par value per share, of which one billion shares are designated
Common Shares and two billion are designated Advisor Shares. Under the Fund's
charter documents, the Board has the power to classify or reclassify any
unissued shares of the Fund into one or more additional classes by setting or
changing in any one or more respects their relative rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Board may similarly classify or reclassify any
class of its shares into one or more series and, without shareholder approval,
may increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their invest-

26
<PAGE> 73

ment professional or by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director may be removed from office upon the vote
of shareholders holding at least a majority of the Fund's outstanding shares, at
a meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Board member at the written request of holders of 10%
of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of its account, as well as a statement of its account after any transaction that
affects its share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling the Fund at (800) 369-2728 or on the Warburg Pincus Funds Web site at
www.warburg.com. Each Institution that is the record owner of Advisor Shares on
behalf of its customers will send a statement to those customers periodically
showing their indirect interest in Advisor Shares, as well as providing other
information about the Fund. See "Shareholder Servicing."

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

27
<PAGE> 74

Shares beneficially owned by Customers or the information to the Fund necessary
for sub-accounting. The Board has approved a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act under which each participating Service
Organization will be paid, out of the assets of the Fund (either directly or by
Counsellors Securities on behalf of the Fund), a negotiated fee on an annual
basis not to exceed .75% (up to a .25% annual service fee and a .50% annual
distribution and/or administrative services fee) of the value of the average
daily net assets of its Customers invested in Advisor Shares. The current 12b-1
fee is .50% per annum. The Board evaluates the appropriateness of the Plan on a
continuing basis and in doing so considers all relevant factors.
To offset start-up costs and expenses associated with certain qualified
retirement plans making advisor Shares available to plan participants,
Counsellors Securities pays CIGNA Financial Advisors, Inc., a registered
broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.
Warburg, Counsellors Securities or their affiliates may, from time to time, at
their own expense, provide compensation to Service Organizations. To the extent
they do so, such compensation does not represent an additional expense to the
Fund or its shareholders. In addition Warburg, Counsellors Securities or their
affiliates may, from time to time, at their own expense, pay certain Fund
transfer agent fees and expenses related to accounts of Customers. A Service
Organization may directly or indirectly use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of its Customers.

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

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

28
<PAGE> 75

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund's Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objective and Policies........................ 4
Portfolio Investments.................................... 4
Risk Factors and Special Considerations.................. 7
Portfolio Transactions and Turnover Rate................. 9
Certain Investment Strategies............................ 10
Investment Guidelines.................................... 14
Management of the Fund................................... 14
How to Open an Account................................... 17
How to Purchase Shares................................... 17
How to Redeem and Exchange Shares........................ 20
Dividends, Distributions and Taxes....................... 22
Net Asset Value.......................................... 24
Performance.............................................. 24
General Information...................................... 26
Shareholder Servicing.................................... 27
</TABLE>

[WARBURG PINCUS LOGO]

P.O. BOX 4906, GRAND CENTRAL STATION
NEW YORK, NY 10163
800-369-2728

COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADIEQ-1-0298
<PAGE> 76

STATEMENT OF ADDITIONAL INFORMATION

February 27, 1998
________________________

WARBURG PINCUS EMERGING MARKETS FUND

WARBURG PINCUS INTERNATIONAL EQUITY FUND

WARBURG PINCUS JAPAN GROWTH FUND

WARBURG PINCUS JAPAN OTC FUND

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

CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives ........................... 2
Investment Policies ............................. 2
Japan and Its Securities Markets ................ 34
Management of the Funds ......................... 39
Additional Purchase and Redemption Information .. 48
Exchange Privilege .............................. 48
Additional Information Concerning Taxes ......... 49
Determination of Performance .................... 54
Independent Accountants and Counsel ............. 57
Miscellaneous ................................... 57
Financial Statements ............................ 61
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 Emerging Markets Fund ("Emerging Markets Fund"), Warburg Pincus
International Equity Fund ("International Equity Fund"), Warburg Pincus Japan
Growth Fund ("Japan Growth Fund") and Warburg Pincus Japan OTC Fund ("Japan OTC
Fund") (collectively, the "Funds"), and with the Prospectus for the Advisor
Shares of each Fund, each dated February 27, 1998, as amended or supplemented
from time to time, and is incorporated by reference in its entirety into those
Prospectuses. Because this Statement of Additional Information is not itself a
prospectus, no investment in shares of a Fund should be made solely upon the
information contained herein. Copies of the Funds' Prospectuses and
information regarding each Fund's current performance may be obtained by
calling the Fund at (800) 927-2874. Information regarding the status of
shareholder accounts may also be obtained by calling the Fund at the same
number or by writing to the Fund, P.O. Box 9030, Boston, Massachusetts
02205-9030.
<PAGE> 77

INVESTMENT OBJECTIVES

The investment objective of the Emerging Markets Fund is growth of
capital. The investment objective of each of the International Equity Fund and
the Japan OTC Fund is long-term capital appreciation. The investment objective
of the Japan Growth Fund is long-term growth of capital.

INVESTMENT POLICIES

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

Asian Securities
As described in their respective Prospectuses, the Japan Growth Fund will
maintain at least 65% of its total assets in equity securities of Japanese
issuers and the Japan OTC Fund will maintain at least 65% of its total assets
in securities of companies traded in the Japanese over-the-counter market
("JASDAQ"), including the Frontier Market. In addition, the Japan OTC Fund may
invest up to 35% of its total assets in securities of other Asian issuers.
Asian issuers are (i) companies (A) organized under the laws of an Asian
country or its predecessors, or (B) whose principal business activities are
conducted in one or more Asian countries, and which derive at least 50% of
their revenues or profits from goods produced or sold, investments made, or
services performed in one or more Asian countries, or have at least 50% of
their assets in one or more such countries, or (C) which have issued securities
which are traded principally in an Asian country, and (ii) governments,
governmental entities or political subdivisions of Asian countries.
Determinations as to the eligibility of issuers under the foregoing definition
will be made by Warburg Pincus Asset Management, Inc., the Funds' investment
adviser ("Warburg"), based on publicly available information and inquiries made
to the companies. The Japan OTC Fund considers Asia to be comprised of the
contiguous eastern Eurasian land mass and adjacent islands, including, without
limitation, the countries of Taiwan, Korea, Indonesia, China, Hong Kong,
Turkey, India, Pakistan, the Philippines, Sri Lanka, Singapore and Thailand.
For purposes of applying the foregoing limitations, if a company meets the
definition of an Asian issuer as a result of relationships with respect to more
than one Asian country, the Japan OTC Fund may consider the company to be
associated with any of such countries. Due to the rapidly evolving nature of
Asian markets, the Japan OTC Fund reserves the ability to consider additional
countries to be included in Asia if market conditions should develop so as to
warrant such a change in investment policy, and to modify its 10% limitation on
investments relating to any one Asian country (other than Japan).
Options, Futures and Currency Exchange Transactions

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

<PAGE> 78

The Funds which can write put and call options on securities 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 the Funds
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 the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.

Additional risks exist with respect to certain of the securities for which
a Fund may write covered call options. For example, if the Fund writes covered
call options on mortgage-backed securities, the mortgage-backed securities that
it holds as cover may, because of scheduled amortization or unscheduled
prepayments, cease to be sufficient cover. If this occurs, the Fund will
compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.

Options written by a Fund will normally have expiration dates between one
and nine months from the date written. The exercise price of the options may
be below, equal to or above the market values of the underlying securities at
the times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-

<PAGE> 79

money" and "out-of-the-money," respectively. Each Fund that can write put and
call options on securities may write (i) in-the-money call options when Warburg
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (ii) at-the-money call options when
Warburg expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when Warburg expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or in part
by the premium received. Out-of-the-money, at-the-money and in-the-money put
options (the reverse of call options as to the relation of exercise price to
market price) may be used in the same market environments that such call
options are used in equivalent transactions. To secure its obligation to
deliver the underlying security when it writes a call option, each Fund will be
required to deposit in escrow the underlying security or other assets in
accordance with the rules of 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 the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option. A Fund may engage in a
closing purchase transaction to realize a profit, to prevent an underlying
security with respect to which it has written an option from being called or
put or, in the case of a call option, to unfreeze an underlying security
(thereby permitting its sale or the writing of a new option on the security
prior to the outstanding option's expiration). The obligation of a Fund under
an option it has written would be terminated by a closing purchase transaction,
but the Fund would not be deemed to own an option as a result of the
transaction. So long as the obligation of a Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Fund to deliver the underlying
security against payment of the exercise price. This obligation terminates
when the option expires or the Fund effects a closing purchase transaction. A
Fund can no longer effect a closing purchase transaction with respect to an
option once it has been assigned an exercise notice.

There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options, no such secondary
market may exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow or other unforeseen events have at times
rendered

<PAGE> 80

certain of the facilities of the Options Clearing Corporation (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. The Funds,
however, intend to purchase OTC options only from dealers whose debt
securities, as determined by Warburg, 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, the Fund would continue to be at
market risk on the security and could face higher transaction costs, including
brokerage commissions.

Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written, or
exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the Funds and
other clients of Warburg and certain of its affiliates may be considered to be
such a group. A securities exchange may order the liquidation of positions
found to be in violation of these limits and it may impose certain other
sanctions. These limits may restrict the number of options 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 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.
For example, the Japan Growth Fund or the Japan OTC Fund might utilize
securities options on indexes such as the Nikkei 225 Index, the Nikkei 300
Index, the OTC (JASDAQ) Index and the Topix Index.

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
5

<PAGE> 81

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 the Fund, the Fund would lose the premium it paid
for the option and the expected benefit of the transaction.

Listed options generally have a continuous liquid market while dealer
options have none. Consequently, a Fund will generally be able to realize the
value of a dealer option it has purchased only by exercising it or reselling it
to the dealer who issued it. Similarly, when a Fund writes a dealer option, it
generally will be able to close out the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the Fund
originally wrote the option. Although each Fund will seek to enter into dealer
options only with dealers who will agree to and that are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Funds will be able to liquidate a dealer option at a favorable price
at any time prior to expiration. The inability to enter into a closing
transaction may result in material losses to the Funds. 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 the Funds' ability to sell portfolio securities or, with
respect to currency options, currencies at a time when such sale might be
advantageous. In the event of insolvency of the other party, the Funds may be
unable to liquidate a dealer option.

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 the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. Each Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in

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effect from time to time and in accordance with the Fund's policies. There is
no overall limit on the percentage of Fund assets that may be at risk with
respect to futures activities.

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, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or liquid securities acceptable to
the broker, equal to approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange on which the contract is traded,
and brokers may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The broker
will have access to amounts in the margin account if the Fund fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the currency, financial instrument
or 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 the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although
each Fund intends to enter into futures contracts only if there is an active
market for such contracts, there is no assurance that an active market will
exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting the Fund to substantial losses. In such
event, and in the event of adverse price movements, the Fund would be required
to make daily cash payments of variation margin. In such situations, if a Fund
had insufficient cash, it might have to sell securities to meet daily variation
margin requirements at a time when it would be disadvantageous to do so. In
addition, if the transaction is entered into for hedging purposes, in such
circumstances the Fund may realize a loss on a futures contract or option that
is not offset by an increase in the value of the hedged position. Losses

<PAGE> 83

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 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 each
Fund.

Currency Exchange Transactions. The value in U.S. dollars of the assets
of the Funds that are invested in foreign securities may be affected favorably
or unfavorably by changes in exchange control regulations, and the Funds 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) except for the
International Equity Fund, by purchasing exchange-traded currency options.

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

At or before the maturity of a forward contract, the Funds 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

<PAGE> 84

partner to purchase a second, offsetting contract. If a Fund retains the
portfolio security and engages in an offsetting transaction, the Fund, at the
time of execution of the offsetting transaction, will incur a gain or a loss to
the extent that movement has occurred in forward contract prices.

Currency Options. With the exception of the International Equity Fund,
the Funds may purchase exchange-traded put and call options on foreign
currencies. Put options convey the right to sell the underlying currency at a
price which is anticipated to be higher than the spot price of the currency at
the time the option is exercised. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot
price of the currency at the time the option is exercised.

Currency Hedging. Each Fund's currency hedging will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward currency with respect to specific
receivables or payables of a Fund generally accruing in connection with the
purchase or sale of its portfolio securities. Position hedging is the sale of
forward currency with respect to portfolio security positions. No Fund may
position hedge to an extent greater than the aggregate market value (at the
time of entering into the hedge) of the hedged securities.

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

While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value
of a Fund's investments and a currency hedge may not be entirely successful in
mitigating changes in the value of the Fund's investments denominated in that
currency. A currency hedge, for example, should protect a Yen-

<PAGE> 85

denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.

Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income
to offset expenses or increase return, each Fund may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position.
A hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a Fund,
an increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.
In hedging transactions based on an index, whether a Fund will realize a
gain or loss from the purchase or writing of options on an index depends upon
movements in the level of 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 the 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 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 Warburg still may not result in a successful hedging transaction.

Each Fund will engage in hedging transactions only when deemed advisable
by Warburg, and successful use by the Fund of hedging transactions will be
subject to Warburg's ability to predict trends in currency, interest rate or
securities markets, as the case may be, and to 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

<PAGE> 86

market behavior or trends. Losses incurred in hedging transactions and the
costs of these transactions will affect a Fund's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectuses, each Fund will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by 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 the
Fund to hold the securities subject to the call (or securities convertible into
the securities without additional consideration) or to segregate assets (as
described above) sufficient to purchase and deliver the securities if the call
is exercised. A call option written by a Fund on an index may require the Fund
to own portfolio securities that correlate with the index or to segregate
assets (as described above) equal to the excess of the index value over the
exercise price on a current basis. A put option written by a Fund may require
the Fund to segregate assets (as described above) equal to the exercise price.
Each Fund could purchase a put option if the strike price of that option is the
same or higher than the strike price of a put option sold by the Fund. If a
Fund holds a futures or forward contract, the Fund could purchase a put option
on the same futures or forward contract with a strike price as high or higher
than the price of the contract held. Each Fund may enter into fully or
partially offsetting transactions so that its net position, coupled with any
segregated assets (equal to any remaining obligation), equals its net
obligation. Asset coverage may be achieved by other means when consistent with
applicable regulatory policies.

Additional Information on Other Investment Practices

Foreign Investments. Investors should recognize that investing in foreign
companies involves certain risks, including those discussed below, which are
not typically associated with investing in U.S. issuers. See "Japan and Its
Securities Markets" for a discussion of factors relating to Japanese
investments specifically.

Foreign Currency Exchange. Since the Funds will be investing in
securities denominated in currencies of non-U.S. countries, 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 Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other

<PAGE> 87

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. See "Japan and Its Securities Markets --
Economic Background -- Currency Fluctuation" below. The Funds may use hedging
techniques with the objective of protecting against loss through the
fluctuation of the value of the yen 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.

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 Fund liquidity,
the Funds will avoid 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.

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

<PAGE> 88

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.

Foreign Debt Securities. 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 each of the Funds may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar 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 Community to reflect changes in relative
values of the underlying currencies.

Brady Bonds. The Emerging Markets Fund may invest in so-called "Brady
Bonds," which have been issued by Costa Rica, Mexico, Uruguay and Venezuela and
which may be issued by other Latin American countries. Brady Bonds are issued
as part of a debt restructuring in which the bonds are issued in exchange for
cash and certain of the country's outstanding commercial bank loans. Investors
should recognize that Brady Bonds do not have a long payment history. Brady
Bonds may be collateralized or uncollateralized, are issued in various
currencies (primarily the U.S. dollar) and are actively traded in the OTC
secondary market for debt of Latin American issuers.

U.S. Government Securities. Each of the Funds may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. Government Securities").
Direct obligations of the U.S. Treasury

<PAGE> 89

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

Below Investment Grade Securities. 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 market for below investment grade and unrated securities is relatively
new and has not weathered a major economic recession. Any such recession could
disrupt severely the market for such securities and may adversely affect the
value of such securities and the ability of the issuers of such securities to
repay principal and pay interest thereon.

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 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 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 Warburg
in evaluating the creditworthiness of an issuer.

<PAGE> 90

In this evaluation, Warburg will take into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters. Normally, 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.

Mortgage-Backed Securities. The Japan Growth Fund and the Japan OTC Fund
may each invest up to 5% of its net assets, and the Emerging Markets Fund may
invest up to 35% of its net assets, in U.S. and foreign governmental and
private mortgage-backed securities. The International Equity Fund may invest
in mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, such as those issued by GNMA, FNMA and FHLMC.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or
the issuing agency typically guarantees the payment of interest and principal
of these securities. However, the guarantees do not extend to the securities'
yield or value, which are likely to vary inversely with fluctuations in
interest rates, nor do the guarantees extend to the yield or value of the
Funds' shares. These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal
payments from the mortgages underlying the securities, net of certain fees.

Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions,
the location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates,
the rate of prepayment tends to increase, thereby shortening the actual average
life of a pool of mortgage-related securities. Conversely, in periods of
rising rates the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. However, these effects may not be present, or
may differ in degree, if the mortgage loans in the pools have adjustable
interest rates or other special payment terms, such as a prepayment charge.
Actual prepayment experience may cause the yield of mortgage-backed securities
to differ from the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original investment, thus
affecting the Funds' yield. In addition, mortgage-backed securities issued by
certain non-government entities and collateralized mortgage obligations may be
less marketable than other securities.

<PAGE> 91

The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield
to the holder of such securities.

Asset-Backed Securities. The Japan Growth Fund and the Japan OTC Fund may
each invest up to 5% of its net assets, and the Emerging Markets Fund may
invest up to 35% of its net assets, in U.S. and foreign governmental and
private asset-backed securities. The International Equity Fund may invest in
asset-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, such as those issued by the Student Loan
Marketing Association. Asset-backed securities represent participations in, or
are secured by and payable from, assets such as motor vehicle installment
sales, installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution
unaffiliated with the trust or corporation.

Asset-backed securities present certain risks that are not presented by
other securities in which these Funds may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Because asset-backed securities are
relatively new, the market experience in these securities is limited, and the
market's ability to sustain liquidity through all phases of the market cycle
has not been tested.

Zero Coupon Securities. Each of the Emerging Markets Fund, the Japan
Growth Fund and the Japan OTC Fund may invest in "zero coupon" U.S. Treasury,
foreign government and U.S. and foreign corporate debt securities, which are
bills, notes and bonds that have been stripped of their unmatured interest
coupons and custodial receipts or certificates of participation representing
interests in such stripped debt obligations and coupons. These Funds currently
anticipate that during the coming year, zero coupon securities will not exceed
5% of their respective net assets. A zero coupon security pays no interest to
its holder prior to maturity. Accordingly, such securities usually trade at a
deep

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discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. Each Fund anticipates that it will not normally hold zero coupon
securities to maturity. Federal tax law requires that a holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment on the security during the year. Such accrued discount will be
included in determining the amount of dividends the Funds must pay each year
and, in order to generate cash necessary to pay such dividends, the Funds may
liquidate portfolio securities at a time when it would not otherwise have done
so.

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

Securities of Other Investment Companies. Each Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, 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 the Fund's total assets and
(iii) when added to all other investment company securities held by the Fund,
do not exceed 10% of the value of the Fund's total assets.

Lending of Portfolio Securities. Each Fund may lend portfolio securities
to brokers, dealers and other financial organizations that meet capital and
other credit requirements or other criteria established by the Fund's Board of
Directors (the "Board"). These loans, if and when made, may not exceed 20% of
the Funds' total assets taken at value. The Funds will not lend portfolio
securities to affiliates of Warburg unless it has applied for and received
specific authority to do so from the SEC. Loans of portfolio securities will
be collateralized by cash, letters of credit or U.S. government securities,
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the 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."

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 any 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

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loaned: (i) the Fund must receive at least 100% cash collateral or equivalent
securities of the type discussed in the preceding paragraph from the borrower;
(ii) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (iii) the Fund must be
able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
on the loaned securities and any increase in market value; (v) the Fund may pay
only reasonable custodian fees in connection with the loan; and (vi) voting
rights on the loaned securities may pass to the borrower, provided, however,
that if a material event adversely affecting the investment occurs, the Board
must terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon a Fund's ability to
recover the loaned securities or dispose of the collateral for the loan.

When-Issued Securities and Delayed-Delivery Transactions. Each Fund may
utilize up to 20% of its total assets to purchase securities on a "when-issued"
basis or purchase or sell securities for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price and yield).
The Funds will enter into a when-issued transaction for the purpose of
acquiring portfolio securities and not for the purpose of leverage, but may
sell the securities before the settlement date if Warburg deems it advantageous
to do so. The payment obligation and the interest rate that will be received
on when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold
on a when-issued or delayed-delivery basis, the 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 or delayed-delivery securities,
its custodian will set aside cash or liquid securities equal to the amount of
the commitment in a segregated account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case 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 the Fund's commitment. 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 or delayed-delivery transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in
the Funds' incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.

Short Sales "Against the Box". The Emerging Markets Fund and the Japan
Growth Fund may engage in short sales against the box. 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. 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. If a Fund engages in a short sale, the
collateral for the short position will be maintained by the Fund's custodian or
qualified sub-custodian. While the short sale is open, the Fund will maintain
in a segregated account an amount of securities equal in kind and

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amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Fund's long position.

Neither the Emerging Markets Fund or the Japan Growth Fund intends to
engage in short sales against the box for investment purposes. Either Fund
may, however, make a short sale as a hedge when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund (or a security convertible or exchangeable for such security). In such
case, any future losses in the Fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount these Funds own. There will be certain additional
transactions costs associated with short sales against the box, but these 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 the 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 a Fund may effect short
sales.

Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers.
The Funds may invest in securities of small- and medium-sized, emerging growth
companies and companies with continuous operations of less than three years
("unseasoned issuers"). Such investments involve considerations that are not
applicable to investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about issuers and
markets, less stringent financial disclosure requirements, illiquidity of
securities and markets, higher brokerage commissions and fees and greater
market risk in general. In addition, securities of these companies may involve
greater risks since these securities may have limited marketability and, thus,
may be more volatile.

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 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.

<PAGE> 95

Warrants. Each Fund may invest up to 10% of net assets in warrants to
purchase newly created equity securities consisting of common and preferred
stock. The equity security underlying a warrant is outstanding at the time the
warrant is issued or is issued together with the warrant.

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

Non-Publicly Traded and Illiquid Securities. The Emerging Markets Fund
and the Japan OTC Fund may not invest more than 15% of its net assets, the
International Equity Fund may not invest more than 10% of its total assets, and
the Japan Growth Fund may not invest more than 10% 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 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

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requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. Warburg anticipates that the market for
certain restricted securities such as institutional commercial paper will
expand further as a result of this regulation and use of automated systems for
the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.

An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Funds' 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.

Reverse Repurchase Agreements and Dollar Rolls. With the exception of the
International Equity Fund, each of the Funds may enter into reverse repurchase
agreements with the same parties with whom it may enter into repurchase
agreements. Reverse repurchase agreements involve the sale of securities held
by a Fund pursuant to its agreement to repurchase them at a mutually agreed
upon date, price and rate of interest. At the time a Fund enters into a
reverse repurchase agreement, it will establish and maintain a segregated
account with an approved custodian containing cash or liquid securities having
a value not less than the repurchase price (including accrued interest). The
assets contained in the segregated account will be marked-to-market daily and
additional assets will be placed in such account on any day in which the assets
fall below the repurchase price (plus accrued interest). A Fund's liquidity
and ability to manage its assets might be affected when it sets aside cash or
portfolio securities to cover such commitments. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale may decline below the price of the securities the Fund has sold but is
obligated to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether
to enforce a Fund's obligation to repurchase the securities, and a Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.

With the exception of the International Equity Fund, each of the Funds
also may enter into "dollar rolls," in which a Fund sells fixed-income
securities for delivery in the

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current month and simultaneously contracts to repurchase similar but not
identical (same type, coupon and maturity) securities on a specified future
date. During the roll period, the Fund would forego principal and interest
paid on such securities. A Fund would be compensated by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. At the
time a Fund enters into a dollar roll transaction, it will place in a
segregated account maintained with an approved custodian, cash or liquid
securities having a value not less than the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that its value is
maintained. Reverse repurchase agreements and dollar rolls that are accounted
for as financings are considered to be borrowings under the 1940 Act.

Non-Diversified Status. The Emerging Markets Fund, the Japan Growth Fund
and the Japan OTC Fund are classified as non-diversified within the meaning of
the 1940 Act, which means that each of these Funds is not limited by such Act
in the proportion of its assets that it may invest in securities of a single
issuer. The investments of these Funds will be limited, however, in order to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"). See "Additional Information
Concerning Taxes." To qualify, a Fund will comply with certain requirements,
including limiting its investments so that at the close of each quarter of the
taxable year (i) not more than 25% of the market value of its total assets will
be invested in the securities of a single issuer, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% of the market value
of its total assets will be invested in the securities of a single issuer and
the Fund will not own more than 10% of the outstanding voting securities of a
single issuer.

Other Investment Practices and Policies of the Emerging Markets Fund

Loan Participations and Assignments. The Emerging Markets Fund may invest
in fixed and floating rate loans ("Loans") arranged through private
negotiations between a foreign government (a "Borrower") and one or more
financial institutions ("Lenders"). The majority of the Fund's 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 the Fund having a
contractual relationship only with the Lender, not with the Borrower. The 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, the Fund generally will have no right to
enforce compliance by the Borrower with the terms of the loan agreement
relating to the Loan, nor any rights of set-off against the Borrower, and the
Fund may not directly benefit from any collateral supporting the Loan in which
it has purchased the Participation. As a result, the Fund 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, the 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 Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the Borrower is determined by Warburg to be creditworthy.

When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the Borrower on the Loan. However, since Assignments are
generally

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arranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Fund as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.

There are risks involved in investing in Participations and Assignments.
The Fund may have difficulty disposing of them because there is no liquid
market for such securities. The lack of a liquid secondary market will have an
adverse impact on the value of such securities and on the Fund's ability to
dispose of particular Participations or Assignments when necessary to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for
the Fund to assign a value to these securities for purposes of valuing the
Fund's portfolio and calculating its net asset value.

Stand-By Commitments. The Emerging Markets 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 the Fund's option specified
securities at a specified price. The Fund's right to exercise stand-by
commitments is unconditional and unqualified. Stand-by commitments acquired by
the Fund may also be referred to as "put" options. A stand-by commitment is
not transferable by the Fund, although the Fund can sell the underlying
securities to a third party at any time.

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 Fund intends to enter into stand-by commitments only with
brokers, dealers and banks that, in the opinion of Warburg, present minimal
credit risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, Warburg will periodically review relevant financial information
concerning the issuer's assets, liabilities and contingent claims. The 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 the Fund upon its exercise of a stand-by commitment
is normally (i) the 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 the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.

The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the 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 the Fund's portfolio will
not exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.

The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The

<PAGE> 99

acquisition of a stand-by commitment would not affect the valuation or assumed
maturity of the underlying securities. Stand-by commitments acquired by the
Fund would be valued at zero in determining net asset value. Where the 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 the Fund. Stand-by commitments would not affect the
average weighted maturity of the Fund's portfolio. The Fund currently
anticipates that it will not invest more than 5% of its net assets in stand-by
commitments.

Other Investment Limitations

All Funds. Certain investment limitations of each Fund may not be changed
without the affirmative vote of the holders of a majority of a Fund's
outstanding shares ("Fundamental Restrictions"). Such majority is defined as
the lesser of (i) 67% or more of the shares present at the meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.

If a percentage restriction (other than the percentage limitation set
forth in No. 1 of each of the Funds) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Funds' assets will not constitute a violation of such restriction.

Emerging Markets Fund. The investment limitations numbered 1 through 9
are Fundamental Restrictions. Investment limitations 10 through 14 may be
changed by a vote of the Board at any time.

The Emerging Markets Fund may not:

1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the
Fund's total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options,
futures contracts, options on futures contracts, forward commitment
transactions and dollar roll transactions that are not accounted for as
financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.

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

3. Make loans, except that the Fund may purchase or hold fixed-income
securities, including loan participations, assignments and structured
securities, lend portfolio securities and enter into repurchase agreements.

4. 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.

<PAGE> 100

5. 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.

6. Make short sales of securities or maintain a short position, except
that the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and may enter into
short sales "against the box".

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
indexes, and options on futures contracts, securities, currencies or indexes,
purchase and sell currencies on a forward commitment or delayed-delivery basis
and enter into stand-by commitments.

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

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

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

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. Invest in warrants (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase) if, as a result,
the investments (valued at the lower of cost or market) would exceed 10% of the
value of the Fund's net assets.

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

International Equity Fund. The investment limitations numbered 1 through
11 are Fundamental Restrictions. Investment limitations 12 through 14 may be
changed by a vote of the Board at any time.

The International Equity Fund may not:

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1. Borrow money or issue senior securities except that the Fund may (a)
borrow from banks for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 30% of the value of the Fund's total assets
at the time of such borrowing and (b) enter into futures contracts; or mortgage,
pledge or hypothecate any assets except in connection with any bank borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the Fund's total assets at the time of such borrowing. Whenever
borrowings described in (a) exceed 5% of the value of the Fund's total assets,
the Fund will not make any investments (including roll-overs). For purposes of
this restriction, (a) the deposit of assets in escrow in connection with the
purchase of securities on a when-issued or delayed-delivery basis and (b)
collateral arrangements with respect to initial or variation margin for futures
contracts will not be deemed to be pledges of the Fund's assets.

2. Purchase 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.

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

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

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

6. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
fixed-income securities secured by real estate, mortgages or interests therein,
(b) securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs and (c) futures contracts and related
options. The entry into forward foreign currency exchange contracts is not and
shall not be deemed to involve investing in commodities.

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

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

<PAGE> 102

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

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

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

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

14. Invest in oil, gas, or mineral leases.

Japan Growth Fund. The investment limitations numbered 1 through 9 are
Fundamental Restrictions. Investment limitations 10 through 14 may be changed
by a vote of the Board at any time.

The Japan Growth Fund may not:

1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the
Fund's total assets at the time of such borrowing. For purposes of this
restriction, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.

<PAGE> 103

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.

9. Issue any senior security except as permitted in these 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 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 10% of the Fund's net assets in securities which may
be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.

<PAGE> 104

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

Japan OTC Fund. The investment limitations numbered 1 through 9 are
Fundamental Restrictions. Investment limitations 10 through 14 may be changed
by a vote of the Board at any time.

The Japan OTC Fund may not:

29
<PAGE> 105

transactions in currencies, options, futures contracts or related options
will not be deemed to be a purchase of securities on margin.

9. Issue any senior security except as permitted in these investment
limitations.

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

Portfolio Valuation

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

<PAGE> 106

of 60 days or less are valued at amortized cost, which constitutes fair value
as determined by the Board. Amortized cost involves valuing a portfolio
instrument at its initial cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. The amortized cost
method of valuation may also be used with respect to other debt obligations
with 60 days or less remaining to maturity. 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 each Fund under the
general supervision and responsibility of the Boards, 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 Boards. In addition, the
Boards or their delegates may value a security at fair value if it determines
that such security's value determined by the methodology set forth above does
not reflect its fair value.

Trading in securities in Japan and 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 the Funds' net asset value is not
calculated. As a result, calculation of the Funds' net asset value does not
take place contemporaneously with the determination of the prices of the
majority of the Funds' 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 Boards.

Portfolio Transactions

Warburg is responsible for establishing, reviewing and, where necessary,
modifying each Fund's investment program to achieve its investment objective.
Purchases and sales of newly issued portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer or
with an underwriter acting as principal. Other purchases and sales may be
effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by a Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. There is generally no stated commission in
the case of securities traded in domestic or foreign OTC markets, but the price
of securities traded in OTC markets includes an

<PAGE> 107

undisclosed commission or mark-up. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.

Warburg will select specific portfolio investments and effect transactions
for the Funds and in doing so, seeks to obtain the overall best execution of
portfolio transactions. In evaluating prices and executions, Warburg will
consider the factors it deems relevant, which may include the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of a broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis.
Warburg may, in its discretion, effect transactions in portfolio securities
with dealers who provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the Funds
and/or other accounts over which Warburg exercises investment discretion.
Warburg may place portfolio transactions with a broker or dealer with whom it
has negotiated a commission that is in excess of the commission another broker
or dealer would have charged for effecting the transaction if Warburg
determines in good faith that such amount of commission was reasonable in
relation to the value of such brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or of
the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both a Fund and its other clients and,
conversely, research or other services obtained by the placement of business of
other clients may be useful to Warburg in carrying out its obligations to the
Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement
services and quotation services; and products and other services (such as third
party publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Warburg in carrying out its responsibilities. For the fiscal year ended
October 31, 1997, $144,409 and $1,019,515 of total brokerage commissions was
paid by the Emerging Markets Fund and the International Equity Fund,
respectively, to brokers and dealers who provided such research and other
services. Research received from brokers or dealers is supplemental to
Warburg's own research program. The fees to Warburg under its advisory
agreement with each Fund are not reduced by reason of its receiving any
brokerage and research services.

The following table details amounts paid by each Fund in commissions to
broker-dealers for execution of portfolio transactions during the indicated
fiscal years or periods ended October 31.

<PAGE> 108

<TABLE>
<CAPTION>
Fund 1995 1996 1997
- ------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Emerging Markets Fund $31,789 $1,416,683 $2,287,575*
International Equity Fund $5,991,704 $8,400,700 $12,784,100*
Japan Growth Fund None $172,240 $149,801
Japan OTC Fund $1,019,865 $1,551,006 $849,667
</TABLE>

* The increase in brokerage commissions paid by the Emerging Markets Fund
and the International Equity Fund in the most recent fiscal year was a
result of sharp increases in the volume of share-related activity as the
Funds experienced large inflows or outflows of capital, as the case may
be.

As of October 31, 1997, the International Equity Fund, the Japan Growth
Fund and the Japan OTC Fund had $162,786,000, $953,000 and $1,212,000,
respectively, in outstanding repurchase agreements with Goldman, Sachs & Co.,
one of the regular broker-dealers of each Fund.

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

Any portfolio transaction for a Fund may be executed through Counsellors
Securities Inc., each Fund's distributor ("Counsellors Securities"), if, in
Warburg's judgment, the use of Counsellors Securities is likely to result in
price and execution at least as favorable as those of other qualified brokers,
and if, in the transaction, Counsellors Securities charges the Fund a
commission rate consistent with those charged by Counsellors Securities to
comparable unaffiliated customers in similar transactions. All transactions
with affiliated brokers will comply with Rule 17e-1 under the 1940 Act. No
portfolio transactions have been executed through Counsellors Securities since
the commencement of each Fund's operations.

In no instance will portfolio securities be purchased from or sold to
Warburg, Counsellors Securities or any affiliated person of such companies. In
addition, the Funds will not give preference to any institutions with whom the
Funds enter into distribution or shareholder servicing agreements concerning
the provision of distribution services or support services. See the
Prospectuses, "Shareholder Servicing."

Transactions for each of the Funds may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Funds will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting
as principal for their own account. On occasion, securities may be

<PAGE> 109

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.

Each Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of
such a group. A Fund will engage in this practice, however, only when Warburg,
in its sole discretion, believe such practice to be otherwise in the 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 a Fund deems it
desirable to sell or purchase securities. The Funds' 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, a Fund will be engaged essentially in trading
activities based on short-term considerations affecting the value of an
issuer's stock instead of long-term investments based on fundamental valuation
of securities. Because of this policy, portfolio securities may be sold
without regard to the length of time for which they have been held.
Consequently, the annual portfolio turnover rate of a Fund may be higher than
mutual funds having a similar objective that do not utilize these strategies.

JAPAN AND ITS SECURITIES MARKETS

The Japan Growth Fund and the Japan OTC Fund, as well as the International
Equity Fund, which may invest a significant portion of its assets in Japanese
securities, will be subject to general economic and political conditions in
Japan. In addition to the considerations discussed above, these include future
political and economic developments, the possible imposition of, or changes in,
exchange controls or other Japanese governmental laws or restrictions
applicable to such investments, diplomatic developments, political or social
unrest and natural disasters.

THE INFORMATION SET FORTH IN THIS SECTION HAS BEEN EXTRACTED FROM VARIOUS
GOVERNMENTAL PUBLICATIONS AND OTHER SOURCES. THE FUNDS MAKE NO REPRESENTATION
AS TO THE ACCURACY OF THE INFORMATION, NOR HAVE THE FUNDS ATTEMPTED TO VERIFY
IT. FURTHERMORE, NO REPRESENTATION IS MADE THAT ANY CORRELATION EXISTS BETWEEN
JAPAN OR ITS ECONOMY IN GENERAL AND THE PERFORMANCE OF EACH FUND.

<PAGE> 110

Domestic Politics

Japan has a parliamentary form of government. The legislative power is
vested in the Japanese Diet, which consists of a House of Representatives
(lower house) and a House of Councillors (upper house). Various political
parties are represented in the Diet, including the conservative Liberal
Democratic Party ("LDP"), which until August 1993, had been in power nationally
since its formation in 1955. The LDP ceased to have a majority of the lower
house in June 1993, when certain members of the lower house left the LDP and
formed two new political parties. After an election for the lower house was
held on July 18, 1993 and the LDP failed to secure a majority, seven parties
formed a coalition to control the lower house and chose Morihiro Hosokawa, the
Representative of the Japan New Party, to head their coalition. In April 1994,
amid accusations of financial improprieties, Prime Minister Hosokawa announced
that he would resign. Tsutomu Hata succeeded Mr. Hosokawa as prime minister
and formed a new cabinet as a minority coalition government. In June 1994, Mr.
Hata yielded to political pressure from opposition parties and resigned. He
was succeeded by Social Democratic Party ("SDP") leader Tomiichi Murayama,
Japan's first Socialist prime minister since 1948, who was chosen by a new and
unstable alliance between left-wing and conservative parties, including the
LDP. On September 18, 1994, 187 opposition politicians founded a new party,
the Reform Party, led by Ichiro Ozawa, to oppose the government of Prime
Minister Murayama in the next elections. Political realignment continued in
1995, as the Social Democrats incurred significant losses in the July
elections. In August 1995, the LDP elected Ryutaro Hashimoto, the minister for
international trade and industry, as its new leader, and in January 1996, he
became prime minister. Mr. Hashimoto dissolved the Diet and called a general
election in October 1996, in which the LDP won 239 of the 500 lower-house
seats. As a result, LDP members filled all the new cabinet seats for the first
time in three years. The LDP, along with its former coalition partners (the
SDP and Shinto Sakigake) agreed to continue to work together, but only in loose
alliance. Meanwhile, many dissatisfied Diet members from the main opposition
party have left the party to join the LDP. By September 1997, enough Diet
members from the main opposition party and other parties had defected to the
LDP for the LDP to regain its simple majority in the lower house. Japan's
continuing political instability may hamper its ability to establish and
maintain effective economic and fiscal policies, and recent and future
political developments may lead to changes in policy that might adversely
affect the Funds' investments.

Economic Background

Generally. Since the end of World War II, Japan has experienced
significant economic development. During the era of high economic growth in
the 1960's and early 1970's, the expansion was based on the development of
heavy industries such as steel and shipbuilding. In the 1970's Japan moved
into assembly industries which employ high levels of technology and consume
relatively low quantities of resources, and since then has become a major
producer of electrical and electronic products and automobiles. Since the
mid-1980's, Japan has become a major creditor nation. With the exception of
the periods associated with the oil crises of the 1970's, Japan has generally
experienced very low levels of inflation. There is no guarantee, however, that
these favorable trends will continue.

<PAGE> 111

The Japanese government has called for a transformation of the economy
away from its high dependency on export-led growth towards greater stimulation
of the domestic economy. In addition, there has been a move toward more
economic liberalization and discounting in the consumer sector. These shifts
have already begun to take place and may cause disruption in the Japanese
economy.

Strains in the system have also been one of the major causes of Japan's
economic weakness. The non-performing loans of financial institutions have
hampered their ability to take on risk, thus obstructing the flow of funds into
capital outlays as well as equities. The large commercial banks are having to
bear a heavy burden of the bad-debt problem (e.g., in accepting write-offs of
loans they have extended to distressed smaller institutions, in recapitalizing
failed institutions and in stepping up contributions to the Deposit Insurance
Corporation, an organization jointly established in 1971 by the government and
private financial institutions to protect depositors). While the banking
system appears to be making some progress in its attempt to deal with
non-performing assets, it is extremely difficult to gauge the true extent of
the bad-debt problem which could lead to a crisis in the banking system.

Japan's economy is a market economy in which industry and commerce are
predominantly privately owned and operated. However, the Japanese government
is involved in establishing and meeting objectives for developing the economy
and improving the standard of living of the Japanese people.

Japan is largely dependent upon foreign economies for raw materials. For
instance, almost all of its oil is imported, the majority from the Middle East.
In the past, oil prices have had a major impact on the domestic economy, but
more recently Japan has worked to reduce its dependence on oil by encouraging
energy conservation and use of alternative fuels. In addition, a restructuring
of industry, with emphasis shifting from basic industries to processing and
assembly-type industries, has contributed to the reduction of oil consumption.
However, there is no guarantee this favorable trend will continue.

Economic Trends. The following tables set forth Japan's gross domestic
product and certain other economic indicators for the years shown.

GROSS DOMESTIC PRODUCT (GDP)
(yen in billions)

<TABLE>
<CAPTION>
1997* 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consumption Expenditures
Private................. Y 308,472 Y 299,440 Y 290,515 Y 286,154 Y 278,703
Government.............. 50,239 48,969 47,555 45,743 44,771
Gross Fixed
Capital Formation....... 143,217 148,190 136,792 137,291 140,433
Increase (Decrease) in
Stocks.................. 828 1,058 947 50 620
Exports of Goods and
Services................ 55,979 49,598 45,393 44,410 44,197
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Consumption Expenditures
Private................. Y 272,294 Y 261,891 Y 249,288
Government.............. 43,262 41,356 38,807
Gross Fixed
Capital Formation....... 143,525 143,998 136,467
Increase (Decrease) in
Stocks.................. 1,489 3,453 2,430
Exports of Goods and
Services................ 47,384 46,723 45,920
</TABLE>

<PAGE> 112

<TABLE>
<S> <C> <C> <C> <C> <C>
Imports of Goods and
Services............ 51,331 46,900 38,272 34,387 33,343
GDP (Expenditures).. 507,403 500,356 482,930 479,260 475,381
Change in GDP from
Preceding Year...... 1.4% 3.6% 0.8% 0.8% 0.9%

Imports of Goods and
Services............ 36,891 39,121 42,872
GDP (Expenditures).. 471,064 458,299 430,040
Change in GDP from
Preceding Year...... 2.8% 6.6% --

</TABLE>

Source: International Monetary Fund, International Financial Statistics
__________________
* Average of the first and second quarters of 1997.

<TABLE>
<CAPTION>
WHOLESALE PRICE INDEX CONSUMER PRICE INDEX
(Base Year: 1990) (Base Year: 1990)

All Change from Change from
Year Commodities Preceding Year General Preceding Year
- ---- ----------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C>

1990 100.0 -- 100.0 --
1991 100.2 0.2 103.3 3.3
1992 98.7 (1.5) 105.1 1.8
1993 95.0 (3.7) 106.4 1.3
1994 93.0 (2.0) 107.1 0.7
1995 92.2 (0.8) 107.0 (0.1)
1996 92.8 0.6 107.2 0.2
1997 94.5* 1.7 108.9** 1.7

Source: International Monetary Fund, Source: International Monetary Fund,
International Financial Statistics International Financial Statistics

</TABLE>

* Average of the first eleven months of 1997.
** Average of the first ten months of 1997.

Currency Fluctuation. Investments by a Fund in Japanese securities will
be denominated in yen and most income received by these Funds from such
investments will be in yen. However, the Funds' net asset value will be
reported, and distributions will be made, in U.S. dollars. Therefore, a
decline in the value of the yen relative to the U.S. dollar could have an
adverse effect on the value of a Fund's Japanese investments. The following
table presents the average exchange rates of Japanese yen for U.S. dollars for
the years shown:

AVERAGE CURRENCY EXCHANGE RATES

<TABLE>
<CAPTION>
Year Yen Per U.S. Dollar
- ---- -------------------
<S> <C>
1990 144.79
1991 134.71
1992 126.65
1993 111.20
1994 102.21
1995 94.06
1996 108.78
1997 120.99
</TABLE>

Source: International Monetary Fund, International Financial Statistics

Securities Markets

<PAGE> 113

The Exchange Market. The Japanese exchange market is a highly systemized,
government regulated market currently consisting of eight stock exchanges. The
three main Japanese Exchanges (Tokyo, Osaka and Nagoya) are comprised of First
and Second Sections. The First Sections have more stringent listing standards
with respect to a company's number of years in existence, number of outstanding
shares and trading volume and, accordingly, list larger, more established
companies than the Second Sections. The Tokyo Stock Exchange ("TSE") is the
largest exchange and, as of December 31, 1997, the First Section of the TSE
listed 1,324 companies with market capitalization in excess of 273.9 trillion
yen (approximately $2.1 trillion as of such date). The Second Sections of the
main Japanese Exchanges generally list smaller, less capitalized companies than
those traded on the First Sections. As of December 31, 1997, the Second
Section of the TSE listed 478 companies with market capitalization in excess of
7 trillion yen (approximately $53.6 billion as of such date).

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

As of December 31, 1997, 831 issues were traded through JASDAQ, having an
aggregate market capitalization in excess of 9.2 trillion yen (approximately
$70.5 billion as of such date). The entry requirements for JASDAQ generally
require a minimum of two million shares outstanding at the time of
registration, a minimum of 200 shareholders (if less than 20 million shares
outstanding on the day of registration) or 400 shareholders (if 20 million or
more shares outstanding on the day of registration), minimum pre-tax profits of
10 yen per share (approximately $.08 per share as of January 30, 1998) for the
prior fiscal year, and net assets of 200 million yen (approximately $1.6
million as of January 30, 1998) at the end of the prior fiscal year. JASDAQ
has generally attracted small growth companies or companies whose major
shareholders wish to sell only a small portion of the company's equity.

The Frontier Market is a second over-the-counter market and is under the
jurisdiction of JASDAQ, which is overseen by the Japanese Securities and
Exchange Commission. The Frontier Market has less stringent entry requirements
than those

<PAGE> 114

described above for JASDAQ and is designed to enable early stage companies
access to capital markets. Frontier Market companies need not have a history
of earnings, provided their spending on research and development equals at
least 3% of net sales. In addition, companies traded through the Frontier
Market are not required to have two million shares outstanding at the time of
registration. As a result, investments in companies traded through the
Frontier Market may involve a greater degree of risk than investments in
companies traded through JASDAQ. The Frontier Market was created in July 1995,
and as of the date of this Statement of Additional Information, a limited
number of issues were traded through this market.

Market Risks. Although the market for Japanese equities traded on the
First Section of the TSE is substantial in terms of trading volume and
liquidity, the TSE has nonetheless exhibited significant market volatility in
the past several years. With respect to the OTC market, trades of certain
stocks may not be effected on days when the matching of buy and sell orders for
such stocks does not occur. The liquidity of the Japanese OTC market, as well
as that of the Second Sections of the exchanges, although increasing in recent
years, is limited by the small number of publicly held shares which trade on a
regular basis. Overall, Japanese securities markets have declined
significantly since 1989 which has contributed to a weakness in the Japanese
economy and the impact of a further decline cannot be ascertained.

Other Factors

The islands of Japan lie in the western Pacific Ocean, off the eastern
coast of the continent of Asia. Japan has in the past experienced earthquakes
and tidal waves of varying degrees of severity, and the risks of such
phenomena, and the damage resulting therefrom, continue to exist. The
long-term economic effects of such geological factors on the Japanese economy
as a whole, and on the Funds' investments, cannot be predicted. In addition,
Japan has one of the world's highest population densities. A significant
percentage of the total population of Japan is concentrated in the metropolitan
areas of Tokyo, Yokohama, Osaka and Nagoya.

MANAGEMENT OF THE FUNDS

Officers and Board of Directors

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.

<PAGE> 115
<TABLE>
<S> <C>
Richard N. Cooper* (63) Director Professor at Harvard
Harvard University University; National
1737 Cambridge Street Intelligence Counsel from June
Cambridge, Massachusetts 02138 1995 until January 1997;
Director or Trustee of
CircuitCity 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 (70) Director Private investor;
2425 North Fish Creek Road Consultant and Director of
P.O. Box 483 Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications
(developers and 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 Vice
466 Lexington Avenue Chairman, Managing Director
New York, New York 10017-3147 and Director of Warburg;
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 Dean of Yale School
Box 208200 of Management and William S.
New Haven, Connecticut 06520-8200 Beinecke 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.

Thomas A. Melfe (66) Director Partner in the law
30 Rockefeller Plaza firm of Donovan Leisure Newton
New York, New York 10112 & Irvine; Chairman of the
Board, Municipal Fund for New
York Investors, Inc.;
Director/Trustee of other
investment companies advised
by Warburg.
</TABLE>

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

40
<PAGE> 116

Arnold M. Reichman* (49) Director
466 Lexington Avenue Managing Director,
New York, New York 10017-3147 Chief Operating Officer and
Assistant 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.
5th Floor (business consulting) from
Washington, DC 20004 January 1990 to November 1996;
Director or Trustee of New
England Mutual Life Insurance
Co., ICOS Corporation
(biopharmaceuticals), WMX
Technologies Inc. (solid and
hazardous waste collection and
disposal), The Rouse Company
(real estate development),
Harris Corp. (electronics and
communications equipment), The
Gillette Co. (personal care
products) and Sun Company Inc.
(petroleum refining and
marketing); Director/Trustee
of other investment companies
advised by Warburg.

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

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

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

<PAGE> 117

<TABLE>
<S> <C>
Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg 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
New York, New York 10017-3147 with Warburg since 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
New York, New York 10017-3147 with Warburg since 1995; Associated with
BlackRock Financial Management, Inc. from
September 1994 to October 1995;
Associated with BEA Associates from April
1993 to September 1994; Associated with
Ernst & Young LLP from 1990 to 1993;
Officer of other investment companies
advised by Warburg.

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

No employee of Warburg, PFPC Inc., the Funds' co-administrator ("PFPC"),
or any of their affiliates, receives any compensation from the Funds for acting
as an officer or director of a Fund. Each Director who is not a director,
trustee, officer or employee of Warburg, PFPC or any of their affiliates
receives an annual fee of $500 ($1,000 for the International Equity Fund) and
$250 for each meeting of the Boards attended by him for his services as
Director, and is reimbursed for expenses incurred in connection with his
attendance at Board meetings.

<PAGE> 118

Directors' Total Compensation (for the fiscal year ended October 31, 1997):

<TABLE>
<CAPTION>
Inter- All Investment
Emerging Japan national Japan Companies
Markets OTC Equity Growth Managed
Name of Director Fund Fund Fund Fund by Warburg+
<S> <C> <C> <C> <C> <C>

John L. Furth* None None None None None
Arnold M. Reichman* None None None None None
Richard N. Cooper $1,500 $1,500 $2,000 $1,500 $44,500
Donald J. Donahue** $1,500 $1,500 $2,000 $1,500 $44,500
Jack W. Fritz $1,500 $1,500 $2,000 $1,500 $44,500
Jeffrey E. Garten*** None None None None None
Thomas A. Melfe $1,500 $1,500 $2,000 $1,500 $44,500
Alexander B. Trowbridge $1,500 $1,500 $2,000 $1,500 $44,500
</TABLE>

+ Each Director also serves as a Director or Trustee of 24 investment
companies advised by Warburg.
* Mr. Furth and Mr. Reichman receive compensation as affiliates of Warburg
and, accordingly, receive no compensation from the Funds or any other
investment company advised by Warburg.
** Mr. Donahue resigned as a Director of each Fund effective
February 6, 1998.
*** Mr. Garten became a Director of each Fund effective February
6, 1998 and, accordingly, received no compensation from the
Funds for the fiscal year ended October 31, 1997.

As of January 30, 1998, Directors and officers as a group, owned of record
less than 1% of each Fund's outstanding Common Shares. No Director or officer
owned any of the Funds' outstanding Advisor Shares.

Portfolio Managers

Mr. Richard H. King, Co-Portfolio Manager of the Emerging Markets Fund and
the Japan OTC Fund, and Portfolio Manager of the International Equity Fund,
earned a B.A. degree from Durham University in England. From 1968 to 1982, he
worked at W.I. Carr Sons & Company (Overseas), a leading international
brokerage firm. He resided in the Far East as an investment analyst from 1970
to 1977, became director, and later relocated to the U.S. where he became
founder and president of W.I. Carr (America), based in New York. From 1982 to
1984, Mr. King was a director in charge of the Far East equity investments at
N.M. Rothschild International Asset Management, a London merchant bank. In
1984, Mr. King became chief investment officer and director for all
international investment strategy with Fiduciary Trust Company International
S.A., in London. He managed EAFE mutual fund (FTIT) from 1985 to 1986, which
grew from $3 million to over $100 million during this two-year period.

Mr. Harold W. Ehrlich is Associate Portfolio Manager and Research Analyst
of the Emerging Markets Fund and the International Equity Fund. Prior to
joining Warburg in February 1995, Mr. Ehrlich was a senior vice president,
portfolio manager and

<PAGE> 119

analyst at Templeton Investment Counsel Inc. from 1987 to 1995. He was a
research analyst and assistant portfolio manager at Fundamental Management
Corporation from 1985 to 1986, and a research analyst at First Equity
Corporation of Florida from 1983 to 1985. Mr. Ehrlich earned a B.S.B.A. degree
from the University of Florida and earned his Chartered Financial Analyst
designation in 1990.

Mr. Vincent J. McBride is Co-Portfolio Manager of the Emerging Markets
Fund and Associate Portfolio Manager and Research Analyst of the International
Equity Fund. Prior to joining Warburg in 1994, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994, and at
General Electric Investment Corp. from 1992 to 1993. He was also a portfolio
manager/analyst at United Jersey Bank from 1989 to 1992 and a portfolio manager
at First Fidelity Bank from 1987 to 1989. Mr. McBride earned a B.S. degree
from the University of Delaware and an M.B.A. degree from Rutgers University.

Mr. P. Nicholas Edwards is Portfolio Manager of the Japan Growth Fund,
Co-Portfolio Manager of the Japan OTC Fund and Associate Portfolio Manager and
Research Analyst of the International Equity Fund. Prior to joining Warburg in
August 1995, Mr. Edwards was a director at Jardine Fleming Investment Advisers,
Tokyo. He was a vice president of Robert Fleming Inc. in New York City from
1988 to 1991. Mr. Edwards earned M.A. degrees from Oxford University and
Hiroshima University in Japan.

Investment Adviser and Co-Administrators

Warburg serves as investment adviser to the Funds, and Counsellors Funds
Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators to
the Funds, each pursuant to separate written agreements (the "Advisory
Agreement," "Counsellors Service Co-Administration Agreement" and the "PFPC
Co-Administration Agreement," respectively). The services provided by, and the
fees payable by the Funds to, Warburg under the Advisory Agreement, Counsellors
Service under the Counsellors Service Co-Administration Agreement and PFPC
under the PFPC Co-Administration Agreement are described in the Prospectuses.
Each class of shares of each Fund bears its proportionate share of fees payable
to Warburg, Counsellors Service and PFPC in the proportion that its assets bear
to the aggregate assets of the Fund at the time of calculation. These fees are
calculated at an annual rate based on a percentage of a Fund's average daily
net assets. See the Prospectuses, "Management of the Fund(s)." The advisory
fees earned by Warburg and the co-administration fees earned by PFPC and
Counsellors Service, respectively, for the last three fiscal years are
described below.

<PAGE> 120
Warburg Advisory Fees
(portions of fees waived, if any, noted in parenthesis)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended
Fund October 31, 1995 October 31, 1996
<S> <C> <C> <C> <C>
Emerging Markets $29,641 ($29,641) $1,789,738 ($1,031,252)
International Equity $20,225,631 (None) $30,605,750 (None)
Japan Growth $23,045 ($22,663) $149,987 ($149,987)
Japan OTC $599,720 ($599,720) $2,721,814 ($573,600)
</TABLE>

<TABLE>
<CAPTION>
Fiscal year ended
Fund October 31, 1997
<S> <C> <C>
Emerging Markets $3,124,684 ($1,146,495)
International Equity $33,440,864 (None)
Japan Growth $260,741 ($143,819)
Japan OTC $927,417* ($357,562)
</TABLE>

* Effective at the close of business on May 23, 1997, Warburg ceased to
engage SPARX Investment & Research, USA, Inc. ("SPARX") as sub-investment
adviser to the Japan OTC Fund. Up until that time, Warburg paid SPARX
from its advisory fee at an annual rate of .625% of the average daily net
assets of the Fund.

PFPC Co-Administration Fees
(portions of fees waived, if any, noted in parenthesis)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
Fund October 31, 1995 October 31, 1996 October 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets $2,845 ($2,845) $171,815 ($71,109) $297,624 (None)
International Equity $1,386,283 (None) $1,905,288 (None) $2,047,043 (None)
Japan Growth $2,212 ($2,176) $14,399 ($11,644) $25,031 ($25,031)
Japan OTC $90,701 ($26,746) $260,256 ($53,976) $89,032 ($20,262)
</TABLE>

<TABLE>
<CAPTION>
Fiscal year ended
Fund October 31, 1997
<S> <C> <C>
Emerging Markets $297,624 (None)
International Equity $2,047,043 (None)
Japan Growth $25,031 ($25,031)
Japan OTC $89,032 ($20,262)
</TABLE>

Counsellors Service Co-Administration Fees

<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
Fund October 31, 1995 October 31, 1996 October 31, 1997
<S> <C> <C> <C>
Emerging Markets $2,372 $143,179 $249,975
International Equity $2,022,563 $3,060,575 $3,344,086
Japan Growth $1,844 $11,999 $20,859
Japan OTC $47,97 $217,745 $74,193
</TABLE>

Custodian and Transfer Agent

State Street Bank and Trust Company ("State Street") serves as custodian
of each of the Fund's non-U.S. assets, and PNC Bank, National Association
("PNC") serves as custodian of each of the Fund's U.S. assets. Pursuant to
separate custodian agreements (the "Custodian Agreements"), State Street and
PNC each (i) maintain a separate account or accounts in the name of the Funds,
(ii) hold and transfer portfolio securities on account of the Funds, (iii) make
receipts and disbursements of money on behalf of the Funds, (iv) collect and
receive all income and other payments and distributions for the account of the
Funds' portfolio securities and (v) make periodic reports to the Boards
concerning the Funds' custodial arrangements. State Street is authorized to
select one or more foreign banking institutions and foreign securities
depositories to serve as sub-custodian on behalf of the Funds, and PNC is
authorized to select one or more domestic banks or trust companies to serve as
sub-custodian on behalf of the Funds. PNC may delegate its duties under its
Custodian

<PAGE> 121

Agreement with a Fund to a wholly owned direct or indirect subsidiary of PNC or
PNC Bank Corp. upon notice to the Fund and upon the satisfaction of certain
other conditions. PNC is an indirect, wholly owned subsidiary of PNC Bank
Corp., and its principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103. The principal business address of State Street is 225
Franklin Street, Boston, Massachusetts 02110.

State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Funds 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 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 Boards 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. BFDS's principal business address is 2
Heritage Drive, North Quincy, Massachusetts 02171.

Organization of the Funds

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

Distribution and Shareholder Servicing

Common Shares. The Emerging Markets Fund, the Japan Growth Fund and the
Japan OTC Fund have each 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 the Fund. Services performed by
Counsellors Securities include (i) the sale of the Common Shares, as set forth
in the 12b-1 Plan ("Selling Services"), (ii) ongoing servicing and/or
maintenance of the accounts of Common Shareholders of the Funds, as set forth
in the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer agency
services, subaccounting services or administrative services related to the sale
of the Common Shares, as set forth in the 12b-1 Plan ("Administrative Services"
and collectively with Selling Services and Administrative Services, "Services")
including, without limitation, (a) payments reflecting an allocation of
overhead and other office expenses of Counsellors Securities related to
providing Services; (b) payments made to, and reimbursement of expenses of,
persons who provide support services in connection with the distribution of the
Common Shares including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Funds, 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

<PAGE> 122

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 provides the Boards
with periodic reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made. For the fiscal year ended October 31,
1997, the Common Shares of the Emerging Markets Fund, the Japan Growth Fund and
the Japan OTC Fund paid Counsellors Securities $624,354, $52,138 and $185,480,
respectively, which was expended on advertising, marketing communications and
public relations.

Advisor Shares. The Funds have entered into agreements ("Agreements")
with institutional shareholders of record, broker-dealers, financial
institutions, depository institutions, retirement plans and financial
intermediaries ("Institutions") to provide certain distribution, shareholder
servicing, administrative and/or accounting services for their clients or
customers (or participants in the case of retirement plans) ("Customers") who
are beneficial owners of Advisor Shares. See the Advisor Prospectus,
"Shareholder Servicing." Agreements will be governed by a distribution plan
(the "Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act. The
Distribution Plan requires the Board, at least quarterly, to receive and review
written reports of amounts expended under the Distribution Plan and the purpose
for which such expenditures were made. For the fiscal year ended October 31,
1997, the Advisor Shares of the Emerging Markets Fund, the International Equity
Fund, the Japan Growth Fund and the Japan OTC Fund paid $1,166, $2,710,056, $21
and $6, respectively, all of which were paid to Institutions.

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 a Fund's co-administration and distribution and shareholder
servicing arrangements. A Customer of an Institution should read the relevant
Prospectus and this Statement of Additional Information in conjunction with the
Agreement and other literature describing the services and related fees that
would be provided by the Institution to its Customers prior to any purchase of
any Fund's shares. Prospectuses are available from each Fund's distributor
upon request. No preference will be shown in the selection of Fund portfolio
investments for the instruments of Institutions.

General. The Distribution Plans and the 12b-1 Plans will continue in
effect for so long as their continuance is specifically approved at least
annually by the Boards, including a majority of the Directors who are not
interested persons of the Funds 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 a
Distribution Plan or a 12b-1 Plan would require the approval of the Boards in
the same

<PAGE> 123

manner. Neither the Distribution Plans nor the 12b-1 Plans may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. Each 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.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

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

Under the 1940 Act, a Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the NYSE is
closed, other than customary weekend and holiday closings, or during which
trading on the NYSE is restricted, or during which (as determined by the SEC)
an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (A Fund may also suspend or postpone the recordation of
an exchange of its shares upon the occurrence of any of the foregoing
conditions.)

If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, each Fund may make
payment wholly or partly in securities or other investment instruments which
may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or
other property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. Each Fund will comply with Rule 18f-1 promulgated under
the 1940 Act with respect to redemptions in kind.

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

EXCHANGE PRIVILEGE

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

The exchange privilege enables shareholders to acquire shares in a fund
with a different investment objective when they believe that a shift between
funds is an appropriate

<PAGE> 124

investment decision. Subject to the restrictions on exchange purchases
contained in the Common Share Prospectus and any other applicable restrictions,
this privilege is available to shareholders residing in any state in which the
Common Shares or Advisor Shares being acquired, as relevant, may legally be
sold. Prior to any exchange, the investor should obtain and review a copy of
the current prospectus of the relevant class of each fund into which an
exchange is being considered. Shareholders may obtain a prospectus of the
relevant class of the fund into which they are contemplating an exchange from
Counsellors Securities.

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 the fund being acquired. The exchange
privilege may be modified or terminated at any time upon 30 days' notice to
shareholders.

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 continue 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 the Fund's taxable year, (i) at
least 50% of the market value of the 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 the 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 the 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.

<PAGE> 125

As a regulated investment company, a 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, a 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 the Fund not later
than such December 31, provided that such dividend is actually paid by the Fund
during January of the following calendar year.

Each Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of the
Fund 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, the 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 the 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 the Fund upon filing
appropriate returns or claims for refund with the Internal Revenue Service (the
"IRS").

The Code imposes a 4% nondeductible excise tax on each Fund to the extent
the 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 the Fund that is subject to corporate income tax
will be considered to have been distributed by year-end.

<PAGE> 126

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 under distribution
or over distribution, 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 a Fund and may
limit the 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
the Fund in computing its taxable income. In addition, in the event of a
failure to qualify, the Fund's distributions, to the extent derived from the
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 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, the 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.

A 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 Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and
defer Fund losses. These rules could therefore affect the character, amount
and timing of distributions to shareholders. These provisions also (a) will
require the 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 the
Fund to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. Each Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent disqualification of the
Fund as a regulated investment company.

51
<PAGE> 127

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

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 the Fund to
its shareholders. Additional charges in the nature of interest may be imposed
on the Fund in respect of deferred taxes arising from such distributions or
gains. 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, the 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 the Fund, and such amounts would be
subject to the 90% and excise tax distribution requirements described above.
In order to make this election, the 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, the 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 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, the 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 the
Fund, unless revoked with the consent of the IRS. By making the election, the
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. A Fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The Fund will make
the appropriate tax elections, if possible, and take any additional steps that
are necessary to mitigate the effect of these rules.

<PAGE> 128

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 the 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
the Fund. Dividends and distributions paid by the 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 the 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 the
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 the
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 the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the 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 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

<PAGE> 129

distributions of long-term capital gains received by the shareholder with
respect to such share.

Backup Withholding. A 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 the relevant 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 the 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 Fund 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 FUNDS AND THEIR 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.

DETERMINATION OF PERFORMANCE

From time to time, a Fund may quote the total return of its Common Shares
and/or Advisor Shares in advertisements or in reports and other communications
to shareholders. With respect to the Funds' Common Shares, the average annual
total return for the periods ended October 31, 1997 were as follows
(performance figures calculated without waiver of fees by a Fund's service
provider(s), if any, are noted in parentheses):

<TABLE>
<CAPTION>
Fund (Inception Date) One-Year Five-Year Since Inception
- --------------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets
(12/30/94) -10.71% (-11.30%) N/A (N/A) 3.66% (2.74%)
International Equity
(5/2/89) 4.54% (N/A) 13.90% (N/A) 11.48% (N/A)
Japan Growth
(12/29/95) 1.47% (0.64%) N/A (N/A) -0.03% (-1.08%)
Japan OTC (9/30/94) -23.98% (-24.70%) N/A (N/A) -12.08% (-12.82%)
</TABLE>

<PAGE> 130
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. Investors should note that this performance may not be
representative of the Fund's total returns in longer market cycles.

With respect to the Funds' Advisor Shares, the average annual total return
for the periods ended October 31, 1996 were as follows (performance figures
calculated without waiver of fees by a Fund's service provider(s), if any, are
noted in parentheses):

<TABLE>
<CAPTION>
Fund (Inception Date) One-Year Five-Year Since Inception
- --------------------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets
(12/30/94) -10.94% (-11.35%) N/A (N/A) 3.47% (2.98%)
International Equity
(5/2/89) 4.04% (N/A) 13.40% (N/A) 9.20% (N/A)
Japan Growth
(12/29/95) 0.61% (-0.71%) N/A (N/A) -0.60% (-1.42%)
Japan OTC (9/30/94) -24.62% (-26.86%) N/A (N/A) -12.46% (-13.91%)
</TABLE>

A Fund may advertise, from time to time, comparisons of the performance of
its Common Shares and/or Advisor Shares with that of one or more other mutual
funds with similar investment objectives. A Fund may advertise average annual
calendar year-to-date and calendar quarter returns, which are calculated
according to the formula set forth in the preceding paragraph, except that the
relevant measuring period would be the number of months that have elapsed in
the current calendar year or most recent three months, as the case may be.
Investors should note that this performance may not be representative of the
Fund's total return in longer market cycles.

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

<PAGE> 131

Warburg believes that a diversified portfolio of international equity
securities, when combined with a similarly diversified portfolio of domestic
equity securities, tends to have a lower volatility than a portfolio composed
entirely of domestic securities. Furthermore, international equities have been
shown to reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments, and research indicates that volatility can be significantly
decreased when international equities are added.
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International (EAFE)
Europe, Australasia, Far East Index (the "EAFE Index"), has equaled or exceeded
that of domestic equity securities, as measured by the Standard & Poor's 500
Composite Stock Index (the "S&P 500 Index") in 14 of the last 26 years. The
following table compares annual total returns of the EAFE Index and the S&P 500
Index for the calendar years shown.

<TABLE>
<CAPTION>
EAFE INDEX VS. S&P 500 INDEX
1972-1997
ANNUAL TOTAL RETURN+
YEAR EAFE INDEX S&P 500 INDEX
- ---------- ---------- -------------
<S> <C> <C>
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975 31.21 31.55
1976 -.36 19.15
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1988* 26.66 12.40
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
1994* 6.24 -1.54
1995 9.42 34.11
1996 4.40 20.26
1997 0.24 31.01
</TABLE>

+ Without reinvestment of dividends.

<PAGE> 132

* The EAFE Index has outperformed the S&P 500 Index 14 out of the last 26
years.

The quoted performance information shown above is not intended to indicate
the future performance of the Funds.

Advertising or supplemental sales literature relating to the International
Equity Fund, the Japan Growth Fund and the Japan OTC Fund may describe the
percentage decline from all-time high levels for certain foreign stock markets.
It may also describe how such Funds differ from the EAFE Index in composition.
The Japan Growth Fund and the Japan OTC Fund may also discuss in advertising and
sales literature the history of Japanese stock markets, including the Tokyo
Stock Exchange and OTC market. Sales literature and advertising may also
discuss trends in the economy and corporate structure in Japan, including the
contrast between the sales growth, profit growth, price/earnings ratios, and
return on equity (ROE) of companies; it may discuss the cultural changes taking
place among consumers in Japan, including increasing cost-consciousness and
accumulation of purchasing power and wealth among Japanese consumers, and the
ability of new companies to take advantage of these trends. The sales
literature for these Funds may also discuss current statistics and projections
of the volume, market capitalization, sector weightings and number of issues
traded on Japanese exchanges and in Japanese OTC markets, and may include graphs
of such statistics in advertising and other sales literature.

INDEPENDENT ACCOUNTANTS AND COUNSEL

Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund. The financial statements that are incorporated by
reference in this Statement of Additional Information have been audited by
Coopers & Lybrand, and have been included herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.

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

MISCELLANEOUS

As of January 30, 1998, the name, address and percentage of ownership of
each person that owns of record 5% or more of a class of each Fund's outstanding
shares were as follows:

Emerging Markets Fund

<TABLE>
<S> <C> <C>
COMMON SHARES Charles Schwab & Co., Inc.* 38.62%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>

<PAGE> 133

<TABLE>
<S> <C> <C>
National Financial Services Corporation* 11.65%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908

Smith Barney Inc.* 11.29%
Book Entry Account
Attn: Matt Maesstri
333 West 34th Street
7th Floor Mutual Fund Dept.
New York, NY 10001-2483

ADVISOR SHARES Mesirow Financial Inc. Cust. 34.50%
Sidney Lieberstein IRA #88520319
Attn: No Load/Mutual Funds
350 North Clark Street
Chicago, IL 60610-4712

Janet M. Westcott TTEE* 26.31%
Janet M. Westcott Revocable Trust
U/A DTD 5/17/90
2935 Sioux CT
Des Moines, IA 50321-1427

Janet M. Westcott TTEE* 14.57%
Richard A. Westcott Family Trust
U/A DTD 9/14/95
7500 E McCormick Pkwy.
Scottsdale, AZ 85258-3454

Donaldson Lufkin & Jenrette Securities* 8.91%
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>

International Equity Fund

<TABLE>
<S> <C> <C>
COMMON SHARES Charles Schwab & Co., Inc.* 34.13%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122

National Financial Services Corporation* 9.86%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

58
<PAGE> 134

<TABLE>
<S> <C> <C>
ADVISOR SHARES Connecticut General Life Ins. Co.* 99.79%
On behalf of its separate accounts
55F c/o Melissa Spencer M110
CIGNA Corp. P.O. Box 2975
Hartford, CT 06104-2975
</TABLE>

Japan Growth Fund

<TABLE>
<S> <C> <C>
COMMON SHARES Charles Schwab & Co., Inc.* 47.03%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122

National Financial Services Corporation* 19.98%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908

Donaldson Lufkin & Jenrette* 10.06%
Securities Corp. Pershing Division
Mutual Fund Balancing
1 Pershing Plaza Fl. 14
Jersey City, NJ 07399-0001

ADVISOR SHARES U.S. Clearing Corporation* 49.46%
FBO 500-23759-12
26 Broadway
New York, NY 10004-1798

Donaldson Lufkin & Jenrette Securities* 36.99%
P.O. Box 2052
Jersey City, NJ 07303-2052

U.S. Clearing Corporation* 7.85%
FBO 156-97808-18
26 Broadway
New York, NY 10004-1798
</TABLE>

Japan OTC Fund

<TABLE>
<S> <C> <C>
COMMON SHARES Charles Schwab & Co., Inc.* 37.91%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>

<PAGE> 135

<TABLE>
<S> <C> <C>
National Financial Services Corporation* 23.79%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908

Donaldson Lufkin & Jenrette* 7.57%
Securities Corp. Pershing Division
Mutual Fund Balancing
1 Pershing Plaza Fl. 14
Jersey City, NJ 07399-00001

ADVISOR SHARES Warburg Pincus Asset Management, Inc. 20.15%
Attn: Stephen Distler
466 Lexington Avenue
New York, NY 10017-3140

Donaldson Lufkin & Jenrette Securities* 75.98%
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>

* The Funds believe that these entities are not the beneficial owners of
shares held of record by it.

Mr. Lionel I. Pincus, Chairman of the Board and Chief Executive Officer of
Warburg, may be deemed to have beneficially owned 5.1% of the outstanding shares
of the International Equity Fund, including shares owned by clients for which
Warburg has investment discretion and by companies that Warburg may be deemed to
control. Mr. Pincus disclaims ownership of these shares and does not intend to
exercise voting rights with respect to these shares.

FINANCIAL STATEMENTS

Each Fund's audited financial report dated October 31, 1997, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference. Each Fund will furnish without
charge a copy of its annual report upon request by calling Warburg Pincus Funds
at (800) 927-2874.

<PAGE> 136

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> 137

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.

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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.

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