WARBURG PINCUS INSTITUTIONAL FUND INC, 485BPOS, 1997-10-21

WARBURG PINCUS INSTITUTIONAL FUND INC
485BPOS, 1997-10-21

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<PAGE>

As filed with the U.S. Securities and Exchange Commission
on October 21, 1997

Securities Act File No. 33-47880
Investment Company Act File No. 811-6670

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 14 [x]

and/or

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

Amendment No. 15 [x]
(Check appropriate box or boxes)

Warburg, Pincus Institutional Fund, Inc.
.......................................
(Exact Name of Registrant as Specified in Charter)

466 Lexington Avenue
New York, New York 10020-3147
........................................................
(Address of Principal Executive Offices) (Zip Code)

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

Mr. Eugene P. Grace
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
......................................
(Name and Address of Agent for Service)

Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677

<PAGE>

It is proposed that this filing will become effective (check appropriate box):

[x] immediately upon filing pursuant to paragraph (b)

[ ] on [date] pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[ ] on [date] pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on [date] pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

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

DECLARATION PURSUANT TO RULE 24f-2

Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933, as amended, pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to the number or amount presently registered is added an
indefinite number or amount of such securities. The Rule 24f-2 Notice for
Registrant's fiscal year ended October 31, 1996 was filed on December 27, 1996.

<PAGE>

WARBURG, PINCUS INSTITUTIONAL FUND, INC.

FORM N-1A

CROSS REFERENCE SHEET

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

Part A
Item No. Prospectus Heading
- -------- ------------------

1. Cover Page.................................... Cover Page

2. Synopsis...................................... The Fund's Expenses

3. Condensed Financial Information............... Financial Highlights

4. General Description of
Registrant.................................. Cover Page Investment
Objectives and
Policies; Special Risk
Considerations and
Certain Investment
Strategies; Investment
Guidelines; Additional
Information

5. Management of the Fund........................ Management of the Fund

6. Capital Stock and Other
Securities.................................. Additional Information

7. Purchase of Securities Being
Offered..................................... How to Open an Account
in the Fund; How to
Purchase Shares in the
Portfolios; Management
of the Fund; Net Asset
Value

8. Redemption or Repurchase....................... How to Redeem and
Exchange Shares in the
Portfolios

9. Pending Legal Proceedings...................... Not applicable

10. Cover Page..................................... Cover Page

<PAGE>

Part B
Item No.
- --------

11. Table of Contents.............................. Contents

12. General Information and History................ Management of the Fund

13. Investment Objectives
and Policies................................. Investment Objectives;
Investment Policies

14. Management of the Registrant................... Management of the Fund

15. Control Persons and Principal
Holders of Securities........................ Management of the
Fund; Miscellaneous
See Prospectus--
"Management of the
Fund"

16. Investment Advisory and
Other Services............................... Management of the Fund;
See Prospectus--
"Management of the
Fund"

17. Brokerage Allocation
and Other Practices.......................... Investment Policies --
Portfolio Transactions
See Prospectus--
"Portfolio
Transactions and
Turnover Rate"

18. Capital Stock and Other
Securities................................... Management of the
Fund--Organization of
the Fund; See
Prospectus--"Additional
Information"

19. Purchase, Redemption and Pricing
of Securities Being Offered.................. Additional Purchase
and Redemption
Information; See
Prospectus-"How to
Open an Account in the
Fund," "How to
Purchase Shares in the
Portfolios," "How to
Redeem and Exchange
Shares in the
Portfolios," "Net
Asset Value"

-2-
<PAGE>

20. Tax Status..................................... Additional Information
Concerning Taxes; See
Prospectus--"Dividend,
Distributions and
Taxes"

21. Underwriters................................... Investment Policies--
Portfolio
Transactions; See
Prospectus--
"Management of the
Fund"

22. Calculation of Performance Data................ Determination of
Performance

23. Financial Statements........................... Financial Statements

Part C
- ------

Information required to be included in Part C is set forth after the appropriate
item, so numbered, in Part C to this Registration Statement.

-3-
<PAGE>

PROSPECTUS
October 21, 1997

WARBURG PINCUS INSTITUTIONAL FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
MANAGED EAFE'r' COUNTRIES PORTFOLIO
EMERGING MARKETS PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
GLOBAL FIXED INCOME PORTFOLIO
VALUE PORTFOLIO

[Logo]

<PAGE>

PROSPECTUS October 21, 1997

Warburg Pincus Institutional Fund, Inc. (the 'Fund') is an open-end management
investment company that consists of nine managed investment funds, six of which
are offered pursuant to this Prospectus (the 'Portfolios'):

INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of non-United States issuers.

MANAGED EAFE'r' COUNTRIES PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of issuers having their principal business
activities and interests in foreign countries included in the Morgan Stanley
Capital International EAFE'r' Index.

EMERGING MARKETS PORTFOLIO seeks long-term growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets.

SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing primarily in
equity securities of small-sized domestic companies.

GLOBAL FIXED INCOME PORTFOLIO seeks to maximize total investment return
consistent with prudent investment management while preserving capital by
investing in investment grade fixed income securities of issuers throughout the
world, including United States issuers.

VALUE PORTFOLIO seeks total return by investing primarily in equity securities
of large-sized domestic companies.

International investment entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. Investment in small companies, including
emerging growth companies and companies in 'special situations,' also entails
special risks. See 'Risk Factors and Special Considerations.'

This Prospectus briefly sets forth certain information about the Fund and the
Portfolios that investors should know before investing. Investors are encouraged
to read this Prospectus carefully and retain it for future reference. Additional
information about the Fund and the Portfolios has been filed with the Securities
and Exchange Commission (the 'SEC') in a document entitled 'Statement of
Additional Information.' The SEC maintains a Web site (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference and other information regarding the Fund. The Statement of Additional
Information is also available upon request and without charge by calling the
Fund at (800) 369-2728. Information regarding the status of shareholder accounts
may also be obtained by calling the Fund at the same number. Warburg Pincus
Funds maintain a Web site at www.warburg.com. The Statement of Additional
Information relating to the Portfolios, 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 PORTFOLIOS 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 PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

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

<PAGE>
THE FUND'S EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Managed
International EAFE'r' Emerging Small Company Global Fixed
Equity Countries Markets Growth Income Value
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------- --------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on
Purchases
(as a percentage of
offering price)............ 0 0 0 0 0 0
Annual Portfolio Operating
Expenses
(as a percentage of average net
assets)
Management Fees`D'........... .63% .30% .63% .66% .15% .20%
12b-1 Fees................... 0 0 0 0 0 0
Other Expenses`D'............ .32% .65% .62% .33% .45% .55%
Total Portfolio Operating
Expenses (after fee
waivers)`D'................ .95% .95% 1.25% .99% .60% .75%
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...................... $ 10 $10 $13 $ 10 $ 6 $ 8
3 years..................... $ 30 $30 $40 $33 $19 $24
5 years..................... $ 53 $53 $69 $ 55 n.a. n.a.
10 years..................... $117 $117 $151 $121 n.a. n.a.
</TABLE>

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

`D' Management Fees, Other Expenses and Total Operating Expenses for the
International Equity Portfolio are based on actual expenses for the fiscal
year ended October 31, 1996, net of any fee waivers or expense
reimbursements. Management Fees, Other Expenses and Total Operating Expenses
for the Small Company Growth Portfolio are based on actual expenses for the
fiscal period ended April 30, 1997, net of any fee waivers or expense
reimbursements. Without such waivers and/or reimbursements, Management Fees
would have equalled .80% and .90%, Other Expenses would have equalled .34%
and .33% and Total Portfolio Operating Expenses would have equalled 1.14%
and 1.23% for the International Equity and Small Company Growth Portfolios,
respectively. Absent waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees for the Managed EAFE'r' Countries
Portfolio, Emerging Markets Portfolio, Global Fixed Income Portfolio and the
Value Portfolio would equal .80%, 1.00%, .65% and .75%, respectively, Other
Expenses would equal 6.15%, .74%, .50% and 2.47%, respectively, and Total
Portfolio Operating Expenses would equal 6.95%, 1.74%, 1.15% and 3.22%,
respectively. Management Fees, Other Expenses and Total Operating Expenses
for the Managed EAFE 'r' Countries, Global Fixed Income and Value Portfolios
are based on annualized estimates of expenses for the fiscal year ending
October 31, 1997, net of any fee waivers or expense reimbursements. The
Fund's investment adviser and co-administrator are under no obligation to
continue these waivers, except for the Managed EAFE'r' Countries, Emerging
Markets, Small Company Growth and Value Portfolios, for which the investment
adviser has undertaken to limit Total Portfolio Operating Expenses to the
limits shown in the table above through October 31, 1998.

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

The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of a Portfolio. Institutions also may
charge their clients fees in connection with investments in a Portfolio's
shares, which fees are not reflected in the table. This example should not be
considered a representation of past or future expenses; actual expenses may be
greater or less than those shown. Moreover, while the table assumes a 5% annual
return, a Portfolio's actual performance will vary and may result in an actual
return greater or less than 5%.

<PAGE>
FINANCIAL HIGHLIGHTS`D'`D'
- --------------------------------------------------------------------------------

The following information for the four fiscal years or period ended October
31, 1996 has been audited by Coopers & Lybrand L.L.P., independent accountants,
whose report dated December 18, 1996 is incorporated by reference into the
Statement of Additional Information. The information for the period September 1,
1992 (commencement of operations) through October 31, 1992 has been audited by
Ernst & Young LLP, whose report was unqualified. The information for the
six-month period ended April 30, 1997 is unaudited. Further information about
the performance of the International Equity, Small Company Growth and Emerging
Markets Portfolios is contained in the Fund's annual report dated October 31,
1996, and the Fund's semiannual report dated April 30, 1997 (which includes
performance information about the Managed EAFE'r' Countries Portfolio), copies
of each of which may be obtained without charge by calling the Fund at (800)
369-2728.

INTERNATIONAL EQUITY PORTFOLIO

<TABLE>
<CAPTION>
For the For the Period
Six Months September 1, 1992
Ended For the Year Ended October 31, (Commencement of
April 30, 1997 ------------------------------------------ Operations) through
(Unaudited) 1996 1995 1994 1993 October 31, 1992
-------------- ------ ------------ ------ ------ -------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $16.14 $15.10 $16.34 $13.49 $ 9.62 $ 10.00
----- ------ ----- ------ ------ -----
Income from Investment Operations
Net Investment Income..... .15 .26 .15 .17 .10 .02
Net Gains (Loss) from
Securities and Foreign
Currency Related Items
(both realized and
unrealized)............. 1.05 1.28 (.64) 2.87 3.87 (.40)
----- ------ ----- ------ ------ -----
Total from Investment
Operations.............. 1.20 1.54 (.49) 3.04 3.97 (.38)
----- ------ ----- ------ ------ -----
Less Distributions
Dividends (from net
investment income)...... (.34) (.50) (.18) (.07) (.10) .00
Distributions (from
capital gains).......... (.27) .00 (.57) (.12) .00 .00
----- ------ ----- ------ ------ -----
Total Distributions..... (.61) (.50) (.75) (.19) (.10) .00
----- ------ ----- ------ ------ -----
NET ASSET VALUE, END OF
PERIOD.................... $16.73 $16.14 $15.10 $16.34 $13.49 $ 9.62
----- ------ ----- ------ ------ -----
----- ------ ----- ------ ------ -----
Total Return............... 7.61%`D' 10.48% (2.83%) 22.62% 41.61% (3.80%)*
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000s).................... $1,130,542 $937,443 $507,759 $331,297 $109,280 $18,613
Ratios to Average Daily Net Assets:
Operating expenses........ .95%* .95% .95% .95% .95% .95%*
Net investment income..... 1.24%* 1.05% 1.20% .59% .75% 1.22%*
Decrease reflected in
above operating expense
ratios due to
waivers/reimbursements... .15%* .19% .23% .29% .44% .85%*
Portfolio Turnover Rate.... 29.47%`D' 29.91% 39.70% 19.34% 19.40% 8.25%`D'
Average Annual Commission
Rate#..................... $.0225 $.0154 -- -- -- --
</TABLE>

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

`D' Non-Annualized.
* Annualized.
#Calculated by dividing the total amount of commissions paid by the number of
shares purchased and sold during the period for which there was a commission
charge.

`D'`D' No financial highlights have been presented with respect to the Global
Fixed Income Portfolio or the Value Portfolio, which had not commenced
operations as of April 30, 1997. The audited statement of assets and
liabilities of the Global Fixed Income Portfolio as of January 23, 1997,
together with the report of Coopers & Lybrand L.L.P., appear in the
Statement of Additional Information. The unaudited statement of assets
and liabilities of the Value Portfolio as of April 1, 1997 also appears
in the Statement of Additional Information.

<PAGE>

MANAGED EAFE'r' COUNTRIES PORTFOLIO

<TABLE>
<CAPTION>
March 31, 1997
(Commencement of
Operations) through
April 30, 1997
(Unaudited)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 10.00
-----
Income from Investment Operations
Net Investment Loss................................................. .04
Net Gain/(Loss) from Securities and Foreign Currency Related Items
(both
realized and unrealized).......................................... .17
-----
Total from Investment Operations.................................... .21
-----
NET ASSET VALUE, END OF PERIOD........................................... $ 10.21
-----
-----
Total Return............................................................. 2.10%`D'
RATIOS/SUPPLEMENTAL DATA:................................................
Net Assets, End of Period (000s)......................................... $2,042
Ratios to average daily net assets:
Operating expenses.................................................. .95%*
Net investment income............................................... 4.79%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements............................................ 6.01%*
Portfolio Turnover Rate.................................................. .00%`D'
Average Commission Rate#................................................. $.0251
</TABLE>

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

`D' Non-Annualized.

* Annualized.

#Calculated by dividing the total amount of commissions paid by the number of
shares purchased and sold during the period for which there was a commission
charge.

EMERGING MARKETS PORTFOLIO

<TABLE>
<CAPTION>
For the For the Period
Six Months September 30, 1996
Ended (Commencement of
April 30, 1997 Operations) through
(Unaudited) October 31, 1996
-------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 9.86 $10.00
----- -----
Income from Investment Operations
Net Investment Income................................ .07 (.01)
Net Gain (Loss) from Securities and Foreign Currency
Related Items (both realized and unrealized)....... 1.19 (.15)
----- -----
Total from Investment Operations..................... 1.26 (.14)
----- -----
Less Distributions
Dividends (from net investment income)............... (.07) .00
Distributions (from realized gains).................. .00 .00
----- -----
Total Distributions.............................. (.07) .00
----- -----
NET ASSET VALUE, END OF PERIOD.......................... $11.05 $ 9.86
----- -----
----- -----
Total Return............................................ 12.83%`D' (1.40%)`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)........................ $35,158 $29,698
Ratios to Average Daily Net Assets:
Operating expenses................................... 1.25%* 1.25%*
Net investment income................................ 1.28%* 1.75%*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements...................... .79%* 2.18%*
Portfolio Turnover Rate................................. 44.27%`D' 2.39%`D'
Average Commission Rate#................................ $.0048 $.0120
</TABLE>

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

`D' Non-Annualized.
* Annualized.
#Calculated 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
charge.

<PAGE>
SMALL COMPANY GROWTH PORTFOLIO

<TABLE>
<CAPTION>
For the For the Period
Six Months December 29, 1995
Ended (Commencement of
April 30, 1997 Operations) through
(Unaudited) October 31, 1996
-------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $12.92 $10.00
----- -----
Income from Investment Operations
Net Investment Income................................ (.02) (.01)
Net Gains (Losses) on Securities (both realized and
unrealized)........................................ (1.32) 2.93
----- -----
Total from Investment Operations..................... (1.34) 2.92
----- -----
NET ASSET VALUE, END OF PERIOD.......................... $11.58 $12.92
----- -----
----- -----
Total Return............................................ (10.37%)`D' 29.20%`D'
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........................ $126,763 $96,827
Ratios to Average Daily Net Assets:
Operating expenses................................... .99%* .99%*
Net investment income................................ (.44%)* (.18%)*
Decrease reflected in above operating expense ratio
due to waivers/reimbursements...................... .24%* .69%*
Portfolio Turnover Rate................................. 43.27%`D' 57.38%`D'
Average Annual Commission Rate#......................... $.0499 $.0560
</TABLE>

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`D' Non-Annualized.
* Annualized.
#Calculated 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
charge.

INTERNATIONAL EQUITY PORTFOLIO

The International Equity Portfolio's investment objective is long-term
capital appreciation. The Portfolio pursues its investment objective by
investing, under normal market conditions, substantially all of its assets --
but no less than 65% of its total assets -- in common stocks and securities
convertible into or exchangeable for common stocks of non-United States issuers.
The Portfolio may invest in emerging, as well as developed, markets. The
Portfolio will invest, under normal market conditions, in at least three
countries other than the United States. The Portfolio, which is a diversified
portfolio, intends to hold securities of many corporations located in a number
of foreign countries. The Portfolio may from time to time invest a significant
portion of its assets in a single country, such as Japan, which may involve
special risks.
The Portfolio intends to invest principally in the securities of financially
strong companies with opportunities for growth within international economies
and markets through increased earning power and improved utilization or
recognition of assets. Investments may be made in equity securities of companies
of any size, whether traded on or off a national securities exchange.

In appropriate circumstances, such as when a direct investment by the
Portfolio 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 Portfolio 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.
When Warburg Pincus Asset Management, Inc., the Portfolios' investment adviser
('Warburg'), believes that a conservative or defensive posture is warranted, the
Portfolio may invest temporarily without limit in equity and debt securities of
U.S. issuers and money market obligations (described below).

MANAGED EAFE'r' COUNTRIES PORTFOLIO

The Managed EAFE'r' Countries Portfolio's investment objective is long-term
capital appreciation. The Portfolio pursues its investment objective by
investing, under normal market conditions, at least 65% of its total assets in

<PAGE>
common stocks, warrants and securities convertible into or exchangeable for
common stocks of companies, wherever organized, having their principal business
activities and interests in countries ('EAFE Countries') represented, from time
to time, in the Morgan Stanley Capital International Europe, Australasia and Far
East (EAFE'r') Index (the 'EAFE Index')*. The EAFE Index currently includes the
following 20 European and Pacific Basin countries: Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and
United Kingdom. The Portfolio currently intends to invest at least 90% of its
assets in companies in EAFE Index-included countries.
Determinations as to whether an issuer has its principal business activities
and interests in an EAFE Country will be made by Warburg based on publicly
available information and inquiries made to the issuers. In making such
determinations, Warburg will consider the following factors: (i) whether the
issuer's principal securities trading market is in an EAFE Country; (ii) whether
the issuer 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 EAFE Country, or has at least 50% of its assets situated in one
or more EAFE Countries; or (iii) whether the issuer is organized under the laws
of, and has a principal office in, an EAFE Country.
The Portfolio is not an index fund and will not seek to match the performance
or country or industry weightings of the EAFE Index. The Portfolio will not
invest in U.S. companies except for temporary defensive purposes, in which case
the Portfolio may invest without limit in equity and debt securities of U.S.
issuers and money market obligations (described below).
The Portfolio will invest, under normal circumstances, in at least three
countries other than the United States. The Portfolio, which is a diversified
portfolio, intends to hold securities of many corporations located in a number
of foreign countries, although from time to time a significant portion of the
Portfolio's assets may be invested in a single country, such as Japan. The
Portfolio intends to invest principally in the securities of companies with
opportunities for growth within international economies and markets. Investments
may be made in equity securities of companies of any size, whether traded on or
off a national securities exchange.

EMERGING MARKETS PORTFOLIO

The Emerging Markets Portfolio's investment objective is growth of capital.
The Portfolio is a non-diversified portfolio that pursues its investment

- ------------
*The EAFE Index is the exclusive property of Morgan Stanley & Co. Incorporated
and is a service mark of Morgan Stanley Group Inc. which has been licensed for
use by the Fund on behalf of the Managed EAFE'r' Countries Portfolio. Capital
International S.A., an international investment management company fully owned
by The Capital Group Companies, Inc. of Los Angeles, has full responsibility for
the management and maintenance of the EAFE Index. Morgan Stanley & Co.
Incorporated has no responsibility for, or influence over, the decisions of
inclusion or deletion within the EAFE Index.

<PAGE>
objective by investing primarily in equity securities of non-United States
issuers consisting of companies in emerging securities markets. An investment in
the Portfolio may involve a greater degree of risk than investment in other
mutual funds that seek capital growth by investing in larger, more developed
markets.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Portfolio intends to acquire securities of many issuers located
in a number of foreign countries. The Portfolio 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 Portfolio invests will vary from time to time. However, the Portfolio will
at all times, except during temporary 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 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 Warburg,
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
Portfolio's investment. Among the countries which Warburg currently considers to
be Emerging Markets are the following: Algeria, Angola, Antigua, Argentina,
Armenia, Azerbaijan, Bangladesh, Barbados, Barbuda, 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,

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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,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland,
United Kingdom and the United States.
The Portfolio may invest in securities of companies of any size, whether
traded on or off a national securities exchange. Portfolio 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
Portfolio 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 Portfolio may, consistent with the provisions of 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 Portfolio will bear its ratable share of the investment company's
expenses, including management fees, and will remain subject to payment of the
Portfolio's administration fees and other expenses with respect to assets so
invested.

SMALL COMPANY GROWTH PORTFOLIO

The Small Company Growth Portfolio's investment objective is capital growth.
The Portfolio is a non-diversified portfolio that will pursue its investment
objective by investing primarily in a portfolio of equity securities of small
market capitalization domestic companies (i.e., companies having stock market
capitalizations of $1 billion or less at the time of initial purchase, 'small
companies'). The Portfolio intends to invest at least 90% of its total assets in
common stocks or warrants of small companies that present attractive
opportunities for capital growth and, under normal market conditions, will
invest at least 65% of its total assets in such securities. The Portfolio is not
required to dispose of securities of issuers whose market capitalizations grow
to exceed $1 billion after acquisition by the Portfolio. The Portfolio will
invest primarily in companies whose securities are traded on domestic stock
exchanges or in the domestic over-the-counter market, but may invest up to 20%
of its assets in foreign securities. Small companies may still be in the
developmental stage, may be older companies that appear to be entering a new
stage of growth progress owing to factors such as management changes or
development of new technology, products or markets or may be companies providing
products or services with a high unit volume growth rate. The Portfolio's
investments will be made on the basis of

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their equity characteristics, and securities ratings generally will not be a
factor in the selection process.
The Portfolio may also invest in securities of emerging growth companies,
which can be either small companies or medium-sized companies that have passed
their start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time. Emerging
growth companies generally stand to benefit from new products or services,
technological developments or changes in management and other factors.
Although there is no intention of doing so during the coming year, the
Portfolio is authorized to engage in reverse repurchase agreements and dollar
rolls.

GLOBAL FIXED INCOME PORTFOLIO

The Global Fixed Income Portfolio's investment objective is to maximize total
investment return consistent with prudent investment management while preserving
capital. The Portfolio is a non-diversified portfolio that will seek to achieve
its objective by investing, under normal market conditions, substantially all of
its assets -- but no less than 65% of its total assets -- in bonds, debentures
and notes of United States and foreign issuers, denominated in U.S. dollars or
in other currencies or multi-currency units such as European Currency Units
('ECUs'). These debt obligations include obligations issued or guaranteed by the
United States government or a foreign government, its agencies or
instrumentalities, securities of supranational entities, Eurobonds and corporate
bonds. Up to 5% of the Portfolio's net assets may be rated below investment
grade at the time of the investment but not lower than 'B' by Standard & Poor's
Ratings Services ('S&P') or Moody's Investors Service, Inc. ('Moody's').
Warburg's approach to multicurrency fixed-income management is strategic and
value-based. Warburg's assessment of the bond markets and currencies is based on
an analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Portfolio's aim is to invest in bond
markets that offer attractive real returns relative to inflation.
Warburg invests largely in medium-term securities (i.e., those with a
remaining maturity of between three and five years) and responds to changing
interest rate levels by shortening or lengthening portfolio maturity through
investment in longer- or shorter-term instruments. For example, Warburg responds
to high levels of real interest rates through a lengthening in portfolio
maturity. Accordingly, while the bulk of the Portfolio is expected to be
invested in medium-term securities, Warburg is not restricted to any maximum or
minimum time to maturity in purchasing portfolio securities. Current and
historical yield spreads among the three main market segments -- the Government,
Foreign and Euro markets -- guide Warburg's selection of markets and particular
securities within those markets. The

<PAGE>
analysis of currencies is made independent of the analysis of markets. Value in
foreign exchange is determined by relative purchasing power parity of a given
currency. The Portfolio seeks to invest in currencies currently undervalued
based on purchasing power parity. Warburg analyzes current account and capital
account performance and real interest rates to adjust for shorter-term currency
flows.
The Portfolio will not invest 25% or more of its total assets in the
securities issued by any one foreign government, its agencies, instrumentalities
or political subdivisions and, under normal market conditions, will invest in at
least three countries, including the United States. When Warburg believes that a
conservative or defensive posture is warranted, the Portfolio may invest
temporarily without limit in securities denominated in U.S. dollars and
securities of U.S. issuers.

VALUE PORTFOLIO

The Value Portfolio's investment objective is total return. The Portfolio is
a diversified portfolio that pursues its investment objective by investing
primarily in a portfolio of equity securities of large capitalization domestic
companies that Warburg considers to be relatively undervalued. Current income is
a secondary consideration in selecting portfolio investments. The Portfolio
intends to invest at least 80% of its total assets in common stocks, preferred
stocks, warrants and other rights and securities convertible into or
exchangeable for common stocks of large companies (i.e., companies having stock
market capitalizations of $1 billion or greater at the time of initial purchase
and, under normal market conditions, will invest at least 65% of its total
assets in such securities).
The Value Portfolio's general investment policy is to invest in equity
securities that, in Warburg's opinion, are available for purchase at prices
below their intrinsic value. Warburg will determine whether a company is
undervalued based upon research and analysis, taking into account, among other
factors, price/earnings ratio, price/book ratio, price/cash flow ratio, earnings
growth, debt/capital ratio and multiples of earnings of comparable securities.
Other relevant factors, including a company's asset value, franchise value and
quality of management, will also be considered. These factors are not applied to
prospective investments in a mechanical way; rather, Warburg analyzes each
security individually, taking all relevant factors into account. The Portfolio
may invest in the securities of companies in any industry sector and will not
concentrate in any one industry. The Portfolio will invest primarily in
companies whose securities are traded on U.S. stock exchanges or in the U.S.
over-the-counter market, but may invest up to 20% of its assets in foreign
securities.

ADDITIONAL INVESTMENTS

MONEY MARKET OBLIGATIONS. Each Portfolio is authorized to invest, under
normal circumstances, in domestic and foreign short-term (one year or less
remaining to maturity) and medium-term (five years or less remaining to

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maturity) money market obligations, although each Portfolio intends to stay
invested in securities satisfying its investment objective to the extent
practical. In addition, on occasion, Warburg may deem it advisable to adopt a
temporary defensive posture by investing without limit in money market
obligations. These instruments consist of obligations of the U.S. government or
foreign governments, their agencies or instrumentalities; obligations of foreign
and U.S. banks; commercial paper; and money market mutual funds that invest in
the foregoing. A shareholder in the Portfolio would bear both its ratable share
of that mutual fund's expenses, as well as the Portfolio's administration fees
and other expenses with respect to assets so invested.
Repurchase Agreements. The Portfolios may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Under the terms of a typical repurchase agreement, a Portfolio
would acquire an underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Portfolio to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Portfolio'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 accrued interest. A Portfolio 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 Portfolio is delayed or
prevented from exercising its right to dispose of the collateral securities.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which each
Portfolio may invest include: direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) and obligations issued by U.S. government
agencies and instrumentalities.
ZERO COUPON SECURITIES. The Global Fixed Income Portfolio and the Emerging
Markets Portfolio may invest in 'zero coupon securities.' Zero coupon securities
pay no cash income to their holders until they mature and are issued at
substantial discounts from their value at maturity. When held to maturity, their
entire return comes from the difference between their purchase price and their
maturity value. The values of zero coupon securities may be highly volatile as
interest rates rise or fall.
DEBT SECURITIES. Each Portfolio may invest in debt securities. The interest
income to be derived may be considered as one factor in selecting debt
securities for investment by Warburg. Because the market value of debt
obligations can be expected to vary inversely to changes in prevailing interest
rates, investing in debt obligations may provide an opportunity for capital
growth when interest rates are expected to decline. The success of such a
strategy is dependent upon Warburg's ability to 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.

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A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's or S&P or, if unrated, is determined to be of
comparable quality by Warburg. Securities rated in the fourth highest grade may
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by a Portfolio, an issue of securities may cease to be rated or its
rating may be reduced. Neither event will require sale of such securities,
although Warburg will consider such event in its determination of whether the
Portfolio should continue to hold the securities.

Securities rated below investment grade are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations and involve large
uncertainties or major risk exposures to adverse conditions. A Portfolio may
have difficulty disposing of certain lower quality obligations because there may
be a thin trading market for such securities. In addition, the market value of
lower quality securities may be more volatile than that of higher quality
securities.

Emerging Markets and Value Portfolios. The Emerging Markets Portfolio and the
Value Portfolio may each invest or hold up to 35% and 10%, respectively, 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 Portfolio
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 Emerging
Markets Portfolio having a contractual relationship only with the lender, in the
case of a participation, or the borrower, in the case of an assignment. The
Portfolio 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 Portfolio

<PAGE>
assumes the risk of both the borrower and the lender of a participation. The
Portfolio'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 Portfolio's ability to
dispose of participations or assignments.
Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle had not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The Portfolio may purchase
asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
WARRANTS. Each Portfolio 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.

PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------

A Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it is to be in the best interests of the relevant Portfolio and
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. In addition, to
the extent it is consistent with a Portfolio's investment objective, each
Portfolio also may engage in short-term trading. This investment approach and
the use of certain of the investment strategies described below may result in a
high portfolio turnover rate for the Portfolios. It is not possible to predict
the portfolio turnover rates for the Managed EAFE'r' Countries Portfolio, the
Global Fixed Income Portfolio and the Value Portfolio. However, the Managed
EAFE'r' Countries Portfolio's annual turnover rate should not exceed 75%, the
Global Fixed Income Portfolio may experience portfolio turnover as high as 150%
to 200% and the Value Portfolio's annual turnover rate should not exceed 150%.
High portfolio

<PAGE>
turnover rates (100% or more) may result in dealer markups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information. All orders for
transactions in securities or options on behalf of a Portfolio are placed by
Warburg with broker-dealers that it selects.

CONVERTIBLE SECURITIES. Convertible securities in which the Portfolios may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. The Global Fixed Income Portfolio does not intend
to retain in its portfolio the common stock received upon conversion of a
convertible security and will sell it as promptly as it can and in a manner
which it believes will reduce the risk to the Portfolio of loss in connection
with the sale.

Up to 5% of each of the International Equity, Managed EAFE'r' Countries,
Emerging Markets and Small Company Growth Portfolios' net assets may be held in
convertible securities rated below investment grade. Up to 5% of the Global
Fixed Income Portfolio's net assets and up to 10% of the Value Portfolio's net
assets may be invested in convertible securities rated below investment grade at
the time of purchase.

FOREIGN SECURITIES. The International Equity Portfolio, Managed EAFE'r'
Countries Portfolio, Emerging Markets Portfolio and the Global Fixed Income
Portfolio will invest substantially in foreign securities, and each of the Small
Company Growth and Value Portfolios may invest up to 20% of its total assets in
the securities of foreign issuers. There are certain risks involved in investing
in securities of companies and governments of foreign nations which are in
addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public

<PAGE>
information concerning issuers and 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 a Portfolio, 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 expenses due to the cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges, which generally are higher than commissions on U.S.
exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians. Certain of the above risks may
be involved with American Depositary Receipts ('ADRs'), European Depositary
Receipts ('EDRs') and International Depositary Receipts ('IDRs'), instruments
that evidence ownership of 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. The risks associated with
investing in securities of non-U.S. issuers are generally heightened for
investments in securities of issuers in emerging markets.
REITS. The Value Portfolio may invest up to 15% of its total assets in real
estate investment trusts ('REITs'), which are pooled investment vehicles that
invest primarily in income-producing real estate or real estate related loans or
interests. Like regulated investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the 'Code'). By
investing in a REIT, the Portfolio will indirectly bear its proportionate share
of any expenses paid by the REIT in addition to the expenses of the Portfolio.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code

<PAGE>
requires), and are subject to the risks of financing projects. REITs are subject
to heavy cash flow dependency, default by borrowers, self-liquidation, the
possibilities of failing to qualify for the exemption from tax for distributed
income under the Code and failing to maintain their exemptions from the 1940
Act. REITs are also subject to interest rate risks.
JAPANESE INVESTMENTS. Because the International Equity and Managed EAFE'r'
Countries Portfolios may from time to time have large positions in Japanese
securities, they may 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. In determining
the net asset value of shares of a Portfolio, 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 a Portfolio'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,
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 on the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect a Portfolio investing there.
For additional information, see 'Investment Policies -- Japanese Investments'
beginning at page 13 of the Statement of Additional Information.
EMERGING MARKETS. One or more Portfolios with authority to invest outside of
the United States may invest in securities of issuers located in less

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

STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures, forward currency contracts and, in the case of the
International Equity and Emerging Markets Portfolios, swaps. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of a Portfolio'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 PORTFOLIO'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect a Portfolio's net asset value and performance. Therefore,
an investment in a Portfolio may involve a greater risk than an investment in
other mutual funds that do not utilize these strategies. A Portfolio's use of
these strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the National Association of Securities
Dealers, Inc.

Securities Options and Stock Index Options. Each Portfolio (other than the
Emerging Markets Portfolio) may write put and call options on stock and debt
securities and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Each Portfolio may 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 Portfolio may purchase and write exchange-listed and
OTC put and call options on stock indexes. A stock index measures the movement
of a certain group of stocks by assigning relative values to the common stocks
included in the index.

<PAGE>
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Commodity Options. Each Portfolio may enter into
futures contracts and purchase and write (sell) commodity options (options on
futures contracts and on physical commodities), including, but not limited to,
foreign currency, interest rate and stock index futures contracts and put and
call options on these contracts. These contracts and options will be 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 Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although a Portfolio is limited in
the amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of a Portfolio's assets that may be at risk with
respect to futures activities.
Investments in commodity options involve a relatively high degree of risk.
Prices of commodities can be influenced by a variety of global economic,
financial and political factors and may fluctuate markedly over short periods of
time. Among other things, commodities can be affected by changes in inflation,
investment speculation, changes in industrial, commercial and governmental
demand and supply and any governmental restrictions on ownership. In addition,
investments in options on physical commodities may involve higher custodial
expenses.
Currency Exchange Transactions. Each Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing or writing exchange-traded or OTC 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

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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.
SWAPS. The International Equity and Emerging Markets Portfolios may each
enter into swaps relating to indexes, currencies and equity interests of foreign
issuers. A swap transaction is an agreement between a Portfolio and a
counterparty to act in accordance with the terms of the swap contract. Index
swaps involve the exchange by the Portfolio 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 stock index, a
basket of stocks or a single stock. A Portfolio 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 Portfolio anticipates purchasing at a later date. The Portfolios
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, or is
unavailable for direct investment. 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.
A Portfolio 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 Portfolio 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
the Portfolio is contractually obligated to make. If the counterparty to a swap
defaults, the Portfolio's risk of loss consists of the net amount of payments
that the Portfolio 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 Portfolio's borrowing restrictions. Where swaps are
entered into for other than hedging purposes, a Portfolio will segregate an
amount of cash or liquid securities

<PAGE>
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. Each Portfolio may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. Each Portfolio 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 a Portfolio engages in the
strategies described above, the Portfolio 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 Portfolio may be unable to close out an option or futures position without
incurring substantial losses, if at all. A Portfolio is also subject to the risk
of a default by a counterparty to an off-exchange transaction.
Asset Coverage. Each Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities, indexes and currencies;
currency, interest rate and stock index futures contracts and options on these
futures contracts; and forward currency contracts and, in the case of the
International Equity and Emerging Markets Portfolios, swaps. The use of these
strategies may require that the Portfolio maintain cash or liquid securities in
a segregated account with its custodian or a designated sub-custodian to the
extent the Portfolio's obligations with respect to these strategies are not
otherwise 'covered' through ownership of the underlying security, financial
instrument or currency or by other portfolio positions or by other means
consistent with applicable regulatory policies. Segregated assets cannot be sold
or transferred unless equivalent assets are substituted in their place or it is
no longer necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of a Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
RULE 144A SECURITIES. A Portfolio 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'). A Rule 144A

<PAGE>
Security will be considered illiquid and therefore subject to the Portfolio's
10% (15% in the case of each of the Emerging Markets Portfolio and the Value
Portfolio) limitation on the purchase of illiquid securities unless the Fund's
Board of Directors (the 'Board') determines on an ongoing basis that an adequate
trading market exists for the security. Non-publicly traded securities
(including Rule 144A Securities) may be less liquid than publicly traded
securities. Although these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less than those
originally paid by the Portfolio. In addition, companies whose securities are
not publicly traded are not subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded. A Portfolio's investment in illiquid securities is subject to
the risk that should the Portfolio 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 Portfolio'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 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.

SHORT SALES AGAINST THE BOX. Each Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred stock 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 a Portfolio to, for
example, lock in a sale price for a security the Portfolio does not wish to sell
immediately. A Portfolio 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 a Portfolio's net assets (taken at
current value) may be held as collateral for such sales at any one time, except
that the Emerging Markets Portfolio will not be subject to such limitation.

WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each Portfolio may
utilize up to 20% of its total assets to purchase securities on a when-issued
basis and purchase or sell securities on a delayed-delivery basis. In these
transactions, payment for and delivery of the securities occurs beyond the
regular settlement dates, normally within 30-45 days after the

<PAGE>
transaction. A Portfolio will not enter into a when-issued or delayed-delivery
transaction for the purpose of leverage, but may sell the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive securities in a delayed-delivery transaction if Warburg deems it
advantageous to do so. The payment obligation and the interest rate that will be
received in when-issued and delayed-delivery transactions are fixed at the time
the buyer enters into the commitment. Due to fluctuations in the value of
securities purchased or sold on a when-issued or delayed-delivery basis, the
yields obtained on such securities may be higher or lower than the yields
available in the market on the dates when the investments are actually delivered
to the buyers. A Portfolio will establish a segregated account with its
custodian consisting of cash, U.S. government securities or other liquid
high-grade debt obligations or other securities that are acceptable as
collateral to the appropriate regulatory authority in an amount equal to the
amount of its when-issued and delayed-delivery purchase commitments, and will
segregate the securities underlying commitments to sell securities for delayed
delivery.
LENDING PORTFOLIO SECURITIES. Each Portfolio is authorized to lend securities
it holds to brokers, dealers and other financial organizations. Loans of a
Portfolio's securities may not exceed 33 1/3% of the Portfolio's net assets. A
Portfolio's loans of securities will be collateralized by cash, letters of
credit or U.S. government securities which are maintained at all times in an
amount at least equal to the current market value of the loaned securities. From
time to time, a Portfolio may pay a part of the interest earned from the
investment collateral received for securities loaned to the borrower and/or a
third party that is unaffiliated with the Portfolio and that is acting as a
'finder.' The risks associated with loans of portfolio securities are
substantially similar to those associated with repurchase agreements. As with
any extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially.
LOWER-RATED SECURITIES. The Emerging Markets and the Value Portfolios may
invest or hold lower-rated and comparable unrated securities (commonly referred
to as 'junk bonds') which (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, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.

<PAGE>
The market value of securities in lower rating categories is more volatile
than that of higher quality securities. In addition, a Portfolio may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of liquid secondary market for certain securities may
have an adverse impact on a Portfolio's ability to dispose of particular issues
and may make it more difficult for the Portfolio to obtain accurate market
quotations for purposes of valuing the Portfolio and calculating its net asset
value.
SPECIAL SITUATION COMPANIES. The Emerging Markets Portfolio may invest in the
securities of 'special situation companies' involved in an actual or prospective
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; or litigation which,
if resolved favorably, would improve the value of the company's stock. If the
actual or prospective situation does not materialize as anticipated, the market
price of the securities of a 'special situation company' may decline
significantly. The Portfolio believes, however, that if Warburg analyzes
'special situation companies' carefully and invests in the securities of these
companies at the appropriate time, the Portfolio may achieve growth of capital.
There can be no assurance, however, that a special situation that exists at the
time the Portfolio makes its investment will be consummated under the terms and
within the time period contemplated.
NON-DIVERSIFIED STATUS. The Emerging Markets, Small Company Growth and Global
Fixed Income Portfolios are classified as 'non-diversified' under the 1940 Act,
which means that the Portfolio is not limited by the 1940 Act in the proportion
of its assets that may be invested in the securities of a single issuer. Each
Portfolio, however, intends to comply with the diversification requirements
imposed by the Code, for qualification as a regulated investment company. As a
non-diversified portfolio, each Portfolio may invest a greater proportion of its
assets in the obligations of a smaller number of issuers and, as a result, may
be subject to greater risk with respect to portfolio securities.

INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
The Emerging Markets and Value Portfolios may each invest up to 15% of its
net assets and each other Portfolio 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
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. A Portfolio may borrow
from banks for temporary or emergency purposes in an amount up to 30% of its
total assets and may pledge its assets to the same extent in connection with
these borrowings. Whenever borrowings (including reverse repurchase agreements)
exceed 5% of the value of a Portfolio's total assets, the Portfolio

<PAGE>
will not make any investments (including roll-overs). Up to 5% of the Emerging
Markets Portfolio's total assets may be invested in stand-by commitments. 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 a Portfolio has adopted identifying additional
restrictions that cannot be changed without the approval of the majority of the
Portfolio'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 each
Portfolio. Warburg, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Portfolios in
accordance with each Portfolio's investment objective and stated investment
policies. Warburg makes investment decisions for each Portfolio and places
orders to purchase or sell securities on behalf of each such Portfolio. Warburg
also employs a support staff of management personnel to provide services to the
Fund and furnishes the Fund with office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate equal to percentages of the relevant Portfolio's average daily
net assets, as follows: International Equity Portfolio -- .80%, Managed EAFE'r'
Countries Portfolio -- .80%, Emerging Markets Portfolio -- 1.00%, Small Company
Growth Portfolio -- .90%, Global Fixed Income Portfolio -- .65% and Value
Portfolio -- .75%. Warburg and the Portfolios' co-administrators may voluntarily
waive a portion of their fees from time to time and temporarily limit the
expenses to be borne by the Portfolios.

Warburg is a professional investment management firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of August 31,
1997, Warburg managed approximately $20.2 billion of assets, including
approximately $11.8 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.
Warburg's address is 466 Lexington Avenue, New York, New York 10017-3147.

PORTFOLIO MANAGERS.

International Equity and Managed EAFE'r' Portfolios. The Portfolio Manager of
the International Equity and Managed EAFE'r' Countries Portfolios is Richard H.
King, who has been Portfolio Manager of the Portfolios since their inception.
Mr. King, a Senior Managing Director of Warburg, has been with Warburg since
1989, before which time he was chief investment officer and a director at
Fiduciary Trust Company International S.A. in London., P. Nicholas Edwards,
Harold W. Ehrlich and Vincent J. McBride have been Associate Portfolio Managers
of the International Equity Portfolio since

<PAGE>
joining Warburg and of the Managed EAFE'r' Countries Portfolio since its
inception.

Mr. Edwards is a Managing Director and has been with Warburg since August
1995, before which time he was a director at Jardine Fleming Investment
Advisers, Tokyo. Mr. Ehrlich is a Managing Director of Warburg and has been with
Warburg since February 1995, before which time he was a senior vice president,
portfolio manager and analyst at Templeton Investment Counsel Inc. Mr. McBride
is a Senior Vice President of Warburg and has been with Warburg since 1994.
Prior to joining Warburg, Mr. McBride was an international equity analyst at
Smith Barney Inc. from 1993 to 1994 and at General Electric Investment
Corporation from 1992 to 1993.

Emerging Markets Portfolio. Mr. King has been Co-Portfolio Manager of the
Emerging Markets Portfolio since its inception and Mr. McBride has been Co-
Portfolio Manager of the Portfolio since September 1997. Mr. Ehrlich has been
Associate Portfolio Manager of the Emerging Markets Portfolio since inception.

Small Company Growth Portfolio. The Co-Portfolio Managers of the Small
Company Growth Portfolio are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater
is a Senior Managing Director of Warburg and has been a Portfolio Manager of
Warburg since 1978. Mr. Lurito is a Managing Director of Warburg and has been
with Warburg since 1987.

Global Fixed Income Portfolio. The Co-Portfolio Managers of the Global Fixed
Income Portfolio are Dale C. Christensen and Laxmi C. Bhandari. Mr. Christensen
is a Managing Director of Warburg and has been with Warburg since 1989. Mr.
Bhandari, a senior vice president of Warburg, has been a Co-Portfolio Manager at
Warburg since 1993, before which time he was a vice president at the Paribas
Corporation.

Value Portfolio. The Portfolio Manager of the Value Portfolio is Brian S.
Posner, who has been the portfolio manager of the Value Portfolio since its
inception. Mr. Posner, a Managing Director of Warburg since January 1997, was an
employee of Fidelity Investments ('Fidelity') from 1987 until December 1996. He
was the vice president and portfolio manager of the Fidelity Equity-Income II
Fund (1992-December 1996); the portfolio manager of the Fidelity Value Fund
(1990-1992); assistant portfolio manager of the Fidelity Equity-Income Fund
(1989-1990); assistant portfolio manager of the Fidelity Capital Appreciation
Fund (1989); portfolio manager of the Fidelity Select Property-Casualty
Insurance Portfolio (1987-1990) and an equity analyst (1987). Prior to joining
Fidelity, Mr. Posner was a research associate at John Nuveen and Co. and an
analyst at Feldman Securities Corp. in Chicago.

<PAGE>
executive and administrative services, acting as liaison between each Portfolio
and its various service providers, furnishing corporate secretarial services,
which include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and developing and monitoring compliance procedures
for the Portfolios. As compensation, each Portfolio pays Counsellors Service a
fee calculated at an annual rate of .10% of the Portfolio's average daily net
assets.

The Fund employs PFPC Inc., an indirect, wholly owned subsidiary of PNC Bank
Corp. ('PFPC'), as a co-administrator. As a co-administrator, PFPC calculates
each Portfolio's net asset value, provides all accounting services for the
Portfolios and assists in related aspects of the Portfolios' operations. As
compensation, the International Equity Portfolio, the Managed EAFE'r' Countries
Portfolio and the Emerging Markets Portfolio each pays PFPC a fee calculated at
an annual rate of .12% of the Portfolio'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, each of the Small Company Growth and Value Portfolios
will pay PFPC a fee calculated at an annual rate of .10% of the Portfolio's
first $500 million in average daily net assets, .075% of the next $1 billion in
average daily net assets, and .05% of average daily net assets over $1.5
billion, and the Global Fixed Income Portfolio pays PFPC a fee calculated at an
annual rate of .05% of the Portfolio's average daily net assets. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.

CUSTODIANS. Fiduciary Trust Company International ('Fiduciary') and PNC Bank,
National Association ('PNC') serve as custodians of the International Equity,
Managed EAFE'r' Countries, Global Fixed Income and Value Portfolios' assets. The
principal business address of Fiduciary is Two World Trade Center, New York, New
York 10048. Like PFPC, PNC is an indirect wholly owned subsidiary of PNC Bank
Corp., and its principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103.
PNC also serves as custodian of the Small Company Growth Portfolio's U.S.
assets, and State Street Bank and Trust Company ('State Street') serves as
international custodian of the Portfolio's non-U.S assets. State Street also
serves as custodian of the Emerging Markets Portfolio's assets. State Street's
principal business address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street 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 Inc. ('Counsellors Securities') serves
without compensation as distributor of the shares of each Portfolio.

<PAGE>
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.

HOW TO OPEN AN ACCOUNT IN THE FUND
- --------------------------------------------------------------------------------
In order to invest in a Portfolio, an investor must first complete and sign
an account application. To obtain an account application, an investor may
telephone the Fund at (800) 369-2728. An investor may also obtain an account
application by writing to:

Warburg Pincus Funds
335 Madison Avenue, 15th Floor
New York, New York 10017
Attention: Institutional Services

Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.

RETIREMENT PLANS. For information about investing in a Portfolio through a
tax-deferred retirement plan, such as an Individual Retirement Account ('IRA')
or a Simplified Employee Pension IRA ('SEP-IRA'), an investor should telephone
Warburg Pincus Funds at (800) 369-2728 or write to the Fund at the address set
forth above. Investors should consult their own tax advisers about the
establishment of retirement plans.

CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration and/or address, an investor should
telephone (800) 369-2728. Shareholders are responsible for maintaining current
account registrations and addresses with the Fund. No

<PAGE>

interest will be payable on amounts represented by uncashed distribution or
redemption checks.

THE FUND IS DESIGNED FOR INSTITUTIONAL INVESTORS ALTHOUGH, IN ITS DISCRETION,
THE FUND MAY PERMIT SHARES TO BE PURCHASED BY INDIVIDUALS, AS WELL AS
INSTITUTIONS, WHO MEET THE MINIMUM INVESTMENT REQUIREMENTS.

HOW TO PURCHASE SHARES IN THE PORTFOLIOS
- --------------------------------------------------------------------------------
Shares of the Portfolios may be purchased either by mail or, with special
advance instructions, by wire. Shares of the Fund are sold without a sales
charge. The minimum initial investment in each Portfolio is as follows:

<TABLE>
<CAPTION>
Minimum Initial Minimum Subsequent
Portfolio Investment* Investment**
- ---------------------------------------- ------------------- -----------------------
<S> <C> <C>
International Equity $ 3,000,000 $50,000
Managed EAFE'r' Countries 3,000,000 50,000
Emerging Markets 2,000,000 50,000
Small Company Growth 1,000,000 None
Global Fixed Income 3,000,000 50,000
Value 1,000,000 None
</TABLE>

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

* The minimum investment for any group of related persons is an aggregate of
$4,000,000.

** Certain retirement plans for which recordkeeping is performed on an omnibus
basis for multiple participants are not subject to a subsequent investment
minimum.

The investment minimums may be waived for accounts in which employees of
Warburg or its affiliates have an interest or for investors maintaining advisory
accounts with Warburg or brokerage accounts with Counsellors Securities. The
Fund reserves the right to change the initial and subsequent investment minimum
requirements or impose a subsequent investment minimum at any time. Existing
investors will be given 15 days' notice by mail of any increase in investment
minimum requirements or the imposition of any subsequent investment minimum.

After an investor has made an 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 Portfolio in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares of a
Portfolio are not normally issued.

<PAGE>

NYSE the purchase will be effected at the relevant Portfolio's net asset value
determined for the next business day after payment has been received. Checks or
money orders that are not in proper form or that are not accompanied or preceded
by a complete account application will be returned to the sender. Shares
purchased by check or money order are entitled to receive dividends and
distributions beginning on the day after payment has been received. Checks or
money orders in payment for more than one Portfolio or Warburg Pincus Fund
should be accompanied by a breakdown of amounts to be invested in each Portfolio
or fund. If a check used for the 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 each Portfolio's net asset value, see
'Net Asset Value' below.

BY WIRE. Investors may also purchase shares in a Portfolio by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 369-2728. Federal funds may be wired using
the following wire address:

State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA #0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Institutional Fund, Inc.:
[Portfolio name]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]

If a telephone order is received by the close of regular trading on the NYSE
and payment by wire is received on the same day in proper form in accordance
with instructions set forth above, the shares will be priced according to the
net asset value of the relevant Portfolio on that day and are entitled to
dividends and distributions beginning on that day. If payment by wire is
received in proper form by the close of the NYSE without a prior telephone
order, the purchase will be priced according to the net asset value of the
relevant Portfolio on that day and is entitled to dividends and distributions
beginning on that day. However, if a wire in proper form that is not preceded by
a telephone order is received after the close of regular trading on the NYSE,
the payment will be held uninvested until the order is effected at the close of
business on the next business day. Payment for orders that are not received or
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.

<PAGE>

PURCHASES THROUGH INTERMEDIARIES. The Portfolios may be available through
certain broker-dealers, financial institutions and other industry professionals,
collectively, 'Service Organizations', which may impose certain conditions on
their clients or customers that invest in the Portfolios, which are in addition
to or different than those described in this Prospectus. Certain features of the
Portfolios 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 Portfolio shares are
purchased directly from the Portfolio. Therefore, a client or customer should
contact the Service Organization acting on its behalf concerning the fees (if
any) charged in connection with a purchase or redemption of Portfolio shares and
should read this Prospectus in light of the terms governing its accounts with
the Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Portfolio
in accordance with their agreements with the Portfolio and with clients or
customers.

Service Organizations that have entered into agreements with a Portfolio or
its agent may enter confirmed purchase or redemption orders on behalf of clients
and customers, with payment to follow no later than the Portfolio's pricing on
the following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses.

GENERAL. Each Portfolio 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 opinion, they are of a size that would disrupt the management of
the Portfolio. A Portfolio may discontinue sales of its shares if management
believes that a substantial further increase in assets may adversely affect that
Portfolio'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 Portfolio and to reinvest any dividends or capital
gains distributions.

HOW TO REDEEM AND EXCHANGE SHARES IN THE PORTFOLIOS
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor in a Portfolio may redeem (sell) shares on
any day that the Portfolio's net asset value is calculated (see 'Net Asset
Value' below).
Shares of a Portfolio may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, they may be giving up a measure of security that they may have if they
were to redeem or exchange their shares in writing. If an investor desires to
redeem shares by mail, a written request for redemption should be sent to
Warburg Pincus Funds at the address indicated above under 'How to Open an
Account in the Fund.' An investor should be sure that the redemption request
identifies the relevant Portfolio, the number of shares to be redeemed and the
investor's account number. In order to change the bank account designated to
receive the redemption proceeds, the investor must send a

<PAGE>

written request (with signature guarantee of all investors listed on the account
when such a change is made in conjunction with a redemption request) to Warburg
Pincus Funds. Each mail redemption request must be signed by the registered
owner(s) (or legal representative(s)) exactly as the shares are registered. If
an investor has applied for the telephone redemption feature on the account
application, the investor may redeem the shares by telephone by calling the Fund
at (800) 369-2728. An investor making a telephone withdrawal should state (i)
the name of the relevant Portfolio, (ii) the account number of the Portfolio,
(iii) the name of the investor(s) appearing on the Portfolio's records, (iv) the
amount to be withdrawn and (v) the name of the person requesting the redemption.

After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. The Fund
currently does not impose a service charge for effecting wire transfers but it
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account in the Fund.' Although the
Fund will redeem shares purchased by check before the check has cleared, payment
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 or money order if they anticipate an immediate need for redemption
proceeds.

If a redemption order is received by a Portfolio or its agent prior to the
close of regular trading on the NYSE, the redemption order will be effected at
the relevant Portfolio's net asset value per share as determined on that day. If
a redemption order is received after the close of trading on the NYSE, the
redemption order will be effected at the relevant Portfolio's 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 Portfolio, the Portfolio reserves the right to
pay the redemption proceeds within seven days after the redemption order is
effected. Furthermore, a Portfolio 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 the account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.

<PAGE>
If, due to redemptions, the value of an investor's account in a Portfolio
drops to less than $250,000, the Fund reserves the right to redeem the shares in
that account at net asset value. Prior to any redemption, the Fund will notify
an investor in writing that the 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.

EXCHANGE OF SHARES. An investor may exchange shares of one Portfolio for
shares of another Portfolio 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 Portfolio'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. Currently, shares of the
Portfolios may be exchanged for shares of the following portfolios of the Fund,
which are described in a separate prospectus:

Japan Growth Portfolio -- an equity portfolio seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers;

Post-Venture Capital Portfolio -- an equity porfolio seeking long-term growth
of capital by investing primarily in equity securities of issuers in their
post-venture capital stage of development; and

Small Company Value Portfolio -- an equity portfolio seeking long-term capital
appreciation by investing primarily in equity securities of small
capitalization companies.

The exchange privilege is available to investors in any state in which the
shares being acquired may be legally 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 shares of a
Portfolio for shares in another portfolio of the Fund should review the
prospectus of the other portfolio prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another portfolio of the Fund, an investor should contact the Fund at (800)
369-2728.

Due to the costs involved in effecting exchanges, each Portfolio reserves the
right to refuse to honor more than three exchange requests by a shareholder in
any 30-day period. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, may be counted together
for purposes of the three exchange limit. The Portfolios reserve the right to
refuse exchange purchases by any person or group if, in Warburg's judgment, a
Portfolio would be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. Exchanges may also be restricted or refused if a Portfolio receives or
anticipates simultaneous orders

<PAGE>

affecting significant portions of the Portfolio's assets. In particular, a
pattern of exchanges that coincides with a 'market timing' strategy may be
disruptive to the Portfolio. Although the Portfolio will attempt to give prior
notice whenever it is reasonably able to do so, it may impose these restrictions
at any time. The Portfolios reserve the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.

TELEPHONE TRANSACTIONS. In order to request exchanges and redemptions by
telephone, investors must have completed and returned to Warburg Pincus Funds an
account application containing a telephone election. The election to request
exchanges and redemptions by telephone may be made subsequently by writing to
the Fund at the address set forth under 'How to Open an Account in the Fund.'
Neither a Portfolio 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 and
tape recording telephone instructions.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

DIVIDENDS AND DISTRIBUTIONS. Each Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued on the
Portfolio's portfolio securities for the applicable period (which includes
amortization of market discounts) less amortization of market premium and
applicable expenses. Each Portfolio 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. 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 shares of the relevant Portfolio at net asset value.
The election to receive dividends in cash may be made on the account application
or, subsequently, by writing to the Fund at the address set forth under 'How to
Open an Account in the Fund' or by calling the Fund 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. Each Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. A Portfolio, 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 Portfolio expects to pay such

<PAGE>
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 Portfolio 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 Portfolio shares or whether such distributions are received in cash or
reinvested in Portfolio shares. As a general rule, an investor's gain or loss on
a sale or redemption of Portfolio 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.

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 Portfolio 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 5 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 5
years is reduced to 8%. Each Portfolio 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.

<PAGE>
Dividends and interest received by each Portfolio 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 Portfolio qualifies as a regulated investment
company, if certain distribution requirements are satisfied and if more than 50%
of the Portfolio's total assets at the close of its fiscal year consist of stock
or securities of foreign corporations, the Portfolio may elect for U.S. income
tax purposes to treat any foreign income taxes paid by it that can be treated as
income taxes under U.S. income tax principles as paid by its shareholders. A
Portfolio may qualify for and make this election in some, but not necessarily
all, of its taxable years. If a Portfolio were to make an election, shareholders
of the Portfolio 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, a Portfolio will
report to its shareholders, in writing, the amount per share of such foreign
income tax that must be included in each shareholder's gross income and the
amount which will be available for the deduction or credit. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
Certain provisions of the Code may require that a gain recognized by a
Portfolio upon the closing of a short sale be treated as a short-term capital
gain, and that a loss recognized by the Portfolio upon the closing of a short
sale be treated as a long-term capital loss, regardless of the amount of time
that the Portfolio held the securities used to close the short sale. A
Portfolio's use of short sales may also affect the holding periods of certain
securities held by the Portfolio if such securities are 'substantially
identical' to securities used by the Portfolio to close the short sale. The
Portfolio's short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
GLOBAL FIXED INCOME PORTFOLIO. Zero coupon securities do not make interest
payments, although a portion of the difference between a zero coupon security's
maturity value and its purchase price is imputed as income to the Portfolio each
year even though the Portfolio receives no cash distribution until maturity.
Under the U.S. federal tax laws, the Portfolio 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 Portfolio.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if

<PAGE>
applicable, various written notices after the close of each Portfolio's prior
taxable year with respect to certain dividends and distributions which were
received from the Portfolio during the Portfolio's prior taxable year. Investors
should consult their tax advisers with specific reference to their own tax
situations, including their state and local tax liabilities.

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

Each Portfolio'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 Portfolio generally changes each day.

The net asset value per share of each Portfolio is computed by dividing the
value of a Portfolio's net assets by the total number of its shares outstanding.
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. 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.

THE PORTFOLIOS' PERFORMANCE
- --------------------------------------------------------------------------------

From time to time, a Portfolio may advertise its yield or average annual
total return over various periods of time. The yield of a Portfolio refers to
net investment income generated by the Portfolio over a specified 30-day period,
which is then annualized (based on SEC guidelines). Total return figures show
the average percentage change in value of an investment in a Portfolio from the
beginning of the measurement period to the end of the measurement period. The
figures reflect changes in the price of the Portfolio's shares assuming that any
income dividends and/or capital gain distributions made by the Portfolio during
the period were reinvested in shares of the Portfolio. 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 Portfolio'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

<PAGE>
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 such return may not be representative of any
Portfolio's return over a longer market cycle. A Portfolio may also advertise
aggregate total return figures for various periods, representing the cumulative
change in value of an investment in the relevant Portfolio for the specific
period. Aggregate and average total returns may be shown by means of schedules,
charts or graphs, and may indicate various components of total return (i.e.,
change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Statement of Additional Information describes the method used to determine each
Portfolio's yield and total return. Current yield and total return figures may
be obtained by calling the Fund at (800) 369-2728.

A Portfolio may compare its performance with (i) that of other mutual funds
with similar investment objectives and policies, which may be based on the
rankings prepared by Lipper Analytical Services, Inc. or similar investment
services that monitor the performance of mutual funds; (ii) in the case of the
International Equity and Managed EAFE'r' Countries Portfolios, the EAFE Index,
the Salomon Russell Global Equity Index, the FT-Actuaries World Indices (jointly
compiled by The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest
Securities Ltd.) and the S&P 500 Index; in the case of the Emerging Markets
Portfolio, with the IFC Emerging Market Free Index, the IFC Investible Index and
the Morgan Stanley Capital International Emerging Markets Index; in the case of
the Small Company Growth Portfolio, with the Russell 2000 Small Stock Index and
the S&P 500 Index; in the case of the Global Fixed Income Portfolio, with the
J.P. Morgan Traded Index (an index of non-U.S. dollar bonds of ten countries
with active bond markets), the Salomon Brothers World Government Bond Index (a
hedged, market-capitalization weighted index designed to track major government
debt markets) and the Lipper General World Income Average (an average of funds
that invest primarily in non-U.S. dollar and U.S. dollar debt instruments); and
in the case of the Value Portfolio, with the S&P 500 Index or (iii) other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. A Portfolio may also include evaluations of the
Portfolio published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and
The Wall Street Journal. Morningstar, Inc. rates funds in broad categories based
on risk/reward analyses over various time periods. In addition, each Portfolio
may from time to time compare its expense ratio to that of investment companies
with similar objectives and policies, based on data

<PAGE>

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
Portfolio may also describe the general biography or work experience of the
portfolio managers of the Portfolio and may include quotations attributable to
the portfolio managers describing approaches taken in managing the Portfolio's
investments, research methodology underlying stock selection or the Portfolio's
investment objective. In addition, a Portfolio and its portfolio managers may
render periodic updates of Portfolio investment activity, which may include,
among other things, a discussion or quantitative statistical or comparative
analysis of portfolio composition and significant portfolio holdings, including
analysis of holdings by sector, industry, country or geographic region, credit
quality and other characteristics. Each Portfolio may also discuss various
measures of risk, including those based on statistical or econometric analyses,
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 May 13, 1992 under the laws of the
State of Maryland under the name 'Warburg, Pincus Institutional Fund, Inc.' The
Fund's charter authorizes the Board to issue thirteen billion full and
fractional shares of capital stock, par value $.001 per share. Shares of nine
series have been classified, six of which constitute the interests in the
Portfolios.

VOTING RIGHTS. Investors in each Portfolio are entitled to one vote for each
full share owned and fractional votes for fractional shares held. Shareholders
of each Portfolio vote in the aggregate on all matters except where otherwise
required by law. There will normally be no meetings of shareholders 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 shareholders. 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 any purpose at the written request of
holders of 10% of the Fund's outstanding shares. [Wake Forest University Trust
may be deemed to be a controlling person of the Emerging Markets Portfolio
because its beneficial ownership of the Emerging Markets Portfolio exceeds 25%
of that Portfolio's voting securities.]
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of the investor's account, as well as a statement after any transaction that
affects the investor's share balance or share registration (other than
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 each Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by a Portfolio, as well as certain statistical

<PAGE>
characteristics of a Portfolio, may be obtained by calling the Fund at (800)
369-2728.

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF SHARES OF THE PORTFOLIOS, 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 SHARES IN ANY STATE
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.

<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 6
Portfolio Transactions and Turnover Rate................................ 14
Special Risk Considerations and Certain Investment Strategies........... 15
Investment Guidelines................................................... 24
Management of the Fund.................................................. 25
How to Open an Account in the Fund...................................... 28
How to Purchase Shares in the Portfolios................................ 29
How to Redeem and Exchange Shares in the Portfolios..................... 31
Dividends, Distributions and Taxes...................................... 34
Net Asset Value......................................................... 37
The Portfolios' Performance............................................. 37
General Information..................................................... 39
</TABLE>

[Logo]

P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
WWW.WARBURG.COM
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPINS-1-1097

STATEMENT OF DIFFERENCES
------------------------

The registered trademark symbol shall be expressed as ......... 'r'
The dagger symbol shall be expressed as ....................... 'D'

<PAGE>

PROSPECTUS
October 21, 1997

WARBURG PINCUS INSTITUTIONAL FUND, INC.
JAPAN GROWTH PORTFOLIO
POST-VENTURE CAPITAL PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO

[Logo]

<PAGE>

PROSPECTUS October 21, 1997

Warburg Pincus Institutional Fund, Inc. (the 'Fund') is an open-end management
investment company that consists of nine managed investment funds, three of
which are offered pursuant to this Prospectus (the 'Portfolios'):

JAPAN GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily
in equity securities of Japanese issuers. International investment entails
special risk considerations, including currency fluctuations, lower liquidity,
economic instability, political uncertainty and differences in accounting
methods. See 'Risk Factors and Special Considerations.'

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

SMALL COMPANY VALUE PORTFOLIO seeks long-term capital appreciation by investing
primarily in a portfolio of equity securities of small capitalization companies.

The Fund is designed for institutional investors although, at its discretion,
the Fund may permit shares to be purchased by individuals, as well as
institutions, who meet the minimum investment requirements.

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

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

<PAGE>
THE PORTFOLIOS' EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Small
Japan Post-Venture Company
Growth Capital Value
Portfolio Portfolio Portfolio
------------- ------------ -------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............. 0 0 0
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees`D'................................ .15% .41% .33 %
12b-1 Fees........................................ 0 0 0
Other Expenses`D'................................. 1.10% .84% .66 %
----- ----- -------
Total Portfolio Operating Expenses (after fee
waivers)`D'..................................... 1.25% 1.25% .99 %
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........................................... $13 $13 $10
3 years.......................................... $40 $40 $32
</TABLE>

- --------------------------------------------------------------------------------
`D' Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, Management Fees for the Japan Growth Portfolio, the
Post-Venture Capital Portfolio and the Small Company Value Portfolio would
equal 1.10%, 1.10% and .90%, respectively, Other Expenses would equal 1.22%,
.94% and .76%, respectively, and Total Portfolio Operating Expenses would
equal 2.32%, 2.04% and 1.66%, respectively. Other Expenses for these
Portfolios are based on annualized estimates of expenses for the fiscal year
ending October 31, 1998, net of any fee waivers or expense reimbursements.
The Portfolios' investment adviser and co-administrator are under no
obligation to continue these waivers, except that the investment adviser has
undertaken to limit Total Portfolio Operating Expenses to the limits shown
in the table above through October 31, 1998.

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

<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Set forth below is a description of the investment objective and policies of
each Portfolio. The investment objective of a Portfolio is a fundamental policy
and may not be changed without the approval of the holders of a majority of the
outstanding voting securities of that Portfolio. Any investment involves risk
and, therefore, there can be no assurance that a Portfolio will achieve its
investment objective. See 'Special Risk Considerations and Certain Investment
Strategies' for descriptions of certain types of investments the Portfolios may
make.
JAPAN GROWTH PORTFOLIO
The Japan Growth Portfolio seeks long-term growth of capital. The Portfolio
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
Portfolio 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 Depositary Receipts ('ADRs') of
Japanese issuers.

Warburg Pincus Asset Management, Inc., the Portfolios' investment adviser
('Warburg'), believes that Japanese industry is in the process of deregulation
and restructuring. The Portfolio 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 Portfolio 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 Portfolio 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.

The Portfolio 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 Portfolio 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 one or
more such countries, 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

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Portfolio's assets not invested in Japanese issuers may be invested in
securities of other Asian issuers. The Portfolio does not, except during
temporary defensive periods, intend to invest in securities of non-Asian
issuers. From time to time, the Portfolio 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.

POST-VENTURE CAPITAL PORTFOLIO

Because of the nature of the Post-Venture Capital Portfolio's investments and
certain strategies it may use, such as investing in Private Funds (as defined
below), an investment in the Portfolio should be considered only for the
aggressive portion of an investor's portfolio and may not be appropriate for all
investors.
The Post-Venture Portfolio seeks long-term growth of capital. The Portfolio
is a diversified management investment company that pursues an aggressive
investment strategy. The Portfolio pursues its investment objective by investing
primarily in equity securities of companies considered by Warburg to be in their
post-venture capital stage of development. The Portfolio intends to invest in
securities of post-venture capital companies, as defined below, that are traded
on a national securities exchange or in an organized over-the-counter market.
Although the Portfolio may invest up to 10% of its assets in venture capital
and other investment funds, the Portfolio is not designed primarily to provide
venture capital financing. Rather, under normal market conditions, the Portfolio
will invest at least 65% of its total assets in equity securities of
'post-venture capital companies.' A post-venture capital company is a company
that has received venture capital financing either (a) during the early stages
of the company's existence or the early stages of the development of a new
product or service, or (b) as part of a restructuring or recapitalization of the
company. The investment of venture capital financing, distribution of such
company's securities to venture capital investors, or initial public offering
('IPO'), whichever is later, will have been made within ten years prior to the
Portfolio's purchase of the company's securities.
Warburg believes that venture capital participation in a company's capital
structure can lead to revenue/earnings growth rates above those of older, public
companies such as those in the Dow Jones Industrial Average, the Fortune 500 or
the Morgan Stanley Capital International Europe, Australasia and Far East
('EAFE') Index. Venture capitalists finance start-up companies, companies in the
early stages of developing new products or services and companies undergoing a
restructuring or recapitalization, since these companies may not have access to
conventional forms of financing (such as bank loans or public issuances of
stock). Venture capitalists may hold substantial positions in companies that may
have been acquired at prices significantly below the initial public offering
price. This may create a potential adverse impact in the short-term on the
market price of a company's stock due to sales in the open market by a venture
capitalist or

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others who acquired the stock at lower prices prior to the company's IPO.
Warburg will consider the impact of such sales in selecting post-venture capital
investments. Venture capitalists may be individuals or funds organized by
venture capitalists which are typically offered only to large institutions, such
as pension funds and endowments, and certain accredited investors. Outside of
the United States, venture capitalists may also consist of merchant banks and
other banking institutions that provide venture capital financing in a manner
similar to U.S. venture capitalists. Venture capital participation in a company
is often reduced when the company engages in an IPO of its securities or when it
is involved in a merger, tender offer or acquisition.
Warburg has experience in researching smaller companies, companies in the
early stages of development and venture capital-financed companies. Its team of
analysts, led by Elizabeth Dater and Stephen Lurito, regularly monitors
portfolio companies whose securities are held by over 250 of the larger domestic
venture capital funds. Ms. Dater and Mr. Lurito have managed post-venture equity
securities in separate accounts for institutions since 1989 and currently manage
over $1 billion of such assets for investment companies and other institutions.
PRIVATE FUND INVESTMENTS. Up to 10% of the Portfolio's assets may be invested
in United States or foreign private limited partnerships or other investment
funds ('Private Funds') that themselves invest in equity or debt securities of
(a) companies in the venture capital or post-venture capital stages of
development or (b) companies engaged in special situations or changes in
corporate control, including buyouts. In selecting Private Funds for investment,
Abbott Capital Management, LLC, the Portfolio's sub-investment adviser with
respect to Private Funds ('Abbott'), attempts to invest in a mix of Private
Funds that will provide an above average internal rate of return (i.e., the
discount rate at which the present value of an investment's future cash inflows
(dividend income and capital gains) are equal to the cost of the investment).
Warburg believes that the Fund's investments in Private Funds offers individual
investors a unique opportunity to participate in venture capital and other
private investment funds, providing access to investment opportunities typically
available only to large institutions and accredited investors. Although the
Portfolio's investments in Private Funds are limited to a maximum of 10% of the
Portfolio's assets, these investments are highly speculative and volatile and
may produce gains or losses in the portion of the Portfolio that exceed those of
the Portfolio's other holdings and of more mature companies generally.
Because Private Funds generally are investment companies for purposes of the
Investment Company Act of 1940, as amended (the '1940 Act'), the Portfolio's
ability to invest in them will be limited. In addition, Portfolio shareholders
will remain subject to the Portfolio's expenses while also bearing their pro
rata share of the operating expenses of the Private Funds. The ability of the
Portfolio to dispose of interests in Private Funds is very limited and

<PAGE>
will involve the risks described under 'Special Risk Considerations and Certain
Investment Strategies -- Non-Publicly Traded Securities; Rule 144A Securities.'
In valuing the Portfolio's holdings of interests in Private Funds, the Portfolio
will be relying on the most recent reports provided by the Private Funds
themselves prior to calculation of the Portfolio's net asset value. These
reports, which are provided on an infrequent basis, often depend on the
subjective valuations of the managers of the Private Funds and, in addition,
would not generally reflect positive or negative subsequent developments
affecting companies held by the Private Fund. See 'Net Asset Value.' Debt
securities held by a Private Fund will tend to be rated below investment grade
and may be rated as low as C by Moody's Investors Service, Inc. ('Moody's') or D
by Standard & Poor's Ratings Services ('S&P'). Securities in these rating
categories are in payment default or have extremely poor prospects of attaining
any investment standing. For a discussion of the risks of investing in below
investment grade debt, see 'Investment Policies -- Below Investment Grade Debt
Securities' in the Statement of Additional Information. For a discussion of the
possible tax consequences of investing in foreign Private Funds, see 'Additional
Information Concerning Taxes -- Investment in Passive Foreign Investment
Companies' in the Statement of Additional Information.
The Portfolio may also hold non-publicly traded equity securities of
companies in the venture and post-venture stages of development, such as those
of closely-held companies or private placements of public companies. The portion
of the Portfolio's assets invested in these non-publicly traded securities will
vary over time depending on investment opportunities and other factors. The
Portfolio's illiquid assets, including interests in Private Funds and other
illiquid non-publicly traded securities, may not exceed 15% of the Portfolio's
net assets.
OTHER STRATEGIES. The Portfolio may invest up to 35% of its assets in
exchange-traded and over-the-counter securities that do not meet the definition
of post-venture capital companies without regard to market capitalization. Up to
10% of the Portfolio's assets may be invested, directly or through Private
Funds, in securities of issuers engaged at the time of purchase in 'special
situations,' such as a restructuring or recapitalization; an acquisition,
consolidation, merger or tender offer; a change in corporate control or
investment by a venture capitalist.
To attempt to reduce risk, the Portfolio will diversify its investments over
a broad range of issuers operating in a variety of industries. The Portfolio may
hold securities of companies of any size, and will not limit capitalization of
companies it selects to invest in. However, due to the nature of the venture
capital to post-venture cycle, the Portfolio anticipates that the average market
capitalization of companies in which it invests will be less than $1 billion at
the time of investment. Although the Portfolio will invest primarily in U.S.
companies, up to 20% of the Portfolio's assets may be invested in securities of
issuers located in foreign countries. Equity securities in which the Portfolio

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will invest are common stock, preferred stock, warrants, securities convertible
into or exchangeable for common stock and partnership interests. The Portfolio
may engage in a variety of strategies to reduce risk or seek to enhance return,
including engaging in short selling (see 'Special Risk Considerations and
Certain Investment Strategies').

SMALL COMPANY VALUE PORTFOLIO

The Small Company Value Portfolio seeks long-term capital appreciation. The
Portfolio is a diversified management investment company that pursues its
investment objective by investing primarily in a portfolio of equity securities
of small capitalization companies that Warburg considers to be relatively
undervalued. Current income is a secondary consideration in selecting portfolio
investments. Under normal market conditions the Portfolio will invest at least
65% of its total assets in common stocks, preferred stocks, debt securities
convertible into common stocks, warrants and other rights of small companies
(i.e., companies having stock market capitalizations of $1 billion or less at
the time of initial purchase).
Warburg will determine whether a company is undervalued based on a variety of
measures, including price/earnings ratio, price/book ratio, price/cash flow
ratio, earnings growth and debt/capital ratio. Other relevant factors, including
a company's asset value, franchise value and quality of management, will also be
considered. The Portfolio will invest primarily in companies whose securities
are traded on U.S. stock exchanges or in the U.S. over-the-counter market, but
may invest up to 20% of its assets in foreign securities.

ADDITIONAL INVESTMENTS

MONEY MARKET OBLIGATIONS. Each Portfolio 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) and medium-term (five years
or less remaining to maturity) money market obligations, although each Portfolio
intends to stay invested in securities satisfying its investment objective to
the extent practical. In addition, on occasion, Warburg may deem it advisable to
adopt a temporary defensive posture by investing without limit in money market
obligations. These instruments consist of obligations of the U.S. government or
foreign governments, their agencies or instrumentalities; obligations of foreign
and U.S. banks; commercial paper; and money market mutual funds that invest in
the foregoing. A shareholder in the Portfolio would bear both its ratable share
of that mutual fund's expenses, as well as the Portfolio's administration fees
and other expenses with respect to assets so invested.
Repurchase Agreements. The Portfolios may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Under the terms of a typical repurchase agreement, a Portfolio
would acquire an underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the seller to

<PAGE>
repurchase, and the Portfolio to resell, the obligation at an agreed-upon price
and time, thereby determining the yield during the Portfolio'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 accrued interest. A
Portfolio 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 Portfolio is
delayed or prevented from exercising its right to dispose of the collateral
securities.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to a Portfolio and appropriate considering the factors of return and liquidity,
the Portfolio may invest up to 5% of its assets in securities of money market
mutual funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Portfolio will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Portfolio's
administration fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which each
Portfolio may invest include: direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) 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.
DEBT SECURITIES. The Japan Growth Portfolio may invest up to 35% of its total
assets, and each of the Post-Venture Capital Portfolio and the Small Company
Value Portfolio may invest up to 20% of its total assets, in investment grade
debt securities. The interest income to be derived may be considered as one
factor in selecting debt securities for investment by Warburg. Because the
market value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital growth when interest rates are expected to decline. The
success of such a strategy is dependent upon Warburg's ability to 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.

<PAGE>
purchase by the Portfolio. Neither event will require sale of such securities,
although Warburg will consider such event in its determination of whether the
Portfolio should continue to hold the securities.

When Warburg believes that a defensive posture is warranted, each Portfolio
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
Japan Growth Portfolio. Although it does not currently intend to do so during
the coming year, the Japan Growth Portfolio may invest or hold up to 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 Portfolio.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. In addition to the Japan Growth
Portfolio's authority to invest in money market securities, but within the 35%
limitation investments in debt securities, the Portfolio may invest up to 5% of
its net assets in asset-backed and mortgage-backed securities:
Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle had not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The Portfolio may purchase
asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
WARRANTS. Each Portfolio 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

<PAGE>
a related company, at a fixed price either on a date certain or during a set
period.

PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
A Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it is to be in the best interests of the relevant Portfolio and
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. In addition, to
the extent it is consistent with a Portfolio's investment objective, each
Portfolio also may engage in short-term trading. This investment approach and
the use of certain of the investment strategies described below may result in a
high portfolio turnover rate for the Portfolios. It is not possible to predict
the portfolio turnover rates for the Portfolios. However, the Japan Growth
Portfolio's annual turnover rate should not exceed 100%, the Post-Venture
Capital Portfolio's turnover rate should not exceed 150% and the Small Company
Value Portfolio's annual turnover rate should not exceed 100%. High portfolio
turnover rates (100% or more) may result in dealer markups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information. All orders for
transactions in securities or options on behalf of a Portfolio are placed by
Warburg with broker-dealers that it selects.

SPECIAL RISK CONSIDERATIONS AND
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
In attempting to achieve its investment objective, a Portfolio may engage in
one or more of the strategies set forth below. Although there is no intention of
doing so during the coming year, each Portfolio is authorized to engage in the
following investment strategies: (i) purchasing securities on a when-issued
basis and purchasing or selling securities for delayed delivery, (ii) lending
portfolio securities and (iii) entering into reverse repurchase agreements and
dollar rolls. The Japan Growth Portfolio may also invest in zero coupon
securities, although the Portfolio currently anticipates that during the coming
year zero coupon securities will not exceed 5% of net assets. Detailed
information concerning these strategies and their related risks is contained in
the Statement of Additional Information.

<PAGE>

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.

Up to 5% of the net assets of the Japan Growth Portfolio and the Small
Company Value Portfolio may be invested in convertible securities rated below
investment at the time of purchase (as low as C by Moody's or D by S&P) or
deemed by Warburg to be of equivalent quality.

FOREIGN SECURITIES. The Japan Growth Portfolio will invest substantially in
foreign securities, and each of the Post-Venture Capital and the Small Company
Value Portfolios may invest up to 20% of its total assets in the securities of
foreign issuers. There are certain risks involved in investing in securities of
companies and governments of foreign nations which are in addition to the usual
risks inherent in domestic investments. These risks include those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers and 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 a Portfolio,
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
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.
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
of 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

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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. The risks associated with
investing in securities of non-U.S. issuers are generally heightened for
investments in securities of issuers in emerging markets.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described above associated with investing in foreign securities generally. In
addition, because the Japan Growth Portfolio invests primarily in Japan, it will
be subject to general economic and political conditions in Japan. The Japan
Growth Portfolio should be considered a vehicle for diversification, but the
Portfolio itself is not diversified.
Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of the
Japan Growth Portfolio, 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 the Portfolio'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 Japan Growth Portfolio's assets 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 the Portfolio. In periods of
rapid price increases, the limited liquidity of JASDAQ restricts the Portfolio'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 Portfolio to dispose of securities
quickly in order to realize gains previously made or to limit losses on
securities held in its portfolio. In addition, although JASDAQ has generally
experienced sustained growth in aggregate market capitalization and trading
volume, there have been periods in which aggregate market capitalization and
trading volume have declined. The Frontier Market is expected to present greater
liquidity, volatility and trading considerations than JASDAQ.
At August 6, 1997, 783 issues were traded through JASDAQ, having an aggregate
market capitalization in excess of 13 trillion yen (approximately $109 billion
as of August 6, 1997). The entry requirements for JASDAQ

<PAGE>
generally require a minimum of 2 million shares outstanding at the time of
registration, a minimum of 200 shareholders, minimum pre-tax profits of 10 yen
per share (approximately $.08 per share as of August 6, 1997) over the prior
fiscal year and net worth of 200 million yen (approximately $1.68 million as of
August 6, 1997). 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 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 2 million shares outstanding at the time of
registration. As a result, investments in companies traded through the Frontier
Market may involve a greater degree of risk than investments in companies traded
through JASDAQ. 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 on the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect a Portfolio investing there.
For additional information, see 'Investment Policies -- Japanese Investments' in
the Statement of Additional Information.

<PAGE>
EMERGING MARKETS. The Japan Growth Portfolio may invest in securities of
issuers located in less developed Asian countries considered to be 'emerging
markets.' Investing in securities of issuers located in emerging markets
involves not only the risks described below with respect to investing in foreign
securities, but also other risks, including exposure to economic structures that
are generally less diverse and mature than, and to political systems that can be
expected to have less stability than, those of developed countries. Other
characteristics of emerging markets that may affect investment there include
certain national policies that may restrict investment by foreigners in issuers
or industries deemed sensitive to relevant national interests and the absence of
developed legal structures governing private and foreign investments and private
property. The typically small size of the markets for securities of issuers
located in emerging markets and the possibility of a low or nonexistent volume
of trading in those securities may also result in a lack of liquidity and in
price volatility of those securities.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging
growth and small-sized companies, which may include JASDAQ and Frontier Market
securities, may involve greater risks than investing in larger, more established
issuers 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 small- and medium-sized companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for a Portfolio to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. Small-sized companies may have limited
product lines, markets or financial resources and may lack management depth. In
addition, small- and medium-sized companies are typically subject to a greater
degree of changes in earnings and business prospects than are larger, more
established companies. There is typically less publicly available information
concerning small- and medium-sized companies than for larger, more established
ones.
The Post-Venture Capital Portfolio may invest in securities of issuers in
'special situations.' Securities of issuers in 'special situations' also may be
more volatile, since the market value of these securities may decline in value
if the anticipated benefits do not materialize. Companies in 'special
situations' include, but are not limited to, companies involved in an
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; litigation which, if
resolved favorably, would improve the value of the companies' securities; or a
change in corporate control.
Although investing in securities of emerging growth companies or, with
respect to the Post-Venture Capital Portfolio, 'special situations' offers
potential for above-average returns if the companies are successful, the risk
exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in a

<PAGE>
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek growth of capital or capital appreciation by investing in
better-known, larger companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures, forward currency contracts and, in the case of the
Japan Growth Portfolio, swaps. These strategies, commonly referred to as
'derivatives,' may be used (i) for the purpose of hedging against a decline in
value of a Portfolio'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
PORTFOLIO'S INVESTMENT RISK. Transaction costs and any premiums associated with
these strategies, and any losses incurred, will affect a Portfolio's net asset
value and performance. Therefore, an investment in a Portfolio may involve a
greater risk than an investment in other mutual funds that do not utilize these
strategies. A Portfolio'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. Each Portfolio may write put and
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. Each Portfolio may utilize up
to 10% of its assets to purchase options on stocks and debt securities that are
traded on U.S. and foreign exchanges, as well as 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
Portfolio may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Related Options. Each Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and

<PAGE>
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 Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although a Portfolio is limited in
the amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of a Portfolio's assets that may be at risk with
respect to futures activities.
Currency Exchange Transactions. Each Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing or writing exchange-traded or OTC 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.
Swaps. The Japan Growth Portfolio may enter into swaps relating to indexes,
currencies and equity interests of foreign issuers. A swap transaction is an
agreement between the Portfolio and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by the Portfolio
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 stock index, a basket of stocks or a single stock. The Portfolio 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 Portfolio

<PAGE>
anticipates purchasing at a later date. The Portfolio 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, or is unavailable for direct
investment. 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 Japan Growth Portfolio 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 Portfolio 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 the Portfolio is contractually obligated to make. If the
counterparty to a swap defaults, the Portfolio's risk of loss consists of the
net amount of payments that the Portfolio 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 the Portfolio's borrowing
restrictions. Where swaps are entered into for other than hedging purposes, the
Portfolio 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. Each Portfolio may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. Each Portfolio 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 a Portfolio engages in the
strategies described above, the Portfolio 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 Portfolio may be unable to close out an option or futures position without

<PAGE>
incurring substantial losses, if at all. A Portfolio is also subject to the risk
of a default by a counterparty to an off-exchange transaction.
Asset Coverage. Each Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities, indexes and currencies;
currency, interest rate and stock index futures contracts and options on these
futures contracts; and forward currency contracts and, in the case of the Japan
Growth Portfolio, swaps. The use of these strategies may require that the
Portfolio maintain cash or liquid securities in a segregated account with its
custodian or a designated sub-custodian to the extent the Portfolio's
obligations with respect to these strategies are not otherwise 'covered' through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of a Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. A Portfolio 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'). A Rule 144A Security will be considered illiquid and therefore
subject to the Portfolio's limitation on the purchase of illiquid securities
unless the Fund's Board of Directors (the 'Board') determines on an ongoing
basis that an adequate trading market exists for the security. Non-publicly
traded securities (including interests in Private Funds and Rule 144A
Securities) may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio. In addition, companies whose securities are not publicly traded are
not subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. A Portfolio's
investment in illiquid securities is subject to the risk that should the
Portfolio 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 Portfolio'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 of the amount invested in the
warrant. In

<PAGE>
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.
SHORT SELLING. The Post-Venture Capital Portfolio may from time to time sell
securities short. A short sale is a transaction in which the Portfolio sells
securities it does not own in anticipation of a decline in the market price of
the securities. The current market value of the securities sold short (excluding
short sales 'against the box') will not exceed 10% of the Portfolio's assets.
To deliver the securities to the buyer, the Portfolio must arrange through a
broker to borrow the securities and, in so doing, the Portfolio becomes
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Portfolio will make a profit or
incur a loss as a result of a short sale depending on whether the price of the
security decreases or increases between the date of the short sale and the date
on which the Portfolio purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Portfolio is required to pay in
connection with a short sale.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, the Portfolio will place in a
segregated account with its custodian or a qualified subcustodian an amount of
cash or liquid securities equal to the difference, if any, between (i) the
market value of the securities sold at the time they were sold short and (ii)
any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the sort sale).
Until it replaces the borrowed securities, the Portfolio will maintain the
segregated account daily at a level so that (a) the amount deposited in the
account plus the amount deposited with the broker (not including the proceeds
from the short sale) will equal the current market value of the securities sold
short and (b) the amount deposited in the account plus the amount deposited with
the broker (not including the proceeds from the short sale) will not be less
than the market value of the securities at the time they were sold short.
Short Sales Against the Box. Each Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred stock 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 a Portfolio to, for
example, lock in a sale price for a security the Portfolio does not wish to sell
immediately. A Portfolio 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 a

<PAGE>
Portfolio's net assets (taken at current value) may be held as collateral for
such sales at any one time.
NON-DIVERSIFIED STATUS. The Japan Growth Portfolio is classified as 'non-
diversified' under the 1940 Act, which means that the Portfolio is not limited
by the 1940 Act in the proportion of its assets that may be invested in the
securities of a single issuer. The Portfolio, however, intends to comply with
the diversification requirements imposed by the Code, for qualification as a
regulated investment company. As a non-diversified portfolio, the Portfolio may
invest a greater proportion of its assets in the obligations of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to
portfolio securities.

INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
The Post-Venture Capital Portfolio may invest up to 15% of its net assets and
each other Portfolio may invest up to 10% of its assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. A Portfolio may borrow from banks for temporary or
emergency purposes in an amount up to 30% of its total assets and may pledge its
assets to the same extent in connection with these borrowings. Whenever
borrowings (including reverse repurchase agreements) exceed 5% of the value of a
Portfolio's total assets, the Portfolio 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 a Portfolio has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Portfolio's outstanding shares is contained in the
Statement of Additional Information.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISERS. The Fund employs Warburg as investment adviser to each
Portfolio and, with respect to the Post-Venture Capital Portfolio, Abbott as its
sub-investment adviser. Warburg, subject to the control of the Fund's officers
and the Board, manages the investment and reinvestment of the assets of the
Portfolios in accordance with each Portfolio's investment objective and stated
investment policies. Warburg makes investment decisions for each Portfolio and
places orders to purchase or sell securities on behalf of the Portfolio and,
with respect to the Post-Venture Capital Portfolio, supervises the activities of
Abbott. Warburg also employs a support staff of management personnel to provide
services to the Fund and furnishes the Fund with office space, furnishings and
equipment. Abbott, in accordance

<PAGE>
with the investment objective and policies of the Post-Venture Capital
Portfolio, makes investment decisions for the Portfolio regarding investments in
Private Funds, effects transactions in Private Funds on behalf of the Portfolio
and assists in other administrative functions relating to investments in Private
Funds.
For the services provided by Warburg, the Japan Growth and the Small Company
Value Portfolios pay Warburg a fee calculated at an annual rate of 1.10% and
.90%, respectively, of the relevant Portfolio's average daily net assets. For
the services provided by Warburg, the Post-Venture Capital Portfolio pays
Warburg a fee calculated at an annual rate of 1.10% of the Portfolio's average
daily net assets, out of which Warburg pays Abbott for sub-advisory services.
Warburg and the Portfolios' co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be borne by
the Portfolios.

Warburg. Warburg is a professional investment management firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of August 31,
1997, Warburg managed approximately $20.2 billion of assets, including
approximately $11.8 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.

Abbott. Abbott is an independent specialized investment firm with assets
under management of approximately $1.9 billion. Abbott is a registered
investment adviser which concentrates on venture capital, buyout and special
situations partnership investments. Abbott's management team provides
full-service private equity programs to clients. The predecessor firm to Abbott
was organized in 1986 as a Delaware limited partnership and converted to a
Delaware limited liability company effective July 1, 1997. Abbott's principal
office is located at 50 Rowes Wharf, Suite 240, Boston, Massachusetts
02110-3328.
PORTFOLIO MANAGERS.
Japan Growth Portfolio. P. Nicholas Edwards is the Portfolio Manager for the
Japan Growth Portfolio. Mr. Edwards is a Managing Director and has been with
Warburg since August 1995, before which time he was a director at Jardine
Fleming Investment Advisers, Tokyo.
Post-Venture Capital Portfolio. Elizabeth B. Dater and Stephen J. Lurito are
the Co-Portfolio Managers for the Post-Venture Capital Portfolio. Ms. Dater is a
Senior Managing Director of Warburg and has been a portfolio manager of Warburg
since 1978. Mr. Lurito is a Managing Director of Warburg and has been with
Warburg since 1987.
Robert S. Janis and Christopher M. Nawn are Associate Portfolio Managers and
Research Analysts for the Portfolio. Mr. Janis is a Senior Vice President of

<PAGE>
Warburg and has been with Warburg since October 1994, before which time he was a
vice president and senior research analyst at U.S. Trust Company of New York.
Mr. Nawn is also a Senior Vice President of Warburg and has been with Warburg
since September 1994, before which time he was a senior sector analyst and
portfolio manager at the Dreyfus Corporation.
Raymond L. Held and Gary H. Solomon, Investment Managers and Managing
Directors of Abbott, manage the Portfolio's investments in Private Funds. Both
Mr. Held and Mr. Solomon have been associated with Abbott and its predecessor
firm since 1986.

Small Company Value Portfolio. George U. Wyper is the Portfolio Manager of
the Small Company Value Portfolio. Mr. Wyper is a Managing Director of Warburg,
which he joined in August 1994, before which time he was chief investment
officer of White River Corporation and president of Hanover Advisors, Inc.
(1993-August 1994) and chief investment officer of Fund American Enterprises,
Inc. (1990-1993). Kyle F. Frey, a Senior Vice President of Warburg, is Associate
Portfolio Manager and Research Analyst of the Portfolio and has been with
Warburg since 1989.

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 Portfolios, 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 each Portfolio
and its various service providers, furnishing corporate secretarial services,
which include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and developing and monitoring compliance procedures
for the Portfolios. As compensation, each Portfolio pays Counsellors Service a
fee calculated at an annual rate of .10% of the Portfolio's average daily net
assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates each
Portfolio's net asset value, provides all accounting services for the Portfolios
and assists in related aspects of the Portfolios' operations. As compensation,
the Japan Growth Portfolio will pay PFPC a fee calculated at an annual rate of
.12% of the Portfolio's first $250 million in average daily net assets, .10% of
the next $250 million in assets, .08% of the next $250 million in assets, and
.05% of assets over $750 million, and the Post-Venture Capital Portfolio and the
Small Company Value Portfolio will each pay PFPC a fee calculated at an annual
rate of .10% of the Portfolio's first $500 million in average daily net assets,
.075% of the next $1 billion in average daily net assets, and .05% of average
daily net assets over $1.5 billion. PFPC has its principal offices at 400
Bellevue Parkway, Wilmington, Delaware 19809.

<PAGE>
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of
each Portfolio's U.S. assets. Like PFPC, PNC is an indirect wholly owned
subsidiary of PNC Bank Corp., and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103.
State Street Bank and Trust Company ('State Street') serves as custodian of
the Portfolios' non-U.S assets. State Street's principal business address is 225
Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street serves as shareholder servicing agent, transfer
agent and dividend disbursing agent for the Fund. It has delegated to Boston
Financial Data Services, Inc. ('BFDS'), a 50% owned subsidiary, responsibility
for most shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities Inc. ('Counsellors Securities') serves
without compensation as distributor of the shares of each Portfolio. 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.

<PAGE>

Warburg Pincus Funds
335 Madison Avenue, 15th Floor
New York, New York 10017
Attention: Institutional Services

Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.

RETIREMENT PLANS. For information about investing in a Portfolio through a
tax-deferred retirement plan, such as an Individual Retirement Account ('IRA')
or a Simplified Employee Pension IRA ('SEP-IRA') an investor should telephone
Warburg Pincus Funds at (800) 369-2728 or write to the Fund at the address set
forth above. Investors should consult their own tax advisers about the
establishment of retirement plans.

<TABLE>
<CAPTION>
Minimum Initial Minimum Subsequent
Portfolio Investment* Investment
- ---------------------------------------- ------------------- -----------------------
<S> <C> <C>
Japan Growth $1,000,000 None
Post-Venture Capital 1,000,000 None
Small Company Value 1,000,000 None
</TABLE>

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

*The minimum investment for any group of related persons is an aggregate of
$4,000,000.

---------------------------
The investment minimums may be waived for accounts in which employees of
Warburg or its affiliates have an interest or for investors maintaining advisory
accounts with Warburg or brokerage accounts with Counsellors Securities. The
Fund reserves the right to change the initial investment minimum requirements or
impose a subsequent investment minimum at any time. Existing investors will be
given 15 days' notice by mail of any subsequent investment minimum.
After an investor has made an 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 Portfolio in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares of a
Portfolio are not normally issued.

<PAGE>

BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to Warburg Pincus Institutional Fund, Inc. or Warburg Pincus
Funds (in U.S. currency) should be sent along with the completed account
application to the address set forth above and should indicate the Portfolio in
which shares are to be purchased. Checks payable to the investor and endorsed to
the order of the Fund or Warburg Pincus Funds will not be accepted as payment
and will be returned to the sender. If payment is received in proper form by the
close of regular trading on The New York Stock Exchange, 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 relevant
Portfolio's net asset value calculated at the end of that day. If payment is
received after the close of the NYSE, the purchase will be effected at the
relevant Portfolio's net asset value determined for the next business day after
payment has been received. Checks or money orders that are not in proper form or
that are not accompanied or preceded by a complete account application will be
returned to the sender. Shares purchased by check or money order are entitled to
receive dividends and distributions beginning on the day after payment has been
received. Checks or money orders in payment for more than one Portfolio or
Warburg Pincus Fund should be accompanied by a breakdown of amounts to be
invested in each Portfolio or fund. If a check used for the 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 each
Portfolio's net asset value, see 'Net Asset Value' below.

<PAGE>
wire is received in proper form by the close of the NYSE without a prior
telephone order, the purchase will be priced according to the net asset value of
the relevant Portfolio on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
received or accepted will be returned to the prospective investor after prompt
inquiry. If a telephone order is placed and payment by wire is not received on
the same day, the Fund will cancel the purchase and the investor may be liable
for losses or fees incurred.

PURCHASES THROUGH INTERMEDIARIES. The Portfolios may be available through
certain broker-dealers, financial institutions and other industry professionals,
collectively, 'Service Organizations'), which may impose certain conditions on
their clients or customers that invest in the Portfolios, which are in addition
to or different than those described in this Prospectus. Certain features of the
Portfolios 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 Portfolio shares are
purchased directly from the Fund. Therefore, a client or customer should contact
the Service Organization acting on its behalf concerning the fees (if any)
charged in connection with a purchase or redemption of Portfolio shares and
should read this Prospectus in light of the terms governing its accounts with
the Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Portfolio
in accordance with their agreements with the Portfolio and with clients or
customers.

GENERAL. Each Portfolio 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 opinion, they are of a size that would disrupt the management
of the Portfolio. A Portfolio may discontinue sales of its shares if management
believes that a substantial further increase in assets may adversely affect that
Portfolio'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 Portfolio and to reinvest any dividends or capital
gains distributions.

<PAGE>
HOW TO REDEEM AND EXCHANGE SHARES IN THE PORTFOLIOS
- -------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor in a Portfolio may redeem (sell) shares on
any day that the Portfolio's net asset value is calculated (see 'Net Asset
Value' below).
Shares of a Portfolio may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, they may be giving up a measure of security that they may have if they
were to redeem or exchange their shares in writing. If an investor desires to
redeem shares by mail, a written request for redemption should be sent to
Warburg Pincus Funds at the address indicated above under 'How to Open an
Account in the Fund.' An investor should be sure that the redemption request
identifies the relevant Portfolio, the number of shares to be redeemed and the
investor's account number. In order to change the bank account designated to
receive the redemption proceeds, the investor must send a written request (with
signature guarantee of all investors listed on the account when such a change is
made in conjunction with a redemption request) to Warburg Pincus Funds. Each
mail redemption request must be signed by the registered owner(s) (or legal
representative(s)) exactly as the shares are registered. If an investor has
applied for the telephone redemption feature on the account application, the
investor may redeem the shares by telephone by calling the Fund at (800)
369-2728. An investor making a telephone withdrawal should state (i) the name of
the relevant Portfolio, (ii) the account number of the Portfolio, (iii) the name
of the investor(s) appearing on the Portfolio's records, (iv) the amount to be
withdrawn and (v) the name of the person requesting the redemption.

<PAGE>
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 Portfolio, the Portfolio reserves the right to
pay the redemption proceeds within seven days after the redemption order is
effected. Furthermore, a Portfolio 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 the 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 in a Portfolio
drops to less than $250,000, the Fund reserves the right to redeem the shares in
that account at net asset value. Prior to any redemption, the Fund will notify
an investor in writing that the 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.

Currently, shares of the Portfolios may be exchanged for shares of the
following portfolios of the Fund, which are described in a separate prospectus:

International Equity Portfolio -- an equity portfolio seeking long-term
capital appreciation by investing primarily in equity securities of non-
United States issuers;

Managed EAFE'r' Countries Portfolio -- an equity portfolio seeking long-term
capital appreciation by investing primarily in equity securities of issuers
having their principal business activities and interests in foreign
countries included the Morgan Stanley Capital International EAFE'r' Index;

Emerging Markets Portfolio -- an equity portfolio seeking long-term growth
of capital by investing primarily in equity securities of non-United States
issuers consisting of companies in emerging securities markets;

<PAGE>

Small Company Growth Portfolio -- an equity portfolio seeking capital growth
by investing primarily in equity securities of small-sized domestic
companies;

Global Fixed Income Portfolio -- a bond portfolio seeking to maximize total
investment return consistent with prudent investment management while
preserving capital by investing in investment grade fixed income securities
of issuers throughout the world, including United States issuers; and

Value Portfolio -- an equity portfolio seeking total return by investing
primarily in equity securities of large-sized domestic companies.

Due to the costs involved in effecting exchanges, the Fund reserves the right
to refuse to honor more than three exchange requests by a shareholder in any
30-day period. Accounts under common ownership or control, including accounts
with the same taxpayer identification number, may be counted together for
purposes of the three exchange limit. The Portfolios reserve the right to refuse
exchange purchases by any person or group 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. Exchanges may also be restricted or refused if a Portfolio receives or
anticipates simultaneous orders affecting significant portions of the
Portfolio's assets. In particular, a pattern of exchanges that coincides with a
'market timing' strategy may be disruptive to the Portfolio. Although the
Portfolio will attempt to give prior notice whenever it is reasonably able to do
so, it may impose these restrictions at any time. The Portfolios reserve the
right to terminate or modify the exchange privilege at any time upon 30 days'
notice to shareholders.

TELEPHONE TRANSACTIONS. In order to request exchanges and redemptions by
telephone, investors must have completed and returned to Warburg Pincus Funds an
account application containing a telephone election. The election to request
exchanges and redemptions by telephone may be made subsequently, by writing to
the Fund at the address set forth under 'How to Open an Account in the Fund.'
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

<PAGE>

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.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. Each Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued on the
Portfolio's portfolio securities for the applicable period (which includes
amortization of market discounts) less amortization of market premium and
applicable expenses. Each Portfolio 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. 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 shares of the relevant Portfolio at net asset value.
The election to receive dividends in cash may be made on the account application
or, subsequently, by writing to the Fund at the address set forth under 'How to
Open an Account in the Fund' or by calling the Fund 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. Each Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Internal Revenue Code of 1986, as amended
(the 'Code'). A Portfolio, 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
Portfolio expects to pay such additional dividends and to make such additional
distributions as are necessary to avoid the application of this tax.

<PAGE>
term capital loss to the extent of any amounts treated as distributions of long-
term capital gain during such six-month period with respect to such shares.

Investors may be proportionately liable for taxes on income and gains of the
Portfolios, but investors not subject to tax on their income will not be
required to pay tax on amounts distributed to them. A Portfolio's investment
activities, including short sales of securities, will not result in unrelated
business taxable income to a tax-exempt investor. A Portfolio'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 each Portfolio 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 Portfolio qualifies as a regulated investment
company, if certain distribution requirements are satisfied and if more than 50%
of the Portfolio's total assets at the close of its fiscal year consist of stock
or securities of foreign corporations, the Portfolio may elect for U.S. income
tax purposes to treat any foreign income taxes paid by it that can be treated as
income taxes under U.S. income tax principles as paid by its shareholders. A
Portfolio may qualify for and make this election in some, but not necessarily
all, of its taxable years. If a Portfolio were to make an election, shareholders
of the Portfolio 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

<PAGE>
U.S. federal income taxes. Shortly after any year for which it makes such an
election, a Portfolio will report to its shareholders, in writing, the amount
per share of such foreign income tax that must be included in each shareholder's
gross income and the amount which will be available for the deduction or credit.
No deduction for foreign taxes may be claimed by a shareholder who does not
itemize deductions. Certain limitations will be imposed on the extent to which
the credit (but not the deduction) for foreign taxes may be claimed.
JAPAN GROWTH PORTFOLIO. In the opinion of Japanese counsel for the Japan
Growth Portfolio, the operations of the Portfolio will not subject the Portfolio
to any Japanese income, capital gains or other taxes except for withholding
taxes on interest and dividends paid to the Portfolio 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 Portfolio. Pursuant to the
present terms of the Convention, interest received by the Portfolio 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 each Portfolio's prior
taxable year with respect to certain dividends and distributions which were
received from the Portfolio during the Portfolio's prior taxable year. Investors
should consult their tax advisers with specific reference to their own tax
situations, including their state and local tax liabilities.

NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Portfolio'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 Portfolio generally changes each day.
The net asset value per share of each Portfolio is computed by dividing the
value of a Portfolio's net assets by the total number of its shares outstanding.
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. 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

<PAGE>
investments' value. Investments in Private Funds will be valued initially at
cost and, thereafter, in accordance with periodic reports received by Abbott
from the Private Funds (generally quarterly). Because the issuers of securities
held by Private Funds are generally not subject to the reporting requirements of
the federal securities laws, interim changes in value of investments in Private
Funds will not generally be reflected in the Post-Venture Capital Portfolio's
net asset value. However, Warburg will report to the Board information about
certain holdings of Private Funds that, in its judgment, could have a material
impact on the valuation of a Private Fund. The Board will take these reports
into account in valuing Private Funds. Securities, options and futures contracts
for which market quotations are not readily available and other assets,
including Private Funds, 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.

THE PORTFOLIOS' PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, a Portfolio may advertise its average annual total return
over various periods of time. Total return figures show the average percentage
change in value of an investment in a Portfolio from the beginning of the
measurement period to the end of the measurement period. The figures reflect
changes in the price of the Portfolio's shares assuming that any income
dividends and/or capital gain distributions made by the Portfolio during the
period were reinvested in shares of the Portfolio. 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 Portfolio'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 such return may not be representative of any
Portfolio's return over a longer market cycle. A Portfolio may also advertise
aggregate total return figures for various periods, representing the cumulative
change in value of an investment in the relevant Portfolio for the specific
period. 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 each Portfolio's
total return. Current total return figures may be obtained by calling the Fund
at (800) 369-2728.
A Portfolio may compare its performance with (i) that of other mutual funds
with similar investment objectives and policies, which may be based on

<PAGE>
the rankings prepared by Lipper Analytical Services, Inc. or similar investment
services that monitor the performance of mutual funds; (ii) in the case of the
Japan Growth Portfolio, the Morgan Stanley Capital International Europe,
Australasia and Far East ('EAFE') Index, the Salomon Russell Global Equity
Index, the FT-Actuaries World Indices (jointly compiled by The Financial Times,
Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.), the S&P 500 Index, the
Nikkei over-the-counter average, the JASDAQ Index, the Nikkei 225 and 300 Stock
Indexes and the Topix Index, which are unmanaged indexes of common stocks; in
the case of the Post-Venture Capital Portfolio, with the Venture Capital 100
Index (compiled by Venture Capital Journal), the Russell 2000 Growth Index and
the S&P 500 Index, which are unmanaged indexes of common stocks; and, in the
case of the Small Company Value Portfolio, the Russell 2000 Small Stock Index,
the T. Rowe Price New Horizons Fund Index and the S&P 500 Index, which are
unmanaged indexes; or (iii) other appropriate indexes of investment securities
or with data developed by Warburg derived from such indexes. A Portfolio may
also include evaluations of the Portfolio published by nationally recognized
ranking services and by financial publications such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and
The Wall Street Journal. Morningstar, Inc. rates funds in broad categories based
on risk/reward analyses over various time periods. In addition, each Portfolio
may from time to time compare its expense ratio 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
Portfolio may discuss relevant economic and market conditions affecting the
Portfolio. In addition, the Portfolio and its portfolio managers may render
updates of Portfolio investment activity, which may include, among other things,
discussion or quantitative statistical or comparative analysis of portfolio
composition and significant portfolio holdings, including analyses of holdings
by sector, industry, country or geographic region, credit quality and other
characteristics. Each Portfolio may also describe the general biography, work
experience and/or investment philosophy or style of the portfolio managers of
the Portfolio and may include quotations attributable to the portfolio managers
describing the Portfolio's investment objective, approaches taken in managing
the Portfolio's investments or the research methodology underlying stock
selection. The Post-Venture Capital Portfolio may discuss characteristics of
venture capital financed companies and the benefits expected to be achieved from
investing in these companies. Each Portfolio may also discuss various measures
of risk, including those based on statistical or econometric analyses, 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.

<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fund was incorporated on May 13, 1992 under the laws of the
State of Maryland under the name 'Warburg, Pincus Institutional Fund, Inc.' The
Fund's charter authorizes the Board to issue thirteen billion full and
fractional shares of capital stock, par value $.001 per share. Shares of nine
series have been classified, three of which constitute the interests in the
Portfolios.
VOTING RIGHTS. Investors in each Portfolio are entitled to one vote for each
full share owned and fractional votes for fractional shares held. Shareholders
of each Portfolio vote in the aggregate on all matters except where otherwise
required by law. There will normally be no meetings of shareholders 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 shareholders. 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 any purpose at the written request of
holders of 10% of the Fund's outstanding shares.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of the investor's account, as well as a statement after any transaction that
affects the investor's share balance or share registration (other than
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 each Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by a Portfolio, as well as certain statistical
characteristics of a Portfolio, may be obtained by calling the Fund at (800)
369-2728.
---------------------------

<PAGE>
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<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
The Portfolios' Expenses..................................................... 2
Investment Objectives and Policies........................................... 3
Portfolio Transactions and Turnover Rate..................................... 10
Special Risk Considerations and Certain Investment Strategies................ 10
Investment Guidelines........................................................ 20
Management of the Fund....................................................... 20
How to Open an Account in the Fund........................................... 23
How to Purchase Shares in the Portfolios..................................... 24
How to Redeem and Exchange Shares in the Portfolios.......................... 27
Dividends, Distributions and Taxes........................................... 30
Net Asset Value.............................................................. 32
The Portfolios' Performance.................................................. 33
General Information.......................................................... 35
</TABLE>

[Logo]

P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
WWW.WARBURG.COM
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPINT-1-1097

STATEMENT OF DIFFERENCES
------------------------

The registered trademark symbol shall be expressed as................... 'r'
The dagger symbol shall be expressed as................................. 'D'

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

October 21, 1997

WARBURG PINCUS INSTITUTIONAL FUND, INC.
International Equity Portfolio
Managed EAFE(R) Countries Portfolio
Emerging Markets Portfolio
Small Company Growth Portfolio
Global Fixed Income Portfolio
Value Portfolio

P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 369-2728

Contents

Page

Investment Objectives.........................................................2
Investment Policies...........................................................2
Management Of The Fund.......................................................39
Additional Purchase And Redemption Information...............................47
Exchange Privilege...........................................................48
Additional Information Concerning Taxes......................................49
Determination Of Performance.................................................54
Independent Accountants And Counsel..........................................57
Miscellaneous................................................................58
Financial Statements.........................................................59
Appendix -- Description of Ratings..........................................A-1
Statements of Assets and Liabilities........................................A-4

This Statement of Additional Information is meant to be read in conjunction with
the Prospectus of Warburg Pincus Institutional Fund, Inc. (the "Fund") dated
October 21, 1997, relating to the International Equity Portfolio, the Managed
EAFE(R) Countries Portfolio, the Emerging Markets Portfolio, the Small Company
Growth Portfolio, the Global Fixed Income Portfolio or the Value Portfolio (the
"Portfolios") as amended or supplemented from time to time (the "Prospectus"),
and is incorporated by reference in its entirety into that Prospectus. Because
this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Portfolios should be made solely upon the
information contained herein. Copies of the Fund's Prospectus and information
regarding each Portfolio's current performance may be obtained 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 or by writing to the
Fund, P.O. Box 9030, Boston, Massachusetts 02205-9030.

1
<PAGE>

INVESTMENT OBJECTIVES

The investment objective of the International Equity Portfolio, the
Managed EAFE(R) Countries Portfolio and the Value Portfolio is long-term capital
appreciation. The investment objective of the Emerging Markets Portfolio and the
Small Company Growth Portfolio is capital growth. The investment objective of
the Global Fixed Income Portfolio is to maximize total investment return
consistent with prudent investment management while preserving capital.

INVESTMENT POLICIES

The following policies supplement the descriptions of each Portfolio's
investment objective and policies in the Prospectus.

Options, Futures and Currency Exchange Transactions

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

A Portfolio realizes fees (referred to as "premiums") for granting the
rights evidenced by the options it has written. A put option embodies the right
of its purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price for a specified time period
or at a specified time. In contrast, a call option embodies the right of its
purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.

The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, a Portfolio as the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Portfolio 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 Portfolio 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.

2
<PAGE>

In the case of options written by a Portfolio that are deemed covered
by virtue of the Portfolio'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 Portfolio has
written options may exceed the time within which the Portfolio must make
delivery in accordance with an exercise notice. In these instances, the
Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio 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 Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.

Additional risks exist with respect to certain of the securities for
which the relevant Portfolios may write covered call options. For example, if a
Portfolio 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 Portfolio 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 Portfolio will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolios (other than the Emerging
Markets Portfolio) may write (i) in-the-money call options when Warburg Pincus
Asset Management, the Portfolios' investment adviser ("Warburg"), expects
that the price of the underlying security will remain flat or decline moderately
during the option period, (ii) at-the-money call options when Warburg expects
that the price of the underlying security will remain flat or advance moderately
during the option period and (iii) out-of-the-money call options when Warburg
expects that the premiums received from writing the call option plus the
appreciation in market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the underlying security
alone. In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price) may be used in the
same market environments that such call options are used in equivalent
transactions. To secure its obligation to deliver the underlying security when
it writes a call option, a Portfolio will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.

3
<PAGE>

Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio prior
to the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Portfolio may realize a profit or loss
from the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. When the Portfolio has purchased an
option and engages in a closing sale transaction, whether the Portfolio 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 Portfolio initially paid
for the original option plus the related transaction costs. Similarly, in cases
where the Portfolio has written an option, it will realize a profit if the cost
of the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. The Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option from being called or put or, in the case of a call option, to unfreeze
an underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). The
obligation of the Portfolio under an option it has written would be terminated
by a closing purchase transaction, but the Portfolio would not be deemed to own
an option as a result of the transaction. So long as the obligation of the
Portfolio as the writer of an option continues, the Portfolio may be assigned an
exercise notice by the broker-dealer through which the option was sold,
requiring the Portfolio to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Portfolio effects a closing purchase transaction. The Portfolio can no longer
effect a closing purchase transaction with respect to an option once it has been
assigned an exercise notice.

There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a Portfolio's
ability to terminate options positions established in the over-the-counter
market may be more limited than for exchange-traded options and may also involve
the risk that securities dealers participating in over-the-counter transactions
would fail to meet their obligations to the Portfolio. The Portfolio, however,
intends to purchase over-the-counter options only from dealers whose debt
securities, as determined by Warburg, are considered to be investment grade. If,
as a covered call option writer, the Portfolio 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 Portfolio would continue

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<PAGE>

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 Fund or a
Portfolio and other clients of Warburg and certain of its affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options a Portfolio
will be able to purchase on a particular security.

Stock Index Options. Each Portfolio may purchase and each portfolio
(other than the Emerging Markets Portfolio) may write exchange-listed and OTC
put and call options on stock indexes. A stock index measures the movement of a
certain group of stocks by assigning relative values to the common stocks
included in the index, fluctuating with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
market index, such as the NYSE Composite Index, or a narrower market index such
as the Standard & Poor's 100. Indexes may also be based on a particular industry
or market segment.

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

OTC Options. The Portfolios may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Portfolio
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

5
<PAGE>

exercised. If the dealer fails to honor the exercise of the option by the
Portfolio, the Portfolio would lose the premium it paid for the option and the
expected benefit of the transaction.

Listed options generally have a continuous liquid market while dealer
options have none. Consequently, the Portfolio will generally be able to realize
the value of a dealer option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when the Portfolio 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 Portfolio originally wrote the option. Although the Portfolios 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
Portfolios, there can be no assurance that the Portfolio will be able to
liquidate a dealer option at a favorable price at any time prior to expiration.
The inability to enter into a closing transaction may result in material losses
to a Portfolio. Until the Portfolio, 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 Portfolio's ability to
sell portfolio securities or, with respect to currency options, currencies at a
time when such sale might be advantageous. In the event of insolvency of the
other party, the Portfolio may be unable to liquidate a dealer option.

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

A Portfolio will not enter into futures contracts and related options
for which the aggregate initial margin and premiums (discussed below) required
to establish positions other than those considered to be "bona fide hedging" by
the CFTC exceed 5% of the Portfolio's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Portfolios reserve the right to engage in transactions involving
futures contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with a Portfolio's
policies. Although each Portfolio is limited in the amount of assets it may
invest in futures transactions (as described above and in the Prospectus), there
is no overall limit on the percentage of Portfolio assets that may be at risk
with respect to futures activities.

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<PAGE>

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

No consideration is paid or received by a Portfolio upon entering into
a futures contract. Instead, the Portfolio is required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt obligations,
equal to approximately 1% to 10% of the contract amount (this 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 Portfolio 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 Portfolio fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or stock index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." The Portfolios will also incur brokerage costs in
connection with entering into futures transactions.

At any time prior to the expiration of a futures contract, a Portfolio
may elect to close the position by taking an opposite position, which will
operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolios intend to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting a Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio 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 Portfolio may realize a loss on a futures contract or
option that is not offset by an increase in the value of the hedged position.
Losses incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.

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<PAGE>

no guarantee that such closing transactions can be effected; the ability to
establish and close out positions on such options will be subject to the
existence of a liquid market.

An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Portfolio.

Currency Exchange Transactions. The value in U.S. dollars of the
assets of a Portfolio that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Portfolio 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 Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options.

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

At or before the maturity of a forward contract, the Portfolio may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Portfolio retains the portfolio security and engages
in an offsetting transaction, the Portfolio, 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.

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<PAGE>

Currency Options. The Portfolios 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. The Portfolios' 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 Portfolio 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. A
Portfolio may not position hedge to an extent greater than the aggregate market
value (at the time of entering into the hedge) of the hedged securities.

A decline in the U.S. dollar value of a foreign currency in which the
Portfolio'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 Portfolio may purchase currency put
options. If the value of the currency does decline, the Portfolio 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
Portfolio may purchase call options on the particular currency. The purchase of
these options could offset, at least partially, the effects of the adverse
movements in exchange rates. The benefit to the Portfolio derived from purchases
of currency options, like the benefit derived from other types of options, will
be reduced by premiums and other transaction costs. Because transactions in
currency exchange are generally conducted on a principal basis, no fees or
commissions are generally involved. Currency hedging involves some of the same
risks and considerations as other transactions with similar instruments.
Although currency hedges limit the risk of loss due to a decline in the value of
a hedged currency, at the same time, they also limit any potential gain that
might result should the value of the currency increase. If a devaluation is
generally anticipated, the Portfolio may not be able to contract to sell a
currency at a price above the devaluation level it anticipates.

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

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<PAGE>

Hedging. In addition to entering into options and futures transactions
for other purposes, including generating current income to offset expenses or
increase return, each Portfolio 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 and futures transactions for hedging purposes could limit any
potential gain from an increase in the value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. With respect to futures contracts, since the
value of portfolio securities will far exceed the value of the futures contracts
sold by the Portfolio, an increase in the value of the futures contracts could
only mitigate, but not totally offset, the decline in the value of the
Portfolio's assets.

In hedging transactions based on an index, whether a Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio'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 Portfolio's net investment results if market movements are
not as anticipated when the hedge is established. Stock index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the stock index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in the stock index and movements in the price of
stock index futures, a correct forecast of general market trends by Warburg
still may not result in a successful hedging transaction.

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

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<PAGE>

Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectus, each Portfolio will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Portfolio on currencies, securities and indexes; and currency, interest
rate and index futures contracts and options on these futures contracts. These
guidelines may, in certain instances, require segregation by the Portfolio of
cash or liquid securities.

For example, a call option written by the Portfolio on securities may
require the Portfolio to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Portfolio on
an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio 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 Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The Portfolio 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.

Foreign Currency Exchange. Since the International Equity, Managed
EAFE(R) Countries, Emerging Markets and Global Fixed Income Portfolios will, and
the Small Company Growth and Value Portfolios may, be investing in securities
denominated in currencies other than the U.S. dollar, and since a Portfolio may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, each Portfolio 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 a Portfolio's assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Portfolio with respect to its foreign investments. 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

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and political developments in other countries. Of particular importance are
rates of inflation, interest rate levels, the balance of payments and the extent
of government surpluses or deficits in the United States and the particular
foreign country, all of which are in turn sensitive to the monetary, fiscal and
trade policies pursued by the governments of the United States and foreign
countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. A Portfolio may use hedging
techniques with the objective of protecting against loss through the fluctuation
of the value of foreign currencies against the U.S. dollar, particularly the
forward market in foreign exchange, currency options and currency futures. See
"Currency Transactions" and "Futures Activities" above.

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

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 Portfolio, 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 a Portfolio to market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on a Portfolio's liquidity,
the Portfolios will avoid investing in countries which are known to experience
settlement delays which may expose the Portfolios to unreasonable risk of loss.

Foreign Taxes and Increased Expenses. The operating expenses of the
International Equity, Managed EAFE(R) Countries, Emerging Markets and Global
Fixed Income Portfolios, to the extent they invest in foreign securities, can be
expected to be higher than that of an investment company investing exclusively
in U.S. securities, since the expenses of the Portfolios associated with foreign
investing, such as custodial costs, valuation costs and communication costs, as
well as, in the case of the International Equity, Managed EAFE(R) Countries,
Emerging Markets and Global Fixed Income Portfolios, the rate of the investment
advisory fees, though similar to such expenses of some other funds investing
internationally, are higher than those costs incurred by other investment
companies.

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<PAGE>

General. In 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. A Portfolio 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.

Japanese Investments (International Equity and Managed EAFE(R)
Countries Portfolios). From time to time depending on current market conditions,
these Portfolios may invest a significant portion of their assets in Japanese
securities. Like any investor in Japan, a Portfolio will be subject to general
economic and political conditions in the country. 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 Fund makes no
representation as to the accuracy of the information, nor has the Fund attempted
to verify it. Furthermore, no representation is made that any correlation exists
between Japan or its economy in general and the performance of the Fund.

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 and a House of Councillors. Members of the House of
Representatives are elected for terms of four years unless the House of
Representatives is dissolved prior to the expiration of their full elected
terms. Members of the House of Councillors are elected for terms of six years
with one-half of the membership being elected every three years. 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
House of Representatives in June 1993, when certain members of the House of
Representatives left the LDP and formed two new political parties. After an
election for the House of Representatives was held on July 18, 1993 and the LDP
failed to secure a majority, seven parties formed a coalition to control the
House of Representatives 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 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 has 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

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became prime minister. Mr. Hashimoto dissolved the Diet, and called a general
election in October 1996, in which the LDP failed to secure a majority. The LDP
formed a new coalition with the Social Democratic Party, but it will need to
attract members from the main opposition party to attain a working majority. The
recently formed Democratic Party, which calls for serious public sector reforms,
is likely to have a strong influence on the future course of political party
developments. This continuing political instability may hamper Japan's 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 Fund's investments.

Economic Background. Over the past 30 years, 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. Moreover, 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.

The accumulation of trade and current account surpluses in the 1980s
led to increased investment in financial assets and Japanese real estate,
resulting in a rapid escalation of prices and the infamous "bubble economy" of
the late 1980s. In the early 1990s, however, declining stock and land prices hit
Japanese banks especially hard. Falling land prices caused a rapid accumulation
of bad loans and because Japanese banks count a portion of their equity holdings
of other Japanese companies as part of their capital base, falling stock prices
adversely affected the financial health of these banks. Bank failures in 1995
and losses from unauthorized bond trading by Daiwa Bank, one of Japan's oldest
and most venerable banks, revealed serious flaws in the Japanese financial
system and a government regulatory regime that had protected that system from
the consequences of its actions. These serious difficulties continued through
the end of 1996. Extricating financial institutions from bad loans could impede
the pace of any recovery. There can be no assurance that any recovery will
continue and will not, in fact, be reversed.

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. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970's. Oil prices have declined mainly due to a worldwide easing of demand for
crude oil. The stabilized price of oil contributed to Japan's sizable current
account surplus and stability of wholesale and consumer prices. However, the
recent increase in oil prices has put pressure on both the trade balance and
prices. Extricating financial institutions from bad loans could impede the pace
of any recovery. There can be no assurance that any recovery will continue and
will not, in fact, be reversed.

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changes in the composition of trade and trade partners. The proportion of
finished products has increased, while that of raw materials has decreased, and
trade with other Asian countries rose to comprise 44% and 37% of Japan's exports
and imports, respectively. The U.S. still constitutes Japan's largest trading
partner, accounting for 27% of Japan's exports and 23% of its imports. The trade
imbalance with the U.S. has caused friction in the past, and could adversely
affect Japan and the performance of the Fund.

The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
shown.
CURRENT ACCOUNT

Trade
<TABLE>
<CAPTION>

Percentage Percentage
Change from Change from Trade Current
Year Exports Preceding Imports Preceding Balance Services Transfers Balance
Year Year
---- ------- ----------- ------- ----------- ------- -------- --------- -------

(U.S. dollars in
millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) 92,827 (4,932) (2,050) 85,845
1987 224,605 9.2 128,219 13.7 96,386 (5,702) (3,669) 87,015
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 63,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (3,949) (6,117) 131,448
1994 384,176 9.4 238,232 13.6 145,944 (9,296) (7,508) 129,140
1995 429,482 11.8 297,795 25.0 131,689 (13,154) (7,737) 110,798
1996 435,715 1.5 344,563 15.7 91,152 (67,760) (9,755) 71,806
</TABLE>

Source: Bank of Japan

15
<PAGE>

Economic Trends. The following table sets forth Japan's gross
domestic product for the years
---------------
shown.

GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>

1996* 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ----
(yen in billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Consumption
Expenditures
Private...........(Y)298,786 (Y)289,045 (Y)277,676.8 (Y)270,919.4 (Y)264,824.1 (Y)255,084.2 (Y)243,628.1 (Y)228,483.2
Government..........49,106 46,824 46,108.0 44,666.4 43,257.9 41,232.0 38,806.6 36,274.8
Capital
Formation
(incl.
inventories)
Private.............. N/A 70,758 93,111.4 99,180.1 108,727.6 116,638.0 110,871.9 100,130.8
Government........... N/A 41,461 42,227.3 40,295.8 35,110.1 30,062.3 28,182.6 25,724.5
Exports of
Goods and
Services........... 48,773 45,408 44,449.2 44,243.8 47,409.4 46,809.7 45,919.9 42,351.8
Imports of
Goods and
Services........... 46,127 38,227 34,424.0 33,333.1 36,183.8 38,529.3 42,871.8 36,768.1
GDP
(Expenditures)..... 499,667 480,693 469,148.7 465,972.4 463,145.3 451,296.9 24,537.2 396,197.0
Change in GDP
from
Preceding Year
Nominal terms........ 3.9% 0.3% 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms........... N/A 0.9% 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>

Source: Economic Planning Agency, Japan
------------------
* Average of the first, second and third quarters of 1996.

The following tables set forth certain economic indicators in
Japan for the years shown.
UNEMPLOYMENT
<TABLE>
<CAPTION>

Labor Productivity
Year Number Unemployed Percent Unemployed Index (Manufacturing)
- ---- ----------------- ------------------ ---------------------
(in millions) (Base Year: 1990)
<S> <C> <C> <C>

1985..................... 1.56 2.6 75.6
1986..................... 1.67 2.8 77.0
1987..................... 1.73 2.8 81.4
1988..................... 1.55 2.5 90.8
1989..................... 1.42 2.3 96.2
1990..................... 1.34 2.1 100.0
1991..................... 1.36 2.1 102.5
1992..................... 1.42 2.2 97.0
1993..................... 1.66 2.5 95.4
1994..................... 1.92 2.9 98.3
1995..................... 2.10 3.2 103.0
1996..................... 2.25 3.4 107.4*
</TABLE>

Source: Japan Productivity Center; Bureau of Statistics Management
and Coordination Agency
- ------------------
* Average of the first, second and third quarters of 1996.

16
<PAGE>

WHOLESALE PRICE INDEX

(Base Year: 1990)
All Change from
Year Commodities Preceding Year
---- ----------- --------------
1985 110.4 (1.1)%
1986 100.3 (9.1)
1987 96.5 (3.8)
1988 95.6 (0.9)
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
1995 92.2 (0.9)
1996 92.8 0.7

Source: Bank of Japan

CONSUMER PRICE INDEX

Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
1985 93.5 2.0%
1986 94.1 0.6
1987 94.2 0.1
1988 94.9 0.7
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3

(Base Year: 1995)
1992 98.2 1.8
1993 99.4 1.2
1994 100.1 0.7
1995 100.0 (0.1)
1996 100.1 0.1

Source: Bureau of Statistics Management and Coordination Agency

Currency Fluctuation. Investments by the International Equity and the
Managed EAFE(R) Countries Portfolios in Japanese securities will be denominated
in yen and most income received by these Portfolios from such investments will
be in yen. However, the Portfolios' 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

17
<PAGE>

effect on the value of the Funds' Japanese investments. The following table
presents the average exchange rates of Japanese yen for U.S. dollars for the
years shown:

CURRENCY EXCHANGE RATES

Year Yen Per U.S. Dollar

1985 (Y)238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.62
1993 111.18
1994 102.22
1995 94.07
1996 108.78

Source: Nikkei (Calendar Year, Closing Average, Inter-Bank Rates in Tokyo,
Spot)

On October 7, 1997, the rate of exchange was 122.43 Japanese yen per
U.S. dollar.

Geological 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. The
risks of such phenomena, and the damage resulting therefrom, continue to exist.
On January 17, 1995, the Great Hanshin Earthquake killed over 5,000 people and
severely damaged the port of Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake on the Japanese economy as a whole, and on
the Funds' investments, cannot be predicted.

Securities Markets. There are eight stock exchanges in Japan. Of
these, the Tokyo Stock Exchange is by far the largest, followed by the Osaka
Stock Exchange and the Nagoya Stock Exchange. These exchanges divide the market
for domestic stocks into two sections, with newly listed companies and smaller
companies assigned to the Second Section and larger companies assigned to the
First Section.

As of the end of 1996, there were 1,293 domestic companies listed on
the Tokyo Stock Exchange, first section, and 473 listed on the second section.

The following table sets forth the trading volume and value of
Japanese stocks on each of the eight Japanese stock exchanges for the years
shown.

18
<PAGE>

STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>

All Exchanges Tokyo Osaka Nagoya
------------------- ------------------- ------------------ ------------------
Year Volume Value Volume Value Volume Value Volume Value
---- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>

1989........ 256,296 (Y)386,395 222,599 (Y)332,617 25,096 (Y)41,679 7,263 (Y)10,395
1990........ 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991........ 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992........ 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993........ 101,172 106,123 86,935 86,889 10,440 14,635 2,780 3,459
1994........ 105,936 114,622 84,514 87,356 14,904 19,349 4,720 5,780
1995........ 120,149 115,840 92,034 83,564 21,094 24,719 5,060 5,462
1996........ 126,496 136,170 100,170 101,893 20,783 27,280 4,104 5,391

Kyoto Hiroshima Fukuoka Niigata Sapporo
---------------- ---------------- ---------------- ---------------- ----------------
Volume Value Volume Value Volume Value Volume Value Volume Value
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

1989..... 331 (Y)443 190 (Y)235 268 (Y)330 398 (Y)475 151 (Y)221
1990..... 416 770 169 261 203 405 245 334 195 286
1991..... 220 300 125 149 122 174 181 208 113 123
1992..... 225 322 110 136 139 129 163 178 149 129
1993..... 223 340 185 178 229 225 207 226 174 170
1994..... 447 562 256 312 578 669 250 299 267 296
1995..... 641 873 286 306 404 396 295 212 336 308
1996..... 358 600 257 250 300 297 231 196 290 263
</TABLE>

Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York

19
<PAGE>

The following table sets forth the stock trading value of
Japanese stocks on the Tokyo Stock Exchange for the years shown.
<TABLE>
<CAPTION>

TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
Year Total Daily Average High Low Turnover Ratio
- ---------------------------- ----- ------------- ---- --- --------------
(yen in millions)
<S> <C> <C> <C> <C> <C>

1985....................... (Y) 78,711,048 (Y) 276,179 (Y) 727,316 (Y) 110,512 44.7%
1986....................... 159,836,218 572,890 1,682,060 115,244 67.2
1987....................... 250,736,971 915,098 2,382,114 221,230 80.6
1988....................... 285,521,260 1,045,865 2,768,810 192,704 70.2
1989....................... 332,616,597 1,335,810 2,796,946 392,347 61.1
1990....................... 186,666,820 758,808 1,464,920 218,205 37.7
1991....................... 110,897,491 450,803 1,531,064 151,565 29.3
1992....................... 60,110,391 243,362 686,737 97,616 18.0
1993....................... 86,889,072 353,208 1,422,760 61,747 28.3
1994....................... 87,355,567 353,666 1,114,216 123,904 25.6
1995....................... 83,563,906 335,598 1,337,999 81,884 23.1
1996....................... 101,892,634 412,521 1,362,586 154,643 28.9
</TABLE>

Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York

19
<PAGE>

Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of the
common stocks as compared to the aggregate market value of those stocks as of
the close on January 4, 1968.

The following table sets forth the high, low and year-end TOPIX for
the years shown.

TOPIX (Tokyo Stock Price Index)

(Jan. 4, 1968=100)
Year Year-end High Low
---- -------- ---- ---
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
1995 1,577.70 1,585.87 1,193.16
1996 1,470.94 1,551.76 1,448.45

Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York

As this index reflects, share prices of companies traded on Japanese
stock exchanges reached historical peaks (which were later referred to as the
"bubble") in 1989 and 1990. Afterwards stock prices decreased significantly,
reaching their lowest levels in the second half of 1992. There can be no
assurance that additional market corrections will not occur.

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

20
<PAGE>

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 Portfolio.

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

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

A Portfolio 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 Portfolios
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 higher-rated securities. The lack of a liquid secondary market, as
well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and a Portfolio's ability
to dispose of particular issues when necessary to meet the Portfolio's liquidity
needs or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio and calculating
its net asset value.

21
<PAGE>

and lower-rated and comparable unrated securities are not intended for
short-term investment. A Portfolio may incur additional expenses to the extent
it is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings of such securities. Recent adverse publicity
regarding lower-rated securities may have depressed the prices for such
securities to some extent. Whether investor perceptions will continue to have a
negative effect on the price of such securities is uncertain.

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

Lending of Portfolio Securities. A Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33-1/3% of a Portfolio's net assets taken at value. A Portfolio 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 Portfolio involved. From time to time, a
Portfolio 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 Portfolio and that is acting as a "finder."

By lending its securities, the Portfolio 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. Income received
could be used to pay a Portfolio's expenses and would increase its total return.
Each Portfolio will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Portfolio 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 Portfolio must be able to terminate the loan at any time;
(iv) the Portfolio 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 Portfolio 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

22
<PAGE>

insolvency of the other party including possible delays or restrictions upon the
Portfolio's ability to recover the loaned securities or dispose of the
collateral for the loan.

When-Issued Securities and Delayed-Delivery Transactions. Each
Portfolio may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. A
Portfolio 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 yields obtained on such securities
may be higher or lower than the yields available in the market on the dates when
the investments are actually delivered to the buyers.

When a Portfolio agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Portfolio 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 Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. When the Portfolio 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 Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

Short Sales "Against the Box." In a short sale, the investor sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
If a Portfolio engages in a short sale, the collateral for the short position
will be maintained by the Portfolio's custodian or qualified sub-custodian.
While the short sale is open, the Portfolio will maintain in a segregated
account an amount of securities equal in kind and amount to the securities sold
short or securities convertible into or exchangeable for such equivalent
securities. These securities constitute the Portfolio's long position. Not more
than 10% of a Portfolio's net assets (taken at current value) may be held as
collateral for such short sales at any one time, except that the Emerging
Markets Portfolio will not be subject to such limitation.

The Portfolios do not intend to engage in short sales against the box
for investment purposes. A Portfolio 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 Portfolio (or a security convertible or
exchangeable for such security). In such case, any future losses in the
Portfolio'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

23
<PAGE>

position. The extent to which such gains or losses are reduced will depend upon
the amount of the security sold short relative to the amount the Portfolio owns.
There will be certain additional transaction costs associated with short sales
against the box, but the Portfolio will endeavor to offset these costs with the
income from the investment of the cash proceeds of short sales.

Depositary Receipts. The assets of a Portfolio may be invested in the
securities of foreign issuers in the form of American Depositary Receipts
("ADRs") and 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 ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are receipts issued outside the United States.
EDRs, CDRs, IDRs and GDRs 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 (CDRs) and IDRs (GDRs) in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.

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

Warrants. Each Portfolio may purchase warrants issued by domestic and
foreign companies to purchase newly created equity securities consisting of
common and preferred stock. The equity security underlying a warrant is
authorized at the time the warrant is issued or is issued together with the
warrant.

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

Illiquid Securities. Each Portfolio (other than the Emerging Markets
and Value Portfolios) may not invest more than 10% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market, repurchase agreements which have a maturity of longer
than seven days and time deposits maturing in

24
<PAGE>

more than seven days. The Emerging Markets and Value Portfolios may each invest
up to 15% of its net assets in such securities. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days without borrowing. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

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

Rule 144A Securities. Rule 144A under the Securities Act adopted by
the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional 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.

Warburg will monitor the liquidity of restricted securities in a
Portfolio under the supervision of the Board. In reaching liquidity decisions,
Warburg 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).

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Borrowing. Each Portfolio 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 the Portfolio's net
assets. Although the principal of such borrowings will be fixed, the Portfolio's
assets may change in value during the time the borrowing is outstanding. Each
Portfolio 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.

Non-Diversified Status (Small Company Growth Portfolio, Emerging
Markets Portfolio and Global Fixed Income Portfolio). The Portfolios are
classified as non-diversified within the meaning of the 1940 Act, which means
that each Portfolio is not limited by such Act in the proportion of its assets
that it may invest in securities of a single issuer. Each Portfolio's
investments 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,
the Portfolio 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 Portfolio will not
own more than 10% of the outstanding voting securities of a single issuer.

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

Foreign Debt Securities. (Emerging Markets Portfolio and Global Fixed
Income Portfolio) 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

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<PAGE>

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 debt securities in which the Emerging Markets Portfolio
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 debt 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 debt securities also include debt securities of
"quasi-government 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. (Emerging Markets Portfolio) The Emerging Markets
Portfolio 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 over-the-counter ("OTC") secondary market for
debt of Latin American issuers.

Securities of Smaller Companies; Special Situation Companies (Small
Company Growth Portfolio). The Portfolio's investments involves 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.

27
<PAGE>

or exchange offer; a breakup or workout of a holding company; or litigation
which, if resolved favorably, would improve the value of the company's stock. If
the actual or prospective situation does not materialize as anticipated, the
market price of the securities of a "special situation company" may decline
significantly. The Portfolio believes, however, that if Warburg analyzes
"special situation companies" carefully and invests in the securities of these
companies at the appropriate time, the Portfolio may achieve capital growth.
There can be no assurance, however, that a special situation that exists at the
time the Portfolio makes its investment will be consummated under the terms and
within the time period contemplated.

Ratings as Investment Criteria (Global Fixed Income Portfolio). Up to
5% of the Global Fixed Income Portfolio's net assets may be invested in
securities rated below investment grade at the time of the investment, but not
lower than "B" by Standard & Poor's Ratings Services or Moody's Investors
Service, Inc. Subsequent to its purchase by a Portfolio, an issue of securities
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event will require sale of such
securities by a Portfolio, but Warburg will consider such event in its
determination of whether the Portfolio should continue to hold the securities.

Investment Policies of the Emerging Markets Portfolio Only

Loan Participations and Assignments. The Emerging Market Portfolio 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 Emerging Markets
Portfolio'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
Portfolio having a contractual relationship only with the Lender, not with the
Borrower. The Portfolio 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 Emerging Markets
Portfolio 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 Portfolio may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, the Portfolio 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 Under selling a Participation, the Portfolio 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 Emerging Markets Portfolio will acquire Participations
only if the Lender interpositioned between the Portfolio and the Borrower is
determined by Warburg to be creditworthy.

When the Portfolio purchases Assignments from Lenders, the Portfolio
will acquire direct rights against the Borrower on the Loan. However, since
Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.

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<PAGE>

There are risks involved in investing in Participations and
Assignments. The Portfolio 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
Portfolio's ability to dispose of particular Participations or Assignments when
necessary to meet the Portfolio'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 Portfolio to assign a value to these securities for
purposes of valuing the Portfolio's portfolio and calculating its net asset
value.

Mortgage-Backed Securities. The Emerging Markets Portfolio may invest
in mortgage-backed securities, such as those issued by the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or certain
foreign issuers. 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
Portfolio's 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
Portfolio's yield.

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<PAGE>

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 Emerging Markets Portfolio may invest in
asset-backed securities, which 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 the Portfolio 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.

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

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<PAGE>

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

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

The Portfolio would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by the Portfolio would be valued at zero in determining net asset
value. Where the Portfolio 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 Portfolio. Stand-by
commitments would not affect the average weighted maturity of the Portfolio's
portfolio. The Portfolio currently anticipates that it will not invest more than
5% of its net assets in stand-by commitments.

Other Investment Limitations

International Equity Portfolio, Managed EAFE(R) Countries Portfolio
and Global Fixed Income Portfolio. The investment limitations numbered 1 through
12, as applied to a Portfolio, may not be changed without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Such
majority is defined as the lesser of (i) 67% or more of the shares present at
the meeting, if the holders of more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding shares. Investment limitations 13 through 14, as applied to a
Portfolio, may be changed by a vote of the Board at any time.

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<PAGE>

The International Equity Portfolio, the Managed EAFE(R) Countries
Portfolio and the Global Fixed Income Portfolio may not:

1. Borrow money or issue senior securities except that the Portfolio
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
Portfolio'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. Whenever borrowings described in (a) exceed 5% of
the value of the Portfolio's total assets, the Portfolio will not make any
investments (including roll-overs). For purposes of this restriction, (a) the
deposit of assets in escrow in connection with certain of the Portfolio's
investment strategies and (b) collateral arrangements with respect to initial or
variation margin for futures contracts will not be deemed to be pledges of the
Portfolio's assets.

2. Purchase any securities which would cause 25% or more of the value
of the Portfolio'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 Portfolio may purchase or hold publicly
distributed fixed income securities, lend portfolio securities and enter into
repurchase agreements.

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

5. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in real estate limited
partnerships, oil, gas or mineral exploration or development programs or oil,
gas and mineral leases, except that the Portfolio may invest in (a) 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 and commodity
options. The entry into forward foreign currency exchange contracts is not and
shall not be deemed to involve investing in commodities.

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

7. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Portfolio may (a) purchase put and call
options on securities and foreign currencies, (b) write covered call options on
securities and (c) purchase or write options on futures contracts.

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<PAGE>

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

9. Purchase securities on margin, except that the Portfolio 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.

10. With respect to the International Equity Portfolio and the Managed
EAFE(R) Countries Portfolio only, purchase the securities of any issuer if as a
result more than 5% of the value of the Portfolio'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 Portfolio's total assets may be invested without regard to this 5%
limitation.

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

12. With respect to the International Equity Portfolio and the Managed
EAFE(R) Countries Portfolio only, purchase more than 10% of the voting
securities of any one issuer; provided that this limitation shall not apply to
investments in U.S. Government Securities.

13. Invest more than 10% of the value of the Portfolio'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, (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.

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

The Emerging Markets Portfolio, Small Company Growth Portfolio and
Value Portfolio may not:

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<PAGE>

and any other transactions constituting borrowing by the Portfolios may not
exceed 30% of the value of the Portfolios' 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 Portfolios' 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 Portfolios 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 Portfolios' investment objective, policies and limitations
may be deemed to be underwriting.

5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Portfolios 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 Portfolios may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and make short sales
"against the box".

7. Purchase securities on margin, except that the Portfolios 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 Portfolios may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies on a forward commitment or delayed-delivery
basis and, with respect to the Emerging Markets Portfolio, enter into stand-by
commitments.

9. Issue any senior security except as permitted in the Portfolios'
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.

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<PAGE>

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 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 and, with respect to the
Small Company Growth Portfolio and Value Portfolio, writing covered put and call
options.

12. Invest more than 15% of each of the Emerging Markets Portfolio's
and the Value Portfolio's net assets and 10% of the Small Company Growth
Portfolio's net assets in securities which may be illiquid because of legal or
contractual restrictions on resale or securities for which there are no readily
available market quotations. For purposes of this limitation, repurchase
agreements with maturities greater than seven days shall be considered illiquid
securities.

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

General. If a percentage restriction (other than the percentage
limitations set forth in each No. 1 above and the percentage limitation set
forth in No. 12 above with respect to the Emerging Markets and Value Portfolios)
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 Portfolio's assets will not constitute a
violation of such restriction.

Portfolio Valuation

The Prospectus discusses the time at which the net asset value of each
Portfolio is determined for purposes of sales and redemptions. The following is
a description of the procedures used by each Portfolio in valuing its assets.

Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
as of the time the valuation is made or, in the absence of sales, at the mean
between the bid and asked quotations. If there are no such quotations, the value
of the securities will be taken to be the highest bid quotation on the exchange
or market. Options or futures contracts will be valued similarly. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to debt obligations with 60 days or less remaining to maturity. In
determining the market value of portfolio investments, the Portfolio may employ
outside organizations (a "Pricing Service") which may

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<PAGE>

use a matrix formula or other objective method that takes into consideration
market indexes, matrices, yield curves and other specific adjustments. The
procedures of Pricing Services are reviewed periodically by the officers of the
Fund under the general supervision and responsibility of the Board, which may
replace a Pricing Service at any time. Securities, options and futures contracts
for which market quotations are not available and certain other assets of the
Portfolio will be valued at their fair value as determined in good faith
pursuant to consistently applied procedures established by the Board. In
addition, the Board or its delegates may value a security at fair value if it
determines that such security's value determined by the methodology set forth
above does not reflect its fair value.

Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which a Portfolio's net asset value is not calculated. As a result,
calculation of the Portfolio's net asset value may not take place
contemporaneously with the determination of the prices of certain portfolio
securities used in such calculation. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of regular trading on the NYSE will not be reflected in the Portfolios'
calculation of net asset value, in which case an adjustment may be made by the
Board or its delegates. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing rate as quoted by a Pricing Service. If such quotations are not
available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.

Portfolio Transactions

Warburg is responsible for establishing, reviewing and, where
necessary, modifying each Portfolio'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 Portfolio to underwriters of
newly issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or mark-down.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. There is
generally no stated commission in the case of securities traded in domestic or
foreign over-the-counter markets, but the price of securities traded in
over-the-counter markets includes an undisclosed commission or mark-up. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain

36
<PAGE>

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 each Portfolio 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 a
Portfolio 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 the Portfolios 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 Portfolios. Research may include furnishing advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the availability
of securities or purchasers or sellers of securities; furnishing seminars,
information, analyses and reports concerning issuers, industries, securities,
trading markets and methods, legislative developments, changes in accounting
practices, economic factors and trends and portfolio strategy; access to
research analysts, corporate management personnel, industry experts, economists
and government officials; comparative performance evaluation and technical
measurement services and quotation services; and products and other services
(such as third party publications, reports and analyses, and computer and
electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to Warburg's own
research program. The fees to Warburg under its advisory agreements with the
Fund are not reduced by reason of its receiving any brokerage and research
services.

During the fiscal years ended October 31, 1994, October 31, 1995 and
October 31, 1996, the Fund, on behalf of the International Equity Portfolio,
paid an aggregate of approximately $612,312, $1,273,733 and $2,347,203,
respectively, in commissions to broker-dealers for execution of portfolio
transactions. The fiscal 1995 commission increases were a result of sharp
increases in the volume of share-related activity as the Portfolio received
large inflows of capital.

During the fiscal year ended October 31, 1996, the Fund, on behalf of
the Small Company Growth Portfolio and the Emerging Markets Portfolio, paid an
aggregate of approximately $69,950 and $90,762, respectively in commissions to
broker-dealers for

37
<PAGE>

execution of portfolio transactions. Since the Managed EAFE(R) Countries
Portfolio, the Global Fixed Income Portfolio and the Value Portfolio had not
commenced operations as of October 31, 1996, no brokerage commissions were paid
by them.

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

In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities Inc., the Fund's distributor ("Counsellors
Securities"), or any affiliated person of such companies.

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

Each Portfolio may participate, if and when practicable, in bidding
for the purchase of securities for the Portfolio's portfolio directly from an
issuer in order to take advantage of the lower purchase price available to
members of such a group. A Portfolio will engage in this practice, however, only
when Warburg, in its sole discretion, believes such practice to be otherwise in
the Portfolio's interest.

38
<PAGE>

Portfolio Turnover
- ------------------

The Portfolios do not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when a Portfolio
deems it desirable to sell or purchase securities. A Portfolio's portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of its
portfolio securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.

Certain practices that may be employed by a Portfolio 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. The Small Company Growth Portfolio's
investment in special situation companies could result in high portfolio
turnover. To the extent that its portfolio is traded for the short-term, the
Portfolio will be engaged essentially in trading activities based on short-term
considerations affecting the value of an issuer's stock instead of long-term
investments based on fundamental valuation of securities. Because of this
policy, portfolio securities may be sold without regard to the length of time
for which they have been held. Consequently, the annual portfolio turnover rate
of the Small Company Growth Portfolio may be higher than mutual funds having a
similar objective that do not invest in special situation companies.

MANAGEMENT OF THE FUND

Officers and Board of Directors
- -------------------------------

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

Richard N. Cooper (63) Director
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Council from June
Cambridge, Massachusetts 02138 1995 until January 1997; Director or
Trustee of CircuitCity Stores, Inc.
(retail electronics and appliances) and
Phoenix Home Mutual Life Insurance
Company.

Donald J. Donahue (73) Director
27 Signal Road Chairman of Magma Copper Company from
Stamford, Connecticut 06902 December 1987 until December 1995;
Chairman and Director of NAC Holdings
from September 1990 - June 1993;
Director of Pioneer Companies, Inc.
(chlor-alkali chemicals) and predecessor
companies since 1990 and Vice Chairman
since December 1995.

39
<PAGE>

Jack W. Fritz (70) Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director
of Advo, Inc. (direct mail advertising).

John L. Furth* (66) Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970;
Director of Counsellors Securities.
Chairman of the Board and officer of
other investment companies advised by
Warburg.

Thomas A. Melfe (65) Director
30 Rockefeller Plaza Partner in the law firm of Donovan
New York, New York 10112 Leisure Newton & Irvine; Chairman of the
Board of Municipal Fund for New York
Investors, Inc.

Arnold M. Reichman * (49) Director and Executive Vice President
466 Lexington Avenue Senior Managing Director, Chief
New York, New York 10017-3147 Operating Officer and Assistant
Secretary of Warburg; Associated with
Warburg since 1984; Director, Secretary
and Chief Operating Officer of
Counsellors Securities. Director and
officer of other investment companies
advised by Warburg.

Alexander B. Trowbridge (67) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January
1990-November 1996; President of the
National Association of Manufacturers
from 1980-1990; Director or Trustee of
New England Mutual Life Insurance Co.,
ICOS Corporation (biopharmaceuticals),
WMX Technologies Inc. (solid and
hazardous waste collection and
disposal), The Rouse Company (real
estate development), Harris Corp.
(electronics and communications
equipment), The Gillette Co. (personal
care products) and Sun Company Inc.
(petroleum refining and marketing).

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

40
<PAGE>

Dale C. Christensen (50) Vice President of the Fund and
466 Lexington Avenue Portfolio Manager of Global Fixed Income
New York, New York 10017-3147 Portfolio Portfolio Manager or
Co-Portfolio Manager of other Warburg
Pincus Funds; Managing Director of
Warburg; Associated with Warburg since
1989; Vice President at Citibank, N.A.
from 1985-1989; Vice President of
Counsellors Securities; President of
other investment companies advised by
Warburg.

Richard H. King (53) Vice President of the Fund and
466 Lexington Avenue Portfolio Manager of International
New York, New York 10017-3147 Equity, Managed EAFE(R)and Emerging
Markets Portfolios Portfolio Manager or
Co-Portfolio Manager of other Warburg
Pincus Funds; Managing Director of
Warburg since 1989; Associated with
Warburg since 1989; President of other
investment companies advised by Warburg.

Eugene L. Podsiadlo (40) President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Vice President
of Citibank, N.A. from 1987-1991; Senior
Vice President of Counsellors Securities
and President of other investment
companies advised by Warburg.

Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director, Controller and
New York, New York 10017-3147 Assistant Secretary of Warburg;
Associated with Warburg since 1984;
Treasurer of Counsellors Securities;
Vice President of other investment
companies advised by Warburg.

Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April
New York, New York 10017-3147 1994; Attorney-at-law from September
1989-April 1994; life insurance agent,
New York Life Insurance Company from
1993-1994; General Counsel and
Secretary, Home Unity Savings Bank from
1991-1992; Vice President, Chief
Compliance Officer and Assistant
Secretary of Counsellors Securities;
Vice President and Secretary of other
investment companies advised by Warburg.

41
<PAGE>

Howard Conroy (43) Vice President and Chief Financial Offi-
466 Lexington Avenue cer Associated with Warburg since 1992;
New York, New York 10017-3147 Associated with Martin Geller, C.P.A.
from 1990-1992; Vice President, Finance
with Gabelli/Rosenthal & Partners, L.P.
until 1990; Vice President and Chief
Financial Officer of other investment
companies advised by Warburg.

Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial
Management, Inc. from September 1994 to
October 1996; Associated with BEA
Associates from April 1993 to September
1994; Associated with Ernst & Young LLP
from 1990 to 1993. Treasurer and Chief
Accounting Officer of other investment
companies advised by Warburg.

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

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

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<PAGE>

Directors' Compensation
- -----------------------
(for the fiscal year ended October 31, 1996)

Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by Warburg*
---------------- ---- -------------------
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,750 $42,916
Donald J. Donahue $2,000 $42,916
Jack W. Fritz $1,250 $42,916
Thomas A. Melfe $2,000 $42,916
Alexander B. Trowbridge $2,000 $42,916

__________________
* Each Director also serves as a Director or Trustee of 23 other investment
companies advised by Warburg.

** Mr. Furth and Mr. Reichman are considered to be interested persons of the
Fund and Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receive no compensation from the Fund or any other investment
company managed by Warburg.

As of September 30, 1997, the Directors and officers of the Fund as a
group owned less than 1% of the outstanding shares of each Portfolio.

International Equity, Managed EAFE(R) Countries and Emerging Markets
Portfolios. Mr. Richard H. King, Vice President of the Fund and Portfolio
Manager of the International Equity and Managed EAFE(R) Countries Portfolios and
Co-Portfolio Manager of the Emerging Markets Portfolio, earned a B.A. degree
from Durham University in England. Mr. King is also Portfolio Manager of Warburg
Pincus International Equity Fund and the International Equity Portfolio of
Warburg Pincus Trust and a Co-Portfolio Manager of Warburg Pincus Emerging
Markets Fund, the Emerging Markets Portfolio of Warburg Pincus Trust and Warburg
Pincus Japan OTC Fund. From 1968 to 1982, he worked at 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 an EAFE mutual fund (FTIT) 1985-1986 which grew from
$3 million to over $100 million during this two-year period.

Mr. P. Nicholas Edwards, associate portfolio manager and research
analyst of the International Equity and Managed EAFE(R) Countries Portfolios, is
also portfolio manager of Warburg Pincus Japan Growth Fund and a co-portfolio
manager and research

43
<PAGE>

analyst of Warburg Pincus International Equity Fund and an associate portfolio
manager and research analyst of the International Equity Portfolio of Warburg
Pincus Trust. 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.

Mr. Harold W. Ehrlich, associate portfolio manager and research
analyst of the International Equity, Managed EAFE(R) Countries and Emerging
Markets Portfolios, is also an associate portfolio manager and research analyst
of Warburg Pincus International Equity Fund, Warburg Pincus Emerging Markets
Fund and the International Equity and Emerging Markets Portfolios of Warburg
Pincus Trust. Prior to joining Warburg, Mr. Ehrlich was a senior vice president,
portfolio manager and 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 University of Florida and earned his Chartered Financial Analyst
designation in 1990.

Mr. Vincent J. McBride, Co-Portfolio Manager of the Emerging Markets
Portfolio, Associate Portfolio Manager and Research Analyst of the International
Equity and Managed EAFE(R) Countries Portfolios, is also a Co-Portfolio Manager
of Warburg Pincus Emerging Markets Fund and the Emerging Markets Portfolio of
Warburg Pincus Trust and an Associate Portfolio Manager and Research Analyst of
Warburg Pincus International Equity Fund and the International Equity Portfolio
of Warburg Pincus Trust. 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 Corporation 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.

Small Company Growth Portfolio. Ms. Elizabeth B. Dater, co-portfolio
manager of the Small Company Growth Portfolio, is also co-portfolio manager of
Warburg Pincus Emerging Growth Fund, Warburg Pincus Post-Venture Capital Fund
and the Post-Venture Capital Portfolio of Warburg Pincus Trust. She is the
former director of research for Warburg's investment management activities.
Prior to joining Warburg in 1978, she was a vice president of Research at
Fiduciary Trust Company of New York and an institutional sales assistant at
Lehman Brothers. Ms. Dater has been a regular panelist on Maryland Public
Television's "Wall Street Week" since 1976. Ms. Dater earned a B.A. degree from
Boston University in Massachusetts. Mr. Stephen J. Lurito, co-portfolio manager
of the Small Company Growth Portfolio, is also co-portfolio manager of Warburg
Pincus Emerging Growth Fund, Warburg Pincus Post-Venture Capital Fund and the
Post-Venture Capital Portfolio of Warburg Pincus Trust and the portfolio manager
of Warburg Pincus Small Company Growth Fund. Mr. Lurito, also the research
coordinator and a portfolio manager for micro-cap equity and post-venture
products, has been with Warburg since 1987. Prior to that he was a research
analyst at Sanford C. Bernstein & Company, Inc. Mr. Lurito earned a

44
<PAGE>

B.A. degree from the University of Virginia and a M.B.A. from the University of
Pennsylvania.

Global Fixed Income Portfolio. Mr. Dale C. Christensen, vice president
of the Fund and co-portfolio manager of the Global Fixed Income Portfolio,
earned a B.S. in Agriculture from the University of Alberta and a B.Ed. in
Mathematics from the University of Calgary, both located in Canada. Mr.
Christensen has also been the co-portfolio manager of Warburg Pincus Trust II
since its inception and the co-portfolio manager of Warburg Pincus Global Fixed
Income Fund, Warburg Pincus Fixed Income Fund, Warburg Pincus Intermediate
Maturity Government Fund and Warburg Pincus New York Intermediate Municipal
Fund. Mr. Christensen directs the Fixed Income Group at Warburg, which he joined
in 1989, providing portfolio management for Warburg Pincus Funds and
institutional clients around the world. Mr. Christensen was a vice president in
the International Private Banking division and the domestic pension fund
management division at Citicorp, N.A. from 1985 to 1989. Prior to that, Mr.
Christensen was a fixed income portfolio manager at CIC Asset Management from
1982 to 1984. Laxmi C. Bhandari, co-portfolio manager of the Global Fixed Income
Portfolio, earned a Ph.D in Finance and a M.B.A. from the University of Chicago,
his P.G.D.M. degree (M.B.A. equivalent) from the Indian Institute of Management,
Ahmedabad, India and B.Com. degree from Rajasthan University, India. He has also
been a co-portfolio manager of the Global Fixed Income Portfolio of Warburg
Pincus Trust II since its inception and co-portfolio manager of Warburg Pincus
Global Fixed Income Fund since joining EMW in 1993, specializing in
derivative-based products. Mr. Bhandari was a Vice President in charge of
Arbitrage Trading at the Paribas Corporation from 1991 to 1993. Prior to that
Mr. Bhandari was a Vice President of Asset Liability Management at Chemical Bank
from 1987 to 1991 and an Assistant Professor of Advanced Portfolio Management
and Advanced Corporate Finance at the University of Alberta from 1982 to 1987.

Value Portfolio. Mr. Brian S. Posner has 9 years of investment
experience. Prior to joining Warburg, Mr. Posner was employed from 1987 to 1996
by Fidelity Investments, where, most recently, he was the vice president and
portfolio manager of the Fidelity Equity-Income II Fund. Mr. Posner received an
undergraduate degree from Northwestern University and his M.B.A. in Finance from
the University of Chicago.

Investment Adviser and Co-Administrators
- ----------------------------------------

Warburg serves as investment adviser to each Portfolio, Counsellors
Funds Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators
to the Fund pursuant to separate written agreements (the "Advisory Agreements,"
the "Counsellors Service Co-Administration Agreements" and the "PFPC
Co-Administration Agreements," respectively). The services provided by, and the
fees payable by the Fund to, Warburg under the Advisory Agreements, Counsellors
Service under the Counsellors Service Co-Administration Agreements and PFPC
under the PFPC Co-Administration Agreements are described in the Prospectus. See
the Prospectus, "Management of the Fund." Prior to March 1, 1994, PFPC served as
administrator to the Fund and Counsellors Service served as administrative
services agent to the Fund pursuant to separate written agreements.

45
<PAGE>

With respect to the International Equity Portfolio, during the fiscal
years ended October 31, 1994, October 31, 1995 and October 31, 1996, Warburg
earned $1,736,864, $3,095,950 and $5,644,429, respectively, and voluntarily
waived $542,549, $778,770 and $1,182,795, respectively, in investment advisory
fees; Counsellors Service earned $188,503, $386,993 and $705,554, respectively;
and PFPC received $259,290, $436,710 and $702,540, respectively, in
administration fees and voluntarily waived $81,358, $110,078 and $119,850 of
such fees.

With respect to the Small Company Growth Portfolio and the Emerging
Markets Portfolio, during the fiscal year ended October 31, 1996, Warburg earned
$268,768 and $21,487, respectively, and voluntarily waived $122,453 and $21,487,
respectively, in investment advisory fees; Counsellors Service earned $29,863
and $2,149, respectively; and PFPC received $29,863 and $2,578, respectively, in
administration fees and voluntarily waived $9,901 and $2,578 of such fees.

Since the Managed EAFE(R) Countries Portfolio, the Global Fixed Income
Portfolio and the Value Portfolio had not commenced investment operations as of
October 31, 1996, no fees were paid to Warburg, PFPC or Counsellors Service by
them in that fiscal year.

Custodians and Transfer Agent
- -----------------------------

Fiduciary Trust Company International ("Fiduciary") serves as
custodian of each of the International Equity, Managed EAFE(R) Countries, and
Global Fixed Income Portfolio's assets pursuant to separate custodian agreements
(the "Fiduciary Custodian Agreements"). Under the Fiduciary Custodian
Agreements, Fiduciary (i) maintains a separate account or accounts in the name
of each Portfolio, (ii) holds and transfers portfolio securities on account of
each Portfolio, (iii) makes receipts and disbursements of money on behalf of
each Portfolio, (iv) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (v) makes
periodic reports to the Board concerning each Portfolio's custodial
arrangements. Fiduciary is authorized to select one or more foreign or domestic
banks or trust companies and securities depositories to serve as sub-custodian
on behalf of the Portfolios. The principal business address of Fiduciary is Two
World Trade Center, New York, New York 10048.

Pursuant to separate custodian agreements (the "Custodian
Agreements"), PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company ("State Street") serve as custodians of the Small Company Growth
Portfolio's U.S. and foreign assets, respectively, and State Street serves as
custodian of the Emerging Markets Portfolio's assets. Under the Custodian
Agreements, PNC and State Street each (i) maintains a separate account or
accounts in the name of the Portfolio, (ii) holds and transfers portfolio
securities for the account of the Portfolio, (iii) makes receipts and
disbursements of money on behalf of the Portfolio, (iv) collects and receives
all income and other payments and distributions on account of the Portfolio's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Portfolio's custodial arrangements. PNC may delegate its duties
under its Custodian Agreement with the Fund to a wholly owned direct or indirect
subsidiary of PNC or

46
<PAGE>

PNC Bank Corp. upon notice to the Fund and upon the satisfaction of certain
other conditions. With the approval of the Board, State Street is authorized to
select one or more foreign banking institutions and foreign securities
depositaries as sub-custodian on behalf of the Portfolios. 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.

PNC also provides certain custodial services generally in connection
with purchases and sales of the International Equity, Managed EAFE(R) Countries,
and Global Fixed Income Portfolios' shares.

State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Fund pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of each
Portfolio, (ii) addresses and mails all communications by the Fund to record
owners of Portfolio shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders, (iii)
maintains shareholder accounts and, if requested, sub-accounts and (iv) makes
periodic reports to the Board concerning the transfer agent's operations with
respect to the Fund. State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.

Organization of the Fund
- ------------------------

The Fund was incorporated on May 13, 1992 under the laws of the State
of Maryland under the name "Warburg, Pincus Institutional Fund, Inc." Shares of
nine series have been authorized, six of which constitute the interests in the
Portfolios.

All shareholders of a Portfolio, upon liquidation, will participate
ratably in the Portfolio'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.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The offering price of each Portfolio's shares is equal to its per
share net asset value. Additional information on how to purchase and redeem a
Portfolio's shares and how such shares are priced is included in the Prospectus
under "Net Asset Value."

Under the 1940 Act, a Portfolio 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 Portfolio may also suspend or postpone

47
<PAGE>

the recordation of an exchange of its shares upon the occurrence of any of the
foregoing conditions.)

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

A Portfolio may, in certain circumstances and in its discretion,
accept securities as payment for the purchase of the Portfolio's shares from an
investor who has received such securities as redemption proceeds from another
Warburg Pincus Fund.

EXCHANGE PRIVILEGE

Shareholders of a Portfolio may exchange all or part of their shares
for shares of another Portfolio or other portfolios of the Fund organized by
Warburg in the future on the basis of their relative net asset values per share
at the time of exchange.

The exchange privilege enables shareholders to acquire shares in a
Portfolio with a different investment objective when they believe that a shift
between Portfolios is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the Portfolio's shares
being acquired may legally be sold.

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 Portfolio and the proceeds are invested on the same day, at a price as
described above, in shares of the Portfolio being acquired. Warburg reserves the
right to reject more than three exchange requests by a shareholder in any 30-day
period. The exchange privilege may be modified or terminated at any time upon 60
days' notice to shareholders.

48
<PAGE>

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 Portfolios. 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 Portfolio. The summary is based on the laws
in effect on the date of this Statement of Additional Information, which are
subject to change.

The Portfolios and Their Investments
- ------------------------------------

The Portfolios and Their Investments. Each Portfolio intends to
continue to qualify to be treated as a regulated investment company each taxable
year under the Code. To so qualify, a Portfolio 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; (b) derive less than 30% of its gross income from the
sale or other disposition of (i) stock or securities held for less than three
months, (ii) options, futures of forward contracts held for less than three
months (other than options, futures, or forward contracts on foreign
currencies), and (iii) foreign currencies (or options, futures, or forward
contracts on foreign currencies) held for less than three months, but
only if such currencies (or options, futures, or forward contracts) are not
directly related to the Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities) (the
"30% Test"); and (c) diversify its holdings so that, at the end of each quarter
of the Portfolio's taxable year, (i) at least 50% of the market value of the
Portfolio'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 Portfolio'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 Portfolio controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. Each Portfolio expects that all of its foreign currency
gains will be directly related to its principal business of investing in stocks
and securities.

49
<PAGE>

30% Test, a Fund's increases or decreases in value of short-term investment
positions constitute certain designated hedging transactions may generally be
netted. Effective for taxable years beginning after August 5, 1997, the Taxpayer
Relief Act of 1997 repealed the 30% Test. Accordingly, effective as of the
Fund's taxable year beginning November 1, 1997, the Fund will no longer be
required to comply with the 30% Test.

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

Each Portfolio 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 Portfolio currently
expects to distribute any excess annually to its shareholders. However, if a
Portfolio 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 Portfolio 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 Portfolio 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

50
<PAGE>

such taxes paid by the Portfolio upon filing appropriate returns or claims for
refund with the Internal Revenue Service (the "IRS"). Even if the Portfolio
makes such an election, it is possible that it may incur an excise tax as a
result of not having distributed net capital gains.

The Code imposes a 4% nondeductible excise tax on each Portfolio to
the extent the Portfolio 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 Portfolio that is subject to corporate income tax
will be considered to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to avoid the excise tax
will be increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous year. Each Portfolio
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 Portfolio'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
Portfolio and may limit the Portfolio'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 Portfolio 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 Portfolio in computing its taxable income. In addition, in the
event of a failure to qualify, the Portfolio's distributions, to the extent
derived from the Portfolio'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 Portfolio 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 Portfolio failed to qualify as a regulated
investment company for a period greater than one taxable year, the Portfolio 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.

51
<PAGE>

Portfolio and defer Portfolio losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require the Portfolio 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 Portfolio 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 Portfolio
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 Portfolio as a regulated investment company.

A Portfolio's investments in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments, although
a portion of the difference between zero coupon security's face value and its
purchase price is imputed as income to the Portfolio each year even though the
Portfolio receives no cash distribution until maturity. Under the U.S. federal
tax laws, the Portfolio 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 Portfolio.

Passive Foreign Investment Companies. If a Portfolio 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 Portfolio
to its shareholders. Additional charges in the nature of interest may be imposed
on the Portfolio in respect of deferred taxes arising from such distributions or
gains. If a Portfolio 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 Portfolio 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 Portfolio, and such amounts would be
subject to the 90% and excise tax distribution requirements described above. In
order to make this election, the Portfolio 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 Portfolio were
able to make the election described in this paragraph, the Portfolio 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% vote to the portion of a PFIC
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

52
<PAGE>

31, 1997. This election would result in a Portfolio being treated as if it had
sold and repurchased all of the PFIC stock at the end of each year. In this
case, the Portfolio 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
Portfolio, unless revoked with the consent of the IRS. By making the election,
the Portfolio 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 Portfolio may
have to distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The Portfolio will
make the appropriate tax elections, if possible, and take any additional steps
that are necessary to mitigate the effect of these rules.

Dividends and Distributions. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that the Portfolio
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 Portfolio. Dividends and distributions paid by the Portfolio
(except for the portion thereof, if any, attributable to dividends on stock of
U.S. corporations received by the Portfolio) will not qualify for the deduction
for dividends received by corporations. Distributions in excess of the
Portfolio'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 Portfolio, and as a capital gain
thereafter (if the shareholder holds his shares of the Portfolio 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 Portfolio 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 Portfolio'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 Portfolio
acquired such stock. Accordingly, in order to satisfy its income

53
<PAGE>

distribution requirements, the Portfolio 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 Portfolio, 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 Portfolio share held by the
shareholder for six months or less will be treated for United States federal
income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the
shareholder with respect to such share.

Backup Withholding. A Portfolio 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 Portfolio 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
Portfolio 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 Portfolios and Their Investments") made by the
Portfolio to its shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Portfolio'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 Portfolio 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 PORTFOLIOS AND THEIR SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISERS

54
<PAGE>

WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE
PORTFOLIOS.

DETERMINATION OF PERFORMANCE

From time to time, a Portfolio may quote its total return and, in the
case of the Global Fixed Income Portfolio, yield in advertisements or in reports
and other communications to shareholders. The total return of the International
Equity, Small Company Growth, Emerging Markets and Managed EAFE(R) Countries
Portfolios for the periods shown were as follows (total return without fee
waivers and expenses reimbursements is indicated in parentheses):

Portfolio Total Return
International Equity
(six-month period ended 4/30/97) 7.61% (7.53%)
(fiscal year ended 10/31/96) 10.48% (10.30%)
(9/1/92 (inception) to 10/31/96) 15.03% (14.79%)

Small Company Growth
(six-month period ended 4/30/97) -10.37% (-10.45%)
12/29/95 (inception) to 10/31/96) 29.20% (28.90%)

Emerging Markets
(six-month period ended 4/30/97 12.83% (12.38%)
(9/30/06 (inception) to 10/31/96 -1.40% (-1.60%)

Managed EAFE(R) Countries
(one-month period ended 4/30/97) 2.10% (1.60%)

A Portfolio's average annualized total return is calculated by finding
the average annual compounded rates of return for the one-, five- and ten- (or
such shorter period as the Portfolio 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.

55
<PAGE>

A Portfolio may advertise, from time to time, comparisons of its
performance with that of one or more other mutual funds with similar investment
objectives. A Portfolio 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 Portfolio's total return in longer
market cycles.

Yield is calculated by annualizing the net investment income generated
by the Portfolio over a specified thirty-day period according to the following
formula:

YIELD = 2 [( a--b ) +1)6-1]
cd

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

A Portfolio's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return and yield are 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 Portfolio's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time.

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 Europe,
Australasia and Far East (EAFE(R)) 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 25
years. The following table compares annual total returns of the EAFE Index and
the S & P 500 Index for the calendar years shown.

56
<PAGE>

EAFE Index vs. S&P 500 Index
1972-1996
Annual Total Return+
Year EAFE Index S&P 500 Index
---- ---------- -------------
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 20.26
1996 4.40 34.11

- -------------------------
+ Without reinvestment of dividends.
* The EAFE Index has outperformed the S&P 500 Index 14 out of the last
25 years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets

The quoted performance information shown above is not intended to
indicate the future performance of the International Equity, Managed EAFE(R)
Countries or Emerging Markets Portfolios. Advertising or supplemental sales
literature relating to a Portfolio may describe the percentage decline from
all-time high levels for certain foreign stock markets. It may also describe how
the Portfolio differs from the EAFE Index in composition.

INDEPENDENT ACCOUNTANTS AND COUNSEL

Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Fund. The financial statements for the
International Equity, Small

57
<PAGE>

Company Growth and the Emerging Markets Portfolios that are incorporated by
reference in this Statement of Additional Information have been audited by
Coopers & Lybrand, and have been included herein by reference in reliance upon
the report of such firm of independent accountants given upon their authority as
experts in accounting and auditing. The statement of assets and liabilities for
the Global Fixed Income Portfolio that accompanies this Statement of Additional
Information has also been audited by Coopers & Lybrand, and has been included
herein in reliance upon the report of such firm of independent accountants given
upon their authority as experts in accounting and auditing.

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

The statements of assets and liabilities for the Managed EAFE(R)
Countries and Value Portfolios that accompany this Statement of Additional
Information are unaudited.

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

MISCELLANEOUS

As of September 30, 1997, the names, addresses and percentage
ownership of each person that owned 5% or more of the outstanding shares of a
Portfolio are as follows:

<S> <C> <C> <C>
Portfolio Name and Address Percentage Owned
----------------------- ----------------------------------------------------------- ------------------------------
Small Company Growth Trustees of Amherst College 13.56%
Portfolio Amherst College, Ms. Sharon Siegel
Treasurer Office
Box 2203 P.O. Box 5000
Amherst, MA 01002-5000
----------------------- ----------------------------------------------------------- ------------------------------
Employee Benefit Plan Group Trust of George 13.31%
A. Buck Consulting Act Inc.
U/A DTD 5/3/1983
C/O John McGuinness
3 Chase MetroTech Ctr. Fl. 5
Brooklyn, NY 11245-0002
----------------------- ----------------------------------------------------------- ------------------------------
Northern Trust Co TTE 7.37%
FBO Southern California
Rock Products C/O Mutual Funds
P.O. Box 92956
Chicago, IL 60675
----------------------- ----------------------------------------------------------- ------------------------------

</TABLE>

58
<PAGE>

----------------------- ----------------------------------------------------------- ------------------------------
Small Company Growth MAC & Co 5.95%
Portfolio FBO Oberlin College
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
----------------------- ----------------------------------------------------------- ------------------------------
Educational Testing Service 5.71%
Michael Bockisch
42 Rosedale RD #Z
Princeton, NJ 08540-6702
----------------------- ----------------------------------------------------------- ------------------------------
The Chase Manhattan Bank Trustee 5.66%
Employee Benefit Plan Group of George A. Buck Consulting
Act Inc. UAD 5/3/83
C/O John McGuinness
3 Chase MetroTech Ctr. Fl. 5
Brooklyn, NY 11245-0002
----------------------- ----------------------------------------------------------- ------------------------------
Managed EAFE(R) Warburg Pincus Counsellors Inc. 78.04%
Countries Portfolio Attn: Stephen Distler
466 Lexington Ave 10th Floor
New York, NY 10017-3140
----------------------- ----------------------------------------------------------- ------------------------------
Christian Childrens Fund Inc. 21.96%
C/O Wayne Ball
P.O. Box 26484
2400 Emerywood Parkway
Richmond, VA 23261-6484
----------------------- ----------------------------------------------------------- ------------------------------
Emerging Markets Louis R. Morrell/Irene A. Comito Co-Trustees 79.12%
Portfolio Wake Forest University Trust
U/A DTD 6/25/41
P.O. Box 7354
Winston-Salem, NC. 27109-7354
----------------------- ----------------------------------------------------------- ------------------------------
The Julliard School 7.79%
60 Lincoln Center Plaza
New York, NY 10023-6588
----------------------- ----------------------------------------------------------- ------------------------------
Institutional Value National Financial Services Corp. 88.83%
Portfolio FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
----------------------- ----------------------------------------------------------- ------------------------------
Warburg Pincus Counsellors Inc. 11.17%
Attn: Stephen Distler
466 Lexington Ave. 10th Floor
New York, NY 10017-3140
----------------------- ----------------------------------------------------------- ------------------------------

</TABLE>

59
<PAGE>

Mr. Lionel I. Pincus, the managing partner of Warburg Pincus & Co.,
may be deemed to have beneficially owned 7.04% of the International Equity
Portfolio's shares outstanding, and 7.09% of the Small Company Growth
Portfolio's Shares outstanding, as of September 30, 1997 including shares owned
by clients for which Warburg has investment discretion and by companies that
Warburg Pincus & Co. 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

The Fund's audited annual report dated October 31, 1996 and unaudited
semiannual report dated April 30, 1997, which either accompany this Statement of
Additional Information or have previously been provided to the investor to whom
this Statement of Additional Information is being sent, are incorporated herein
by reference with respect to all information regarding the International Equity
Portfolio, the Small Company Growth Portfolio, the Emerging Markets Portfolio
and the Managed EAFE(R) Countries Portfolio (semiannual report only) included
therein. The Fund will furnish without charge a copy of the annual report and
the semiannual report upon request by calling the Fund at (800) 369-2728.

The audited statement of assets and liabilities for the Global Fixed
Income Portfolio dated as of October 15, 1997 and the Report of Independent
Accountants related thereto and the unaudited statement of assets and
liabilities for the Value Portfolio dated as of April 1, 1997 accompany this
Statement of Additional Information.

* * * *

The Managed EAFE(R) Countries Portfolio is not sponsored, endorsed,
sold or promoted by Morgan Stanley. Morgan Stanley makes no representation or
warranty, express or implied, to the owners of the Managed EAFE(R) Countries
Portfolio or any member of the public regarding the advisability of investing in
securities generally or in the Managed EAFE(R) Countries Portfolio particularly
or the ability of the Morgan Stanley EAFE Index to track general stock market
performance. Morgan Stanley is the licensor of certain trademarks, service marks
and trade names of Morgan Stanley and of the Morgan Stanley EAFE Index. Morgan
Stanley has no obligation to take the needs of the issuer of the Managed EAFE(R)
Countries Portfolio or the owners of the Managed EAFE(R) Countries Portfolio
into consideration in determining, composing or calculating the Morgan Stanley
EAFE Index. Morgan Stanley is not responsible for and has not participated in
the determination of the timing of, prices at, or quantities of the Managed
EAFE(R) Countries Portfolio to be issued or in the determination or calculation
of the equation by which the Managed EAFE(R) Countries Portfolio is redeemable
for cash. Morgan Stanley has no obligation or liability to owners of the Managed
EAFE(R) Countries Portfolio in connection with the administration, marketing or
trading of the Managed EAFE(R) Countries Portfolio.

60
<PAGE>

MORGAN STANLEY MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE EAFE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR
ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES
(INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

61
<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

Commercial Paper Ratings
- ------------------------

Commercial paper rated A-1 by Standard and Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted 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 they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.

BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although they normally
exhibit 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, CCC, CC and C - Debt rated BB and B is regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality

62
<PAGE>

and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

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

B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BBB 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 edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure.

A-2
<PAGE>

While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of
such issues.

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

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

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

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

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

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

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

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

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

A-3
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
of Warburg, Pincus Institutional Fund, Inc. - Global Fixed Income Portfolio

We have audited the accompanying Statement of Assets and Liabilities of Warburg,
Pincus Institutional Fund, Inc. - Global Fixed Income Portfolio (the "Fund") as
of October 15, 1997. This financial statement is the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Institutional
Fund, Inc. - Global Fixed Income Portfolio as of October 15, 1997 in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 16, 1997

<PAGE>

WARBURG, PINCUS INSTITUTIONAL FUND, INC.
GLOBAL FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of October 15, 1997

Assets:
Cash $1,000
Total Assets $1,000

Net Assets $1,000

Net Asset Value, Redemption and Offering Price
Per Share (one billion shares authorized -
$.001 par value applicable to 100 shares
outstanding.) $10.00
------------- ------

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

<PAGE>

WARBURG, PINCUS INSTITUTIONAL FUND, INC.
GLOBAL FIXED INCOME PORTFOLIO
Notes to Financial Statement
October 15, 1997

1. Organization:
Warburg, Pincus Institutional Fund, Inc. (the "Fund") was incorporated
on May 13, 1992 under the laws of the State of Maryland. The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company consisting of nine portfolios -
International Equity Portfolio, Small Company Growth Portfolio,
Emerging Markets Portfolio, Global Fixed Income Portfolio, Japan
Growth Portfolio, Post-Venture Capital Portfolio, Small Company Value
Portfolio, Value Portfolio and Managed EAFE(R) Countries Portfolio.
The assets of each portfolio are segregated, and a shareholder's
interest is limited to the portfolio in which shares are held. The
Global Fixed Income Portfolio has not commenced operations except
those related to organizational matters and the sale of and aggregate
100 shares ("Initial Shares") of common stock to E.M. Warburg, Pincus
& Co., Inc. ("EMW") on July 28, 1992. Subsequent to the sale of shares
to EMW, the Initial Shares were transferred to Warburg, Pincus
Counsellors, Inc., the Fund's investment adviser (the ("Adviser").
Effective as of October 15, 1997 the Adviser changed its name to
Warburg Pincus Asset Management, Inc.

2. Transactions with Affiliates:
Certain officers and a director of the Fund are also officers and a
director of the Adviser. These officers and director are paid no fees
by the Fund for serving as an officer or director of the Fund.

<PAGE>

WARBURG PINCUS INSTITUTIONAL FUND, INC.
VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of April 1, 1997
(unaudited)

Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0

Liabilities: 0
Net Assets 0

Net Asset Value, Redemption and Offering Price Per
share (1 billion shares classified for the Value
Portfolio - $.001 par value) applicable to 1
share outstanding. $10.00

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

October 21, 1997

WARBURG PINCUS INSTITUTIONAL FUND, INC.

Japan Growth Portfolio
Post-Venture Capital Portfolio
Small Company Value Portfolio

P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 369-2728

Contents

Page
----
Investment Objectives.........................................................2
Investment Policies...........................................................2
Management Of The Fund.......................................................39
Additional Purchase And Redemption Information...............................46
Exchange Privilege...........................................................47
Additional Information Concerning Taxes......................................47
Determination Of Performance.................................................47
Independent Accountants And Counsel..........................................54
Financial Statements.........................................................54
Appendix -- Description of Ratings..........................................A-1
Statements of Assets and Liabilities........................................A-4

Warburg Pincus Institutional Fund, Inc. (the "Fund") currently
offers nine managed investment funds, three of which, the Japan Growth,
Post-Venture Capital Portfolio and Small Company Value Portfolios (the
"Portfolios"), are described herein. This Statement of Additional Information is
meant to be read in conjunction with the Prospectus of the Portfolios dated
October 21, 1997, as amended or supplemented from time to time, and is
incorporated by reference in its entirety into that Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of the Portfolios should be made solely upon the information contained
herein. Copies of the Fund's Prospectus and information regarding each
Portfolio's current performance may be obtained 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 or by writing to the Fund, P.O.
Box 9030, Boston, Massachusetts 02205-9030.

<PAGE>

INVESTMENT OBJECTIVES

The investment objective of each of the Japan Growth and
Post-Venture Capital Portfolios is long-term growth of capital. The investment
objective of the Small Company Value Portfolio is long-term capital
appreciation.

INVESTMENT POLICIES

The following policies supplement the descriptions of each
Portfolio's investment objective and policies in the Prospectus.

Options, Futures and Currency Exchange Transactions

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

A Portfolio realizes fees (referred to as "premiums") for
granting the rights evidenced by the options it has written. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price for
a specified time period or at a specified time. In contrast, a call option
embodies the right of its purchaser to compel the writer of the option to sell
to the option holder an underlying security at a specified price for a specified
time period or at a specified time.

The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Portfolio
as the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Portfolio 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 Portfolio 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.

2
<PAGE>

stock with respect to which the Portfolio has written options may exceed the
time within which the Portfolio must make delivery in accordance with an
exercise notice. In these instances, the Portfolio may purchase or temporarily
borrow the underlying securities for purposes of physical delivery. By so doing,
the Portfolio will not bear any market risk, since the Portfolio 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 Portfolio may incur
additional transaction costs or interest expenses in connection with any such
purchase or borrowing.

Additional risks exist with respect to certain of the
securities for which the relevant Portfolios may write covered call options. For
example, if a Portfolio 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 Portfolio 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 Portfolio will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolios may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Portfolios' investment
adviser ("Warburg"), expects that the price of the underlying security will
remain flat or decline moderately during the option period, (ii) at-the-money
call options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and (iii)
out-of-the-money call options when Warburg expects that the premiums received
from writing the call option plus the appreciation in market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be used in the same market
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, a Portfolio will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.

3
<PAGE>

upon whether the amount received in the closing sale transaction is more or less
than the premium the Portfolio initially paid for the original option plus the
related transaction costs. Similarly, in cases where the Portfolio has written
an option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option. The Portfolio may engage
in a closing purchase transaction to realize a profit, to prevent an underlying
security with respect to which it has written an option from being called or put
or, in the case of a call option, to unfreeze an underlying security (thereby
permitting its sale or the writing of a new option on the security prior to the
outstanding option's expiration). The obligation of the Portfolio under an
option it has written would be terminated by a closing purchase transaction, but
the Portfolio would not be deemed to own an option as a result of the
transaction. So long as the obligation of the Portfolio as the writer of an
option continues, the Portfolio may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Portfolio to
deliver the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Portfolio effects a closing
purchase transaction. The Portfolio can no longer effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.

There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Portfolio's ability to terminate options positions established in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the
Portfolio. The Portfolio, however, intends to purchase over-the-counter options
only from dealers whose debt securities, as determined by Warburg, are
considered to be investment grade. If, as a covered call option writer, the
Portfolio 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 Portfolio would continue to be at market risk on the security and could face
higher transaction costs, including brokerage commissions.

4
<PAGE>

written or exercised in one or more accounts or through one or more brokers). It
is possible that the Fund or a Portfolio and other clients of Warburg and
certain of its affiliates may be considered to be such a group. A securities
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose certain other sanctions. These limits may
restrict the number of options a Portfolio will be able to purchase on a
particular security.

Stock Index Options. Each Portfolio may purchase and each
portfolio may write exchange-listed and OTC put and call options on stock
indexes. A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index,
fluctuating with changes in the market values of the stocks included in the
index. Some stock index options are based on a broad market index, such as the
NYSE Composite Index, or a narrower market index such as the Standard & Poor's
100. Indexes may also be based on a particular industry or market segment.

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

OTC Options. The Portfolios may purchase OTC or dealer options
or sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation, assures
that all transactions in such options are properly executed, the responsibility
for performing all transactions with respect to OTC options rests solely with
the writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Portfolio
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 Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.

5
<PAGE>

dealer to which the Portfolio originally wrote the option. Although the
Portfolios 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 Portfolios, there can be no assurance that the Portfolio
will be able to liquidate a dealer option at a favorable price at any time prior
to expiration. The inability to enter into a closing transaction may result in
material losses to a Portfolio. Until the Portfolio, 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
Portfolio's ability to sell portfolio securities or, with respect to currency
options, currencies at a time when such sale might be advantageous. In the event
of insolvency of the other party, the Portfolio may be unable to liquidate a
dealer option.

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

A Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolios reserve the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with a
Portfolio's policies. Although each Portfolio is limited in the amount of assets
it may invest in futures transactions (as described above and in the
Prospectus), there is no overall limit on the percentage of Portfolio 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. Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between the
value of the index at the close of the last trading day on the contract and the
price at which the agreement is made.

No consideration is paid or received by a Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to deposit
in a segregated account with its

6
<PAGE>

custodian an amount of cash or cash equivalents, such as U.S. government
securities or other liquid high-grade debt obligations, equal to approximately
1% to 10% of the contract amount (this amount is subject to change by the
exchange on which the contract is traded, and brokers may charge a higher
amount). This amount is known as "initial margin" and is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Portfolio 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 Portfolio fails to meet its contractual obligations.
Subsequent payments, known as "variation margin," to and from the broker, will
be made daily as the currency, financial instrument or stock index underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking-to-market."
The Portfolios will also incur brokerage costs in connection with entering into
futures transactions.

At any time prior to the expiration of a futures contract, a
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolios intend to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting a Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio 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 Portfolio may realize a loss on a futures contract or
option that is not offset by an increase in the value of the hedged position.
Losses incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.

Options on Futures Contracts. Each Portfolio 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.

7
<PAGE>

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 the
Portfolio.

Currency Exchange Transactions. The value in U.S. dollars of
the assets of a Portfolio that are invested in foreign securities may be
affected favorably or unfavorably by changes in exchange control regulations,
and the Portfolio 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 Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options.

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

At or before the maturity of a forward contract, the Portfolio
may either sell a portfolio security and make delivery of the currency, or
retain the security and fully or partially offset its contractual obligation to
deliver the currency by negotiating with its trading partner to purchase a
second, offsetting contract. If the Portfolio retains the portfolio security and
engages in an offsetting transaction, the Portfolio, at the time of execution of
the offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward contract prices.

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

<PAGE>

Currency Hedging. The Portfolios' 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 Portfolio 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. A Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.

A decline in the U.S. dollar value of a foreign currency in
which the Portfolio'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 Portfolio may
purchase currency put options. If the value of the currency does decline, the
Portfolio 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 Portfolio may purchase call options on the particular
currency. The purchase of these options could offset, at least partially, the
effects of the adverse movements in exchange rates. The benefit to the Portfolio
derived from purchases of currency options, like the benefit derived from other
types of options, will be reduced by premiums and other transaction costs.
Because transactions in currency exchange are generally conducted on a principal
basis, no fees or commissions are generally involved. Currency hedging involves
some of the same risks and considerations as other transactions with similar
instruments. Although currency hedges limit the risk of loss due to a decline in
the value of a hedged currency, at the same time, they also limit any potential
gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, the Portfolio may not be able to contract
to sell a currency at a price above the devaluation level it anticipates.

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

9
<PAGE>

position being offset by a loss in the hedged position. As a result, the use of
options and futures transactions for hedging purposes could limit any potential
gain from an increase in the value of the position hedged. In addition, the
movement in the portfolio position hedged may not be of the same magnitude as
movement in the hedge. With respect to futures contracts, since the value of
portfolio securities will far exceed the value of the futures contracts sold by
the Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.

In hedging transactions based on an index, whether a Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio'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 Portfolio's net investment results if market movements are
not as anticipated when the hedge is established. Stock index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the stock index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in the stock index and movements in the price of
stock index futures, a correct forecast of general market trends by Warburg
still may not result in a successful hedging transaction.

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

10
<PAGE>

securities and indexes; and currency, interest rate and index futures contracts
and options on these futures contracts. These guidelines may, in certain
instances, require segregation by the Portfolio of cash or liquid securities.

For example, a call option written by the Portfolio on
securities may require the Portfolio to hold the securities subject to the call
(or securities convertible into the securities without additional consideration)
or to segregate assets (as described above) sufficient to purchase and deliver
the securities if the call is exercised. A call option written by the Portfolio
on an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio 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 Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The Portfolio 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.

Foreign Currency Exchange. Since the Japan Growth Portfolio
will, and the Post-Venture Capital and Small Company Value Portfolios may, be
investing in securities denominated in currencies other than the U.S. dollar,
and since a Portfolio may temporarily hold funds in bank deposits or other money
market investments denominated in foreign currencies, each Portfolio 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 a Portfolio's assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Portfolio with respect to its foreign investments. The rate of
exchange between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange markets. Changes in the
exchange rate may result over time from the interaction of many factors directly
or indirectly affecting economic and political conditions in the United States
and a particular foreign country, including economic and political developments
in other countries. Of particular importance are rates of inflation, interest
rate levels, the balance of payments and the extent of government surpluses or
deficits in the United States and the particular foreign country, all of which
are in turn sensitive to the monetary, fiscal and trade policies pursued by the
governments of the United

11
<PAGE>

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 "Japanese
Investments-- Economic Trends -- Currency Fluctuation" below. A Portfolio may
use hedging techniques with the objective of protecting against loss through the
fluctuation of the value of foreign currencies against the U.S. dollar,
particularly the forward market in foreign exchange, currency options and
currency futures. See "Currency Transactions" and "Futures Activities" above.

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 Portfolio, 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 a Portfolio to market and foreign exchange fluctuations brought
about by such delays, and due to the corresponding negative impact on a
Portfolio's liquidity, the Portfolios will avoid investing in countries which
are known to experience settlement delays which may expose the Portfolios to
unreasonable risk of loss.

Increased Expenses. The operating expenses of the Japan Growth
Portfolio and, to the extent they invest in foreign securities, the Post-Venture
Capital and Small Company Value Portfolios, can be expected to be higher than
that of an investment company investing exclusively in U.S. securities, since
the expenses of the Portfolios associated with foreign investing, such as
custodial costs, valuation costs and communication costs, as well as, in the
case of the Japan Growth Portfolio, the rate of the investment advisory fees,
though similar to such expenses of some other funds investing internationally,
are higher than those costs incurred by other investment companies.

General. In 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. A Portfolio may invest in
securities of foreign governments (or agencies or instrumentalities

12
<PAGE>

thereof), and many, if not all, of the foregoing considerations apply to such
investments as well.

JAPAN AND ITS SECURITIES MARKETS

The Japan Growth Portfolio 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 Portfolio makes no
representation as to the accuracy of the information, nor has the Portfolio
attempted to verify it. Furthermore, no representation is made that any
correlation exists between Japan or its economy in general and the performance
of the Portfolio.

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 and a House of Councillors. Members of the House of
Representatives are elected for terms of four years unless the House of
Representatives is dissolved prior to the expiration of their full elected
terms. Members of the House of Councillors are elected for terms of six years
with one-half of the membership being elected every three years. 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
House of Representatives in June 1993, when certain members of the House of
Representatives left the LDP and formed two new political parties. After an
election for the House of Representatives was held on July 18, 1993 and the LDP
failed to secure a majority, seven parties formed a coalition to control the
House of Representatives 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 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 has 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

13
<PAGE>

October 1996, in which the LDP failed to secure a majority. The LDP formed a new
coalition with the Social Democratic Party, but it will need to attract members
from the main opposition party to attain a working majority. The recently formed
Democratic Party, which calls for serious public sector reforms, is likely to
have a strong influence on the future course of political party developments.
This continuing political instability may hamper Japan's 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 Portfolio's investments.

Economic Background

Over the past 30 years, 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. Moreover, 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.

The accumulation of trade and current account surpluses in the
1980s led to increased investment in financial assets and Japanese real estate,
resulting in a rapid escalation of prices and the infamous "bubble economy" of
the late 1980s. In the early 1990s, however, declining stock and land prices hit
Japanese banks especially hard. Falling land prices caused a rapid accumulation
of bad loans and because Japanese banks count a portion of their equity holdings
of other Japanese companies as part of their capital base, falling stock prices
adversely affected the financial health of these banks. Bank failures in 1995
and losses from unauthorized bond trading by Daiwa Bank, one of Japan's oldest
and most venerable banks, revealed serious flaws in the Japanese financial
system and a government regulatory regime that had protected that system from
the consequences of its actions. These serious difficulties continued through
the end of 1996. Extricating financial institutions from bad loans could impede
the pace of any recovery. There can be no assurance that any recovery will
continue and will not, in fact, be reversed.

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. Oil prices therefore have a major impact on the domestic
economy, as is evidenced by the current account deficits triggered by the two
oil crises of the 1970's. Oil prices have declined mainly due to a worldwide
easing of demand for crude oil. The stabilized price of oil contributed to
Japan's sizable current account surplus and stability of wholesale and consumer
prices. However, the recent increase in oil prices has put pressure on both the
trade balance and prices.

<PAGE>

International trade is important to Japan's economy, as
exports provide the means to pay for many of the raw materials it must import.
Japan's trade surplus has increased dramatically in recent years, exceeding $100
billion per year since 1991 and reaching a record high of $145 billion in 1994.
Because of the concentration of Japanese exports in highly visible products such
as automobiles, machine tools and semiconductors, and the large trade surpluses
resulting 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. In 1995, however, the trade surplus has
decreased due to a drop in exports. The reduced exports are due primarily to the
strength of the yen and the shift in production by major manufacturers to
foreign countries, particularly to other parts of Asia. In 1996, the overall
trade surplus declined by 32% from the previous year, although the monthly pace
of decline slowed in late 1996. The declining trade surplus has been accompanied
by changes in the composition of trade and trade partners. The proportion of
finished products has increased, while that of raw materials has decreased, and
trade with other Asian countries rose to comprise 44% and 37% of Japan's exports
and imports, respectively. The U.S. still constitutes Japan's largest trading
partner, accounting for 27% of Japan's exports and 23% of its imports. The trade
imbalance with the U.S. has caused friction in the past, and could adversely
affect Japan and the performance of the Portfolio.

The following table sets forth the composition of Japan's
trade balance, as well as other components of its current account, for the years
shown.

CURRENT ACCOUNT

Trade
<TABLE>
<CAPTION>

(U.S. dollars in
millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Source: Bank of Japan

15
<PAGE>

Economic Trends. The following table sets forth Japan's gross domestic product
for the years shown.

GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>

1996* 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ----
(yen in billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Source: Economic Planning Agency, Japan
------------------
* Average of the first, second and third quarters of 1996.

The following tables set forth certain economic indicators in
Japan for the years shown.

UNEMPLOYMENT
<TABLE>
<CAPTION>

Labor Productivity
Year Number Unemployed Percent Unemployed Index (Manufacturing)
- ---- ----------------- ------------------ ---------------------
(in millions) (Base Year: 1990)
<S> <C> <C> <C>

Source: Japan Productivity Center; Bureau of Statistics Management
and Coordination Agency
- ------------------
* Average of the first, second and third quarters of 1996.

<PAGE>

WHOLESALE PRICE INDEX

Source: Bank of Japan

CONSUMER PRICE INDEX

Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
1985 93.5 2.0%
1986 94.1 0.6
1987 94.2 0.1
1988 94.9 0.7
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3

(Base Year: 1995)
1992 98.2 1.8
1993 99.4 1.2
1994 100.1 0.7
1995 100.0 (0.1)
1996 100.1 0.1

Source: Bureau of Statistics Management and Coordination Agency

<PAGE>

Currency Fluctuation. Investments by the Japan Growth
Portfolio in Japanese securities will be denominated in yen and most income
received by the Portfolio from such investments will be in yen. However, the
Portfolio's 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 the Portfolio's Japanese
investments. The following table presents the average exchange rates of Japanese
yen for U.S. dollars for the years shown:

CURRENCY EXCHANGE RATES

Year Yen Per U.S. Dollar
---- -------------------
1985 (Y)238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.62
1993 111.18
1994 102.22
1995 94.07
1996 108.78

Source: Nikkei (Calendar Year, Closing Average, Inter-Bank
Rates in Tokyo, Spot)

On October 7, 1997, the rate of exchange was 122.43 Japanese
yen per U.S. dollar.

Geological 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. The
risks of such phenomena, and the damage resulting therefrom, continue to exist.
On January 17, 1995, the Great Hanshin Earthquake killed over 5,000 people and
severely damaged the port of Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake on the Japanese economy as a whole, and on
the Portfolio's investments, cannot be predicted.

Securities Markets

There are eight stock exchanges in Japan. Of these, the Tokyo
Stock Exchange is by far the largest, followed by the Osaka Stock Exchange and
the Nagoya Stock Exchange. These exchanges divide the market for domestic stocks
into two sections, with newly listed

18
<PAGE>

companies and smaller companies assigned to the Second Section and larger
companies assigned to the First Section.

As of the end of 1996, there were 1,293 domestic companies
listed on the Tokyo Stock Exchange, first section, and 473 listed on the second
section.

The following table sets forth the trading volume and value of
Japanese stocks on each of the eight Japanese stock exchanges for the years
shown.

STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>

Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York

19
<PAGE>

The following table sets forth the stock trading value of
Japanese stocks on the Tokyo Stock Exchange for the years shown.
<TABLE>
<CAPTION>

Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York

OTC Market. Trading of securities on the Japanese OTC market
("OTC Market" or "JASDAQ") is regulated primarily by the Japan Securities
Dealers Association (the "JSDA"). The JSDA reports the daily high and low
selling prices, the last selling price on each day, trading volumes, market
capitalization and the number of corporate issues registered with the JSDA as
traded over-the-counter by the member firms of the JSDA.

The following table sets forth the number of issues traded in,
the market capitalization of, and the trading value of stocks in, the Japanese
OTC market for the years shown.

JAPANESE OTC MARKET
NUMBER OF ISSUES, MARKET CAPITALIZATION
AND TRADING VALUE
<TABLE>
<CAPTION>

Stock Trading Value
-------------------------------------------
(yen in thousands)
Year No. of Issues Market Capitalization Total Daily Average
- ---- ------------- --------------------- ----- -------------
(yen in millions)
<S> <C> <C> <C> <C>

1985 150 (Y)1,572,308 (Y)195,711,396 (Y)686,706
1986 161 2,138,063 450,081,898 1,642,634
1987 172 2,489,409 400,065,211 1,460,092
1988 216 4,270,830 721,639,214 2,643,367
1989 279 12,508,712 2,085,482,912 8,375,433
1990 357 11,972,160 6,111,700,820 24,844,312
1991 446 13,001,864 5,043,126,216 20,500,513
1992 451 8,008,572 1,091,101,849 4,417,416
1993 491 11,318,446 2,880,539,952 11,709,512
1994 581 14,628,729 5,384,108,058 21,798,008
1995 698 14,604,314 5,889,972,000 23,654,000
1996 779 16,493,446 5,359,604,000* 25,926,000*
</TABLE>

Source: JSDA, 1993 Annual Statistics for the OTC Market; Japan
Securities Research Institute

------------------
* For the period ended October 31, 1996

20
<PAGE>

The following table sets forth the high, low and year-end
TOPIX for the years shown.

TOPIX (Tokyo Stock Price Index)

Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York

The Nikkei OTC Average is a price weighted index of the
quotations of the OTC registered stock traded by members of the JSDA. The
following table sets forth the year-end Nikkei OTC Average for the years shown.

NIKKEI OTC AVERAGE

Nikkei OTC
Year Average
---- ----------
1985 814.2
1986 1,056.4
1987 1,107.0
1988 1,313.1
1989 2,597.5
1990 2,175.5
1991 1,946.1
1992 1,227.9
1993 1,447.6
1994 1,776.1
1995 1,448.4
1996 1,330.6

Sources: The Nihon Keizai Shimbun, Inc.; Bloomberg Financial
Markets; Japan Securities Dealers Association

As these indexes reflect, share prices of companies traded on
Japanese stock exchanges and on the Japanese OTC market reached historical peaks
(which were later referred to as the "bubble") in 1989 and 1990. Afterwards
stock prices in both markets decreased significantly, reaching their lowest
levels in the second half of 1992. There can be no assurance that additional
market corrections will not occur.

<PAGE>

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

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

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<PAGE>

higher-rated securities. The lack of a liquid secondary market, as well as
adverse publicity and investor perception with respect to these securities, may
have an adverse impact on market price and a Portfolio's ability to dispose of
particular issues when necessary to meet the Portfolio's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio and calculating
its net asset value.

The market value of securities in medium- and lower-rated
categories is more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact
the Portfolio's net asset value. The Fund will rely on the judgment, analysis
and experience of Warburg in evaluating the creditworthiness of an issuer. In
this evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
its operating history, the quality of the issuer's management and regulatory
matters. Normally, medium- and lower-rated and comparable unrated securities are
not intended for short-term investment. A Portfolio may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings of such securities.
Recent adverse publicity regarding lower-rated securities may have depressed the
prices for such securities to some extent. Whether investor perceptions will
continue to have a negative effect on the price of such securities is uncertain.

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

Lending of Portfolio Securities. A Portfolio 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 a Portfolio's net assets taken at value. A Portfolio 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 Portfolio involved. From time to time, a
Portfolio 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 Portfolio and that is acting as a "finder."

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<PAGE>

By lending its securities, the Portfolio 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. Income
received could be used to pay a Portfolio's expenses and would increase its
total return. Each Portfolio will adhere to the following conditions whenever
its portfolio securities are loaned: (i) the Portfolio 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 Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio 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 Portfolio may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Portfolio's ability to recover the loaned
securities or dispose of the collateral for the loan.

When a Portfolio agrees to purchase when-issued or
delayed-delivery securities, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Portfolio 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
Portfolio's commitment. It may be expected that the Portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. When the Portfolio
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
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.

<PAGE>

Short Sales. The Post-Venture Capital Portfolio may engage in
"short sales" that do not meet the definition of short sales "against the box."
In a short sale, the investor sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the
Portfolio's custodian or qualified sub-custodian. While the short sale is open,
the Portfolio will maintain in a segregated account an amount of securities
equal in kind and amount to the securities sold short or securities convertible
into or exchangeable for such equivalent securities.

Short Sales Against the Box. Each Portfolio may enter into
short sales "against the box." While a short sale is made by selling a security
a Portfolio does not own, a short sale is "against the box" to the extent that
the Portfolio contemporaneously owns or has the right to obtain, at no added
cost, securities identical to those sold short. No Portfolio, other than the
Small Company Value Portfolio, intends to engage in short sales against the box
for investment purposes. A Portfolio 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 Portfolio (or a security convertible or
exchangeable for such security). In such case, any future losses in the
Portfolio's long position should be offset by a gain in the short position and,
conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales.

Depositary Receipts. The assets of a Portfolio may be invested
in the securities of foreign issuers in the form of American Depositary Receipts
("ADRs") and 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 ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are receipts issued outside the United States.
EDRs, CDRs, IDRs and GDRs 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 (CDRs) and IDRs (GDRs) in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.

25
<PAGE>

equity securities, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates and, in addition, also
fluctuates in relation to the underlying common stock.

Warrants. Each Portfolio may purchase warrants issued by
domestic and foreign companies to purchase newly created equity securities
consisting of common and preferred stock. The equity security underlying a
warrant is authorized at the time the warrant is issued or is issued together
with the warrant.

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

Non-Publicly Traded and Illiquid Securities. Each of the Japan
Growth and Small Company Value Portfolios may not invest more than 10% of its
net assets in 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), time deposits maturing in more than seven days and, with respect
to the Post-Venture Capital Portfolio, Private Funds (as defined in the
Prospectus). The Post-Venture Capital Portfolios may invest up to 15% of its net
assets in such securities. 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.

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<PAGE>

security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.

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

An investment in Rule 144A Securities will be considered
illiquid and therefore subject to a Portfolio's limit on the purchase of
illiquid securities unless the Board or its delegates determines that the Rule
144A Securities are liquid. Warburg will monitor the liquidity of restricted
securities in a Portfolio under the supervision of the Board. In reaching
liquidity decisions, Warburg 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).

Private Funds (Post-Venture Capital Portfolio). Although
investments in Private Funds offer the opportunity for significant capital
gains, these investments involve a high degree of business and financial risk
that can result in substantial losses in the portion of the Post-Venture Capital
Portfolio's assets invested in these investments. Among these are the risks
associated with investment in companies in an early stage of development or with
little or no operating history, companies operating at a loss or with
substantial variation in operation results from period to period, companies with
the need for substantial additional capital to support expansion or to maintain
a competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Portfolio will have no control.

Interests in the Private Funds in which the Post-Venture
Capital Portfolio may invest will be subject to substantial restrictions on
transfer and, in some instances, may be non-transferable for a period of years.
Private Funds may participate in only a limited number of investments and, as a
consequence, the return of a particular Private Fund may be substantially
adversely affected by the unfavorable performance of even a single investment.
Certain of the Private Funds in which the Portfolio may invest may pay their
investment managers a fee based on the performance of the Portfolio, which may
create an incentive for the manager to make investments that are riskier or more
speculative than would be the case if

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<PAGE>

the manager was paid a fixed fee. Private Funds are not registered under the
1940 Act and, consequently, are not subject to the restrictions on affiliated
transactions and other protections applicable to regulated investment companies.
The valuation of companies held by Private Funds, the securities of which are
generally unlisted and illiquid, may be very difficult and will often depend on
the subjective valuation of the managers of the Private Funds, which may prove
to be inaccurate. Inaccurate valuations of a Private Fund's portfolio holdings
may affect the Portfolio's net asset value calculations. Private Funds in which
the Portfolio invests will not borrow to increase the amount of assets available
for investment or otherwise engage in leverage.

Borrowing. Each Portfolio 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
the Portfolio's net assets. Although the principal of such borrowings will be
fixed, the Portfolio's assets may change in value during the time the borrowing
is outstanding. Each Portfolio 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. Each of the
Portfolios may enter into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Reverse repurchase agreements
involve the sale of securities held by the Portfolio pursuant to its agreement
to repurchase them at a mutually agreed upon date, price and rate of interest.
At the time the Portfolio enters into a reverse repurchase agreement, it will
establish and maintain a segregated account with an approved custodian
containing cash or certain liquid securities having a value not less than the
repurchase price (including accrued interest). The assets contained in the
segregated account will be marked-to-market daily and additional assets will be
placed in such account on any day in which the assets fall below the repurchase
price (plus accrued interest). The Portfolio'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 Portfolio has sold but is obligated to repurchase.
In the event the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decision.

The Portfolios also may enter into "dollar rolls," in which
the Portfolio sells fixed-income securities for delivery in the current month
and simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Portfolio would forego principal and interest paid on such
securities. The Portfolio 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

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<PAGE>

the cash proceeds of the initial sale. At the time the Portfolio enters into a
dollar roll transaction, it will place in a segregated account maintained with
an approved custodian cash or other liquid obligations having a value not less
than the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that its value is maintained. Reverse repurchase
agreements and dollar rolls that are accounted for as financings are considered
to be borrowings under the 1940 Act.

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 debt securities in which the Portfolio 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 debt 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.

Mortgage-Backed Securities. Each Portfolio may invest in
mortgage-backed securities issued by U.S. government entities, such the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). In
addition, the Japan Growth Portfolio may invest in mortgage-backed securities
sponsored by U.S. and foreign issuers as well as non-governmental issuers.
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

29
<PAGE>

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 Portfolio's 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
Portfolio's yield.

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.

Non-Diversified Status (Japan Growth Portfolio). The Japan
Growth Portfolio is classified as non-diversified within the meaning of the 1940
Act, which means that the Portfolio is not limited by such Act in the proportion
of its assets that it may invest in securities of a single issuer. The
Portfolio's investments will be limited, however, in order to

30
<PAGE>

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, the Portfolio 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
Portfolio will not own more than 10% of the outstanding voting securities of a
single issuer.

Zero Coupon Securities (Japan Growth Portfolio). The Japan
Growth Portfolio may invest in "zero coupon" U.S. Treasury, foreign government
and U.S. and foreign corporate convertible and nonconvertible debt securities,
which are bills, notes and bonds that have been stripped of their unmatured
interest coupons and custodial receipts or certificates of participation
representing interests in such stripped debt obligations and coupons. The
Portfolio currently anticipates that during the coming year, zero coupon
securities will not exceed 5% of its net assets. A zero coupon security pays no
interest to its holder prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities that make current distributions of
interest. The Portfolio anticipates that it will not normally hold zero coupon
securities to maturity. Federal tax law requires that a holder of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year, even though the holder receives no interest payment on the
security during the year. Such accrued discount will be includible in
determining the amount of dividends the Portfolio must pay each year and, in
order to generate cash necessary to pay such dividends, the Portfolio may
liquidate portfolio securities at a time when it would not otherwise have done
so

Securities of Smaller Companies and Emerging Growth Companies;
Special Situation Companies (Japan Growth and Small Company Value Portfolios).
The Portfolio's 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 emerging growth and smaller companies may involve greater risks
since these securities may have limited marketability and, thus, may be more
volatile.

The Portfolio may invest in the securities of "special
situation companies" involved in an actual or prospective acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; or litigation which, if resolved
favorably, would improve the value of the company's stock. If the actual or
prospective situation does not materialize as anticipated, the market price of
the securities of a "special situation company" may decline significantly. The
Portfolio believes, however, that if Warburg analyzes "special situation
companies" carefully and invests in the securities of these companies at the
appropriate time, the Portfolio may achieve capital growth. There can be no

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assurance, however, that a special situation that exists at the time the
Portfolio makes its investment will be consummated under the terms and within
the time period contemplated.

Asset-Backed Securities (Japan Growth Portfolio). The Japan
Growth Portfolio may invest in asset-backed securities, which 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 the Portfolio 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.

Other Investment Limitations

The investment limitations numbered 1 through 10 may not be
changed without the affirmative vote of the holders of a majority of the
Portfolio's outstanding shares. Such majority is defined as the lesser of (i)
67% or more of the shares present at the meeting, if the holders of more than
50% of the outstanding shares of the relevant Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
Investment limitations 11 through 15 may be changed by a vote of the Board at
any time.

If a percentage restriction (other than the percentage
limitation set forth in Restriction No. 1) 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
Portfolio's assets will not constitute a violation of such restriction.

Each Portfolio may not:

<PAGE>

1. Borrow money except that the Portfolios 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 Portfolios may not exceed 30% of the value of the
Portfolios' 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 Portfolios' 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. 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 Portfolios' investment objective, policies and
limitations may be deemed to be underwriting.

5. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that the Portfolios 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. With respect to the Japan Growth and Small Company Value
Portfolios only, make short sales of securities or maintain a short position,
except that each Portfolio may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box."

7. Purchase securities on margin, except that the Portfolios
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 Portfolios may
purchase and sell futures contracts, including those relating to securities,
currencies and indexes, and options on futures contracts, securities, currencies
or indexes, and purchase and sell currencies on a forward commitment or
delayed-delivery basis.

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

<PAGE>

10. With respect to the Post-Venture Capital and Small Company
Value Portfolios only, purchase the securities of any issuer if as a result more
than 5% of the value of the Portfolio'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 Portfolio's
total assets may be invested without regard to this 5% limitation.

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

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

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

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

15. Invest in warrants (other than warrants acquired by the
Portfolio 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 Portfolio's net assets.

Portfolio Valuation

The Prospectus discusses the time at which the net asset value
of each Portfolio is determined for purposes of sales and redemptions. The
following is a description of the procedures used by each Portfolio in valuing
its assets.

Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options or futures contracts will be valued
similarly. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. Short-term obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board. Amortized cost involves valuing a portfolio instrument at its initial
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless

34
<PAGE>

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 debt obligations with 60 days or less remaining to maturity. In determining
the market value of portfolio investments, the Portfolio may employ outside
organizations (a "Pricing Service") which may use a matrix formula or other
objective method that takes into consideration market indexes, matrices, yield
curves and other specific adjustments. The procedures of Pricing Services are
reviewed periodically by the officers of the Fund under the general supervision
and responsibility of the Board, which may replace a Pricing Service at any
time. Securities, options and futures contracts for which market quotations are
not available and certain other assets of the Portfolio will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. In addition, the Board or its delegates may
value a security at fair value if it determines that such security's value
determined by the methodology set forth above does not reflect its fair value.

Trading in securities in 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 (the "NYSE")
is open for trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which a Portfolio's net asset value is not
calculated. As a result, calculation of the Portfolio's net asset value may not
take place contemporaneously with the determination of the prices of certain
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of regular trading on the NYSE will not be reflected in the
Portfolios' calculation of net asset value, in which case an adjustment may be
made by the Board or its delegates. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the prevailing rate as quoted by a Pricing Service. If such quotations are
not available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.

Portfolio Transactions

35
<PAGE>

commissions are generally fixed. Purchases of Private Funds by the Post-Venture
Capital Portfolio through a broker or placement agent may also involve a
commission or other fee. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. Government Securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. Government
Securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.

Except for Private Funds investments managed by Abbott Capital
Management, LLC, the Post-Venture Capital Portfolio's sub-investment adviser
with respect to Private Funds ("Abbott"), Warburg will select specific portfolio
investments and effect transactions for each Portfolio 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 a Portfolio 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 the Portfolios 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 Portfolios. Research may include furnishing advice,
either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling specific securities and
the availability of securities or purchasers or sellers of securities;
furnishing seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative developments,
changes in accounting practices, economic factors and trends and portfolio
strategy; access to research analysts, corporate management personnel, industry
experts, economists and government officials; comparative performance evaluation
and technical measurement services and quotation services; and products and
other services (such as third party publications, reports and analyses, and
computer and electronic access, equipment, software, information and accessories
that deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to Warburg's own
research program. The fees to Warburg and Abbott under their agreements with the
Fund are not reduced by reason of its receiving any brokerage and research
services.

<PAGE>

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

In no instance will portfolio securities be purchased from or
sold to Warburg, Abbott or Counsellors Securities Inc., the Fund's distributor
("Counsellors Securities"), or any affiliated person of such companies.

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

Each Portfolio may participate, if and when practicable, in
bidding for the purchase of securities for the Portfolio's portfolio directly
from an issuer in order to take advantage of the lower purchase price available
to members of such a group. A Portfolio will engage in this practice, however,
only when Warburg, in its sole discretion, believes such practice to be
otherwise in the Portfolio's interest.

Portfolio Turnover

The Portfolios do not intend to seek profits through
short-term trading, but the rate of turnover will not be a limiting factor when
a Portfolio deems it desirable to sell or purchase securities. A Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.

37
<PAGE>

in special situation companies could result in high portfolio turnover. To the
extent that its portfolio is traded for the short-term, the Portfolio will be
engaged essentially in trading activities based on short-term considerations
affecting the value of an issuer's stock instead of long-term investments based
on fundamental valuation of securities. Because of this policy, portfolio
securities may be sold without regard to the length of time for which they have
been held. Consequently, the annual portfolio turnover rate of the Portfolios
may be higher than mutual funds having a similar objective that do not invest in
special situation companies.

MANAGEMENT OF THE FUND

Officers and Board of Directors

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

Richard N. Cooper (63) Director
Harvard University Professor at Harvard University; National Intelligence Council
1737 Cambridge Street from June 1995 until January 1997; Director or Trustee of
Cambridge, Massachusetts 02138 CircuitCity Stores, Inc. (retail electronics and appliances)
and Phoenix Home Mutual Life Insurance Company.

Donald J. Donahue (73) Director
27 Signal Road Chairman of Magma Copper Company from December 1987 until
Stamford, Connecticut 06902 December 1995; Chairman and Director of NAC Holdings from
September 1990 - June 1993; Director of Pioneer
Companies, Inc. (chlor-alkali chemicals) and
predecessor companies since 1990 and Vice Chairman
since December 1995.

Jack W. Fritz (70) Director
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers and
Wilson, Wyoming 83014 operators of radio stations); Director of Advo, Inc. (direct
mail advertising).

John L. Furth* (66) Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1970; Officer of other investment
companies advised by Warburg.
</TABLE>

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

38
<PAGE>

Thomas A. Melfe (65) Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure Newton & Irvine;
New York, New York 10112 Chairman of the Board of Municipal Fund for New York Investors,
Inc.

Arnold M. Reichman* (49) Director and Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1984; Senior Vice President,
Secretary and Chief Operating Officer of
Counsellors Securities; Officer of other investment
companies advised by Warburg.

Alexander B. Trowbridge (67) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business consulting)
Washington, DC 20004 from January 1990-November 1996; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc. (solid
and hazardous waste collection and disposal), The
Rouse Company (real estate development), Harris
Corp. (electronics and communications equipment),
The Gillette Co. (personal care products) and Sun
Company Inc. (petroleum refining and marketing).

Eugene L. Podsiadlo (40) President
466 Lexington Avenue Managing Director of Warburg; Associated with Warburg since
New York, New York 10017-3147 1991; Vice President of Citibank, N.A. from 1987-1991; Senior
Vice President of Counsellors Securities and
officer of other investment companies advised by
Warburg.

Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director, Controller and Assistant Secretary of
New York, New York 10017-3147 Warburg; Associated with Warburg since 1984; Treasurer of
Counsellors Securities; Vice President of other
investment companies advised by Warburg.

</TABLE>

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

39
<PAGE>

Eugene P. Grace (45) Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April 1994; Attorney-at-law from
New York, New York 10017-3147 September 1989-April 1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General Counsel
and Secretary, Home Unity Savings Bank from
1991-1992; Vice President, Chief Compliance Officer
and Assistant Secretary of Counsellors Securities;
Vice President and Secretary of other investment
companies advised by Warburg.

Howard Conroy (43) Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992; Associated with Martin
New York, New York 10017-3147 Geller, C.P.A. from 1990-1992; Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until 1990; Vice
President and Chief Financial Officer of other
investment companies advised by Warburg.

Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995; Associated with BlackRock
New York, New York 10017-3147 Financial Management, Inc. from September 1994 to October 1996;
Associated with BEA Associates from April 1993 to
September 1994; Associated with Ernst & Young LLP
from 1990 to 1993. Treasurer and Chief Accounting
Officer of other investment companies advised by
Warburg.

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

Warburg, PFPC or any of their affiliates receives an annual
fee of $500 and $250 for each meeting of the Board attended by him for his
services as Director and is reimbursed for expenses incurred in connection with
his attendance at Board meetings.

40
<PAGE>

Directors' Compensation
(for the fiscal year ended October 31, 1996)
<TABLE>
<CAPTION>

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

John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,750 $42,916
Donald J. Donahue $2,000 $42,916
Jack W. Fritz $1,250 $42,916
Thomas A. Melfe $2,000 $42,916
Alexander B. Trowbridge $2,000 $42,916
</TABLE>

- ------------------------
* Each Director also serves as a Director or Trustee of 23 other
investment companies advised by Warburg.

** Mr. Furth and Mr. Reichman are considered to be interested persons
of the Fund and Warburg, as defined under Section 2(a)(19) of the
1940 Act, and, accordingly, receive no compensation from the Fund or
any other investment company managed by Warburg.

As of August 5, 1997, the Directors and officers of the Fund
as a group owned less than 1% of the outstanding shares of each Portfolio.

Portfolio Managers.

Japan Growth Portfolio. Mr. P. Nicholas Edwards, Portfolio
Manager of the Japan Growth Portfolio, is also Associate Portfolio Manager and
Research Analyst of the International Equity and Managed EAFE(R) Countries
Portfolios of the Fund, Portfolio Manager of Warburg Pincus Japan Growth Fund
and a Co-Portfolio Manager and Research Analyst of Warburg Pincus International
Equity Fund and an Associate Portfolio Manager and Research Analyst of the
International Equity Portfolio of Warburg Pincus Trust. 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.

Post-Venture Capital Portfolio. Ms. Elizabeth B. Dater,
Co-Portfolio Manager of the Post-Venture Capital Portfolios, is also
Co-Portfolio Manager of the Small Company Growth Portfolio of the Fund, Warburg
Pincus Emerging Growth Fund, Warburg Pincus Post-Venture Capital Fund and the
Post-Venture Capital Portfolio of Warburg Pincus Trust. She is the former
Director of Research for Warburg's investment management activities. Prior to
joining Warburg in 1978, she was a vice president of Research at Fiduciary Trust
Company of New York and an institutional sales assistant at Lehman Brothers. Ms.
Dater has been a regular panelist on Maryland Public Television's "Wall Street
Week" since 1976. Ms. Dater earned a B.A. degree from Boston University in
Massachusetts.

<PAGE>

Mr. Stephen J. Lurito, Co-Portfolio Manager of the
Post-Venture Capital Portfolios, is also Co-Portfolio Manager of the Small
Company Growth Portfolio of the Fund, Warburg Pincus Emerging Growth Fund,
Warburg Pincus Post-Venture Capital Fund and the Post-Venture Capital Portfolio
of Warburg Pincus Trust and the Portfolio Manager of Warburg Pincus Small
Company Growth Fund. Mr. Lurito, also the Research Coordinator and a Portfolio
Manager for micro-cap equity and post-venture products, has been with Warburg
since 1987. Prior to that he was a research analyst at Sanford C. Bernstein &
Company, Inc. Mr. Lurito earned a B.A. degree from the University of Virginia
and a M.B.A. from the University of Pennsylvania.

Mr. Robert S. Janis and Christopher M. Nawn are Associate
Portfolio Managers and Research Analysts of the Post-Venture Portfolio and of
other Warburg Pincus Funds. Prior to joining Warburg in October 1994, Mr. Janis
was a vice president and senior research analyst at U.S. Trust Company of New
York. He earned B.A. and M.B.A. degrees from the University of Pennsylvania.
Prior to joining Warburg in September 1994, Mr. Nawn was a senior sector analyst
and portfolio manager at the Dreyfus Corporation. He earned a B.A. degree from
the Colorado College and an M.B.A. degree from the University of Texas.

Raymond L. Held and Gary H. Solomon, Investment Managers and
Managing Directors of Abbott, manage the Post-Venture Capital Portfolio's
investments in Private Funds. Abbott also acts as sub-investment adviser for
Warburg Pincus Post-Venture Capital Fund, Warburg Pincus Global Post-Venture
Capital Fund and the Post-Venture Capital Portfolio of Warburg Pincus Trust.
Prior to co-founding a predecessor of Abbott in 1986, Mr. Held had been an
investment analyst and portfolio manager at Manufacturers Hanover Investment
Corporation since 1970, before which time he had been a security analyst with
Weis, Voisin, Cannon, Inc., L.M. Rosenthal & Co., Shearson, Hammill & Co. and
Standard & Poor's Corporation. Mr. Held earned an M.B.A from New York
University, an M.A. from Columbia University and a B.A. from Queens College.

Prior to joining a predecessor of Abbott in 1986, Mr. Solomon
served as vice president of the Venture Capital Group at Manufacturers Hanover
Investment Corporation, before which time he was an investment officer at CIGNA
Corporation and credit account manager at E.I. du Pont de Nemours & Company. Mr.
Solomon earned an M.B.A. from Pennsylvania State University and a B.A from
Franklin & Marshall College.

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

<PAGE>

Mr. Kyle F. Frey is Associate Portfolio Manager and Research
Analyst of the Small Company Value Portfolio. Mr. Frey serves in similar
positions with Warburg Pincus Small Company Value Fund. Mr. Frey, a Senior Vice
President of Warburg, is also a Research Analyst and Assistant Portfolio Manager
for small-cap growth equity and distribution management products. Prior to
joining Warburg in 1989, Mr. Frey was with Goldman, Sachs & Co. in the
institutional sales division. Mr. Frey earned a B.S. degree from the University
of New Hampshire and an M.B.A. from New York University.

Investment Advisers and Co-Administrators

Warburg serves as investment adviser to each Portfolio, Abbott
serves as sub-investment adviser to the Post-Venture Capital Portfolio,
Counsellors Funds Service, Inc. ("Counsellors Service") and PFPC serve as
co-administrators to the Fund pursuant to separate written agreements (the
"Advisory Agreements," the "Counsellors Service Co-Administration Agreements"
and the "PFPC Co-Administration Agreements," respectively). The services
provided by, and the fees payable by the Fund to, Warburg under the Advisory
Agreements, Counsellors Service under the Counsellors Service Co-Administration
Agreements and PFPC under the PFPC Co-Administration Agreements are described in
the Prospectus. See the Prospectus, "Management of the Fund."

Custodians and Transfer Agent

Pursuant to separate custodian agreements (the "Custodian
Agreements"), PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company ("State Street") serve as custodians of each Portfolio's U.S. and
foreign assets, respectively. Under the Custodian Agreements, PNC and State
Street each (i) maintains a separate account or accounts in the name of the
Portfolio, (ii) holds and transfers portfolio securities for the account of the
Portfolio, (iii) makes receipts and disbursements of money on behalf of the
Portfolio, (iv) collects and receives all income and other payments and
distributions on account of the Portfolio's portfolio securities held by it and
(v) makes periodic reports to the Board concerning the Portfolio's custodial
arrangements. PNC may delegate its duties under its Custodian Agreement with the
Fund to a wholly owned direct or indirect subsidiary of PNC or PNC Bank Corp.
upon notice to the Fund and upon the satisfaction of certain other conditions.
With the approval of the Board, State Street is authorized to select one or more
foreign banking institutions and foreign securities depositaries as
sub-custodian on behalf of the Portfolios. 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.

43
<PAGE>

shareholders, (iii) maintains shareholder accounts and, if requested,
sub-accounts and (iv) makes periodic reports to the Board concerning the
transfer agent's operations with respect to the Fund. State Street has delegated
to Boston Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, Boston, Massachusetts 02171.

Organization of the Fund

The Fund was incorporated on May 13, 1992 under the laws of
the State of Maryland under the name "Warburg, Pincus Institutional Fund, Inc."
Shares of nine series have been authorized, which constitute the interests in
the Portfolios described herein and six other series.

All shareholders of a Portfolio, upon liquidation, will
participate ratably in the Portfolio'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.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The offering price of each Portfolio's shares is equal to its
per share net asset value. Additional information on how to purchase and redeem
a Portfolio's shares and how such shares are priced is included in the
Prospectus under "Net Asset Value."

Under the 1940 Act, a Portfolio 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 Portfolio may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)

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

A Portfolio may, in certain circumstances and in its
discretion, accept securities as payment for the purchase of the Portfolio's
shares from an investor who has received such securities as redemption proceeds
from another Warburg Pincus Fund.

<PAGE>

EXCHANGE PRIVILEGE

Shareholders of a Portfolio may exchange all or part of their
shares for shares of another Portfolio or other portfolios of the Fund organized
by Warburg in the future on the basis of their relative net asset values per
share at the time of exchange.

The exchange privilege enables shareholders to acquire shares
in a Portfolio with a different investment objective when they believe that a
shift between Portfolios is an appropriate investment decision. This privilege
is available to shareholders residing in any state in which the Portfolio's
shares being acquired may legally be sold.

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 Portfolio and the proceeds are invested on
the same day, at a price as described above, in shares of the Portfolio being
acquired. Warburg reserves the right to reject more than three exchange requests
by a shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders.

ADDITIONAL INFORMATION CONCERNING TAXES

The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership and
disposition of shares in the Portfolios. 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 Portfolio. The summary is
based on the laws in effect on the date of this Statement of Additional
Information, which are subject to change.

The Portfolios and Their Investments

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
Portfolio'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 Portfolio controls and are determined to be engaged in the same
or similar trades or businesses or related trades or businesses. Each Portfolio
expects that all of its foreign currency gains will be directly related to its
principal business of investing in stocks and securities.

The 30% Test will restrict the extent to which the Fund may,
among other things: (1) sell or purchase put options on securities held for less
than three months or purchase put options on substantially identical securities
(unless the option and the security are acquired on the same day); (2) write
options that expire in less than three months and (3) close options that expire
in less than three months; and (3) close options that were written or purchased
within the preceding three months. For purposes of the 30% Test, a Fund's
increases or decreases in value of short-term investment positions constitute
certain designated hedging transactions may generally be netted. Effective for
taxable years beginning after August 5, 1997, the Taxpayer Relief Act of 1997
repealed the 30% Test. Accordingly, effective as of the Fund's taxable year
beginning November 1, 1997, the Fund will no longer be required to comply with
the 30% Test.

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

46
<PAGE>

expects to distribute any excess annually to its shareholders. However, if a
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio
upon filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS"). Even if the Portfolio makes such an election, it is
possible that it may incur an excise tax as a result of not having distributed
net capital gains.

The Code imposes a 4% nondeductible excise tax on each
Portfolio to the extent the Portfolio 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 Portfolio that is subject to
corporate income tax will be considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous year. Each Portfolio
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 Portfolio'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 Portfolio and may limit the Portfolio's ability to pay
sufficient dividends and to make sufficient distributions to satisfy the 90% and
excise tax distribution requirements.

47
<PAGE>

In addition, if a Portfolio failed to qualify as a regulated
investment company for a period greater than one taxable year, the Portfolio 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 Portfolio'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 Portfolio (i.e., may
affect whether gains or losses are ordinary or capital), accelerate recognition
of income to the Portfolio and defer Portfolio losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio as a regulated investment company.

A Portfolio's investments in zero coupon securities may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between zero coupon security's face value
and its purchase price is imputed as income to the Portfolio each year even
though the Portfolio receives no cash distribution until maturity. Under the
U.S. federal tax laws, the Portfolio 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 Portfolio.

48
<PAGE>

possible to obtain. If a Portfolio were able to make the election described in
this paragraph, the Portfolio 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% vote
to the portion of a PFIC 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
Portfolio being treated as if it had sold and repurchased all of the PFIC stock
at the end of each year. In this case, the Portfolio 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 Portfolio, unless revoked with the consent of
the IRS. By making the election, the Portfolio 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 Portfolio may have to distribute this "phantom" income and gain
to satisfy its distribution requirement and to avoid imposition of the 4% excise
tax. The Portfolio will make the appropriate tax elections, if possible, and
take any additional steps that are necessary to mitigate the effect of these
rules.

Dividends and Distributions. Dividends of net investment
income and distributions of net realized short-term capital gains are taxable to
a United States shareholder as ordinary income, whether paid in cash or in
shares. Distributions of net-long-term capital gains, if any, that the Portfolio
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 Portfolio. Dividends and distributions paid by the Portfolio
(except for the portion thereof, if any, attributable to dividends on stock of
U.S. corporations received by the Portfolio) will not qualify for the deduction
for dividends received by corporations. Distributions in excess of the
Portfolio'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 Portfolio, and as a capital gain
thereafter (if the shareholder holds his shares of the Portfolio 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

49
<PAGE>

reflect the amount of the forthcoming distribution, such dividend or
distribution may nevertheless be taxable to them.

If a Portfolio 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 Portfolio'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 Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Portfolio 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.

Backup Withholding. A Portfolio 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 Portfolio 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 Portfolio 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 Portfolios and Their Investments") made
by the Portfolio to its shareholders. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of the
Portfolio'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 Portfolio to its shareholders
during the preceding taxable year.

<PAGE>

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 PORTFOLIOS 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 PORTFOLIOS.

DETERMINATION OF PERFORMANCE

From time to time, a Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. A
Portfolio's average annualized total return is calculated by finding the average
annual compounded rates of return for the one-, five- and ten- (or such shorter
period as the Portfolio 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.

A Portfolio may advertise, from time to time, comparisons of
its performance with that of one or more other mutual funds with similar
investment objectives. A Portfolio 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 Portfolio's
total return in longer market cycles.

A Portfolio's performance will vary from time to time
depending upon market conditions, the composition of its 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 Portfolio's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time.

The Japan Growth Portfolio 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

- -------------------
* - As used here, "n" is an exponent.

51
<PAGE>

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 this Portfolio 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 the Fund.

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

FINANCIAL STATEMENTS

The unaudited statements of assets and liabilities for the
Portfolios dated as of August 11, 1997 accompany this Statement of Additional
Information.

<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

Commercial Paper Ratings

Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted 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 they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.

BBB - This is the lowest investment grade. Debt rated BBB has
an adequate capacity to pay interest and repay principal. Although they normally
exhibit 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, CCC, CC and C - Debt rated BB and B is regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B, and CCC the highest degree of
speculation. While such bonds will likely have some

A-1
<PAGE>

quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

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

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

A-2
<PAGE>

payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

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

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
the desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

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

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

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

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

A-3

<PAGE>

WARBURG PINCUS INSTITUTIONAL FUND, INC.
JAPAN GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 11, 1997
(unaudited)

Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0

Liabilities: 0
-
Net Assets 0
=
Net Asset Value, Redemption and Offering Price
Per share (1 billion shares classified for
the Japan Growth Portfolio - $.001 par
value) applicable to 1 share issued.
$10.00
======

A-4

<PAGE>

WARBURG PINCUS INSTITUTIONAL FUND, INC.
POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 11, 1997
(unaudited)

Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0

Liabilities: 0
-
Net Assets 0
=

Net Asset Value, Redemption and Offering Price
Per share (1 billion shares classified for
the Post-Venture Capital Portfolio - $.001
par value) applicable to 1 share issued.
$10.00
======

A-5

<PAGE>

WARBURG PINCUS INSTITUTIONAL FUND, INC.
SMALL COMPANY VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 11, 1997
(unaudited)

Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0

Liabilities: 0
-
Net Assets 0
=

Net Asset Value, Redemption and Offering Price
Per share (1 billion shares classified for
the Small Company Value Portfolio - $.001
par value) applicable to 1 share issued.
$10.00

A-6

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits
---------------------------------

(a) Financial Statements --
International Equity Portfolio

(1) Financial Statements included in Part A
(a) Financial Highlights

(2) Financial Statements included in Part B
(incorporated by reference to the Fund's annual
report dated October 31, 1996 and semiannual
report (unaudited) dated April 30, 1997)
(a) Report of Coopers & Lybrand L.L.P.,
Independent Accountants (annual report only)
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements

(b) Financial Statements -- Small Company
Growth Portfolio

(1) Financial Statements included in Part A
(a) Financial Highlights

(1) Report of Coopers & Lybrand L.L.P., Independent
Accountants

(2) Statement of Assets and Liabilities

(3) Notes to Financial Statements

(d) Financial Statements included in Part B -- Managed
EAFE[R] Countries Portfolio

C-1
<PAGE>

(1) Financial Statements included in Part A
(a) Financial Highlights

(2) Financial Statements included in Part B
(incorporated by reference to the Fund's
semiannual report (unaudited) dated April 30,
1997)
(a) Statement of Net Assets
(b) Statement of Operations
(c) Statement of Changes in Net Assets
(d) Financial Highlights
(e) Notes to Financial Statements

(e) Financial Statements -- Emerging Markets Portfolio

(1) Financial Statements included in Part A
(a) Financial Highlights

(f) Financial Statements included in Part B -- Value
Portfolio

(1) Statement of Assets and Liabilities (Unaudited)

(g) Financial Statements included in Part B -- Japan Growth
Portfolio.

(1) Statement of Assets and Liabilities (Unaudited)

(h) Financial Statements included in Part B -- Small Company
Value Portfolio.

(1) Statement of Assets and Liabilities (Unaudited)

(i) Financial Statements included in Part B -- Post-Venture
Capital Portfolio.

(1) Statement of Assets and Liabilities (Unaudited)

(j) Exhibits:

C-2
<PAGE>

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

1(a) Articles of Incorporation.(2)

(b) Articles of Amendment establishing the International Equity
Portfolio.(2)

(d) Articles Supplementary designating the Small Company Growth
Portfolio.(2)

(e) Articles Supplementary increasing the number of authorized
shares (2)

(f) Articles Supplementary designating Emerging Markets
Portfolio.(3)

(g) Articles of Amendment changing the name of Managed EAFE
Portfolio to Managed EAFE[R] Countries Portfolio.(4)

(h) Articles Supplementary designating Value Portfolio. (5)

(i) Articles Supplementary designating Japan Growth Portfolio,
the Small Company Value Portfolio and the Post-Venture
Capital Portfolio.(1)

2(a) By-Laws. (6)

- ----------

(1) Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 12, 1997.

(2) Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 18, 1995.

(3) Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 20, 1996.

(4) Incorporated by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on January 28, 1997.

(5) Incorporated by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on January 31, 1997.

C-3
<PAGE>

2(b) Amendment to By-Laws. (7)

3 Not applicable.

4 Registrant's Forms of Stock Certificates.(2)

5(a) Investment Advisory Agreement--International Equity
Portfolio.(2)

(b) Investment Advisory Agreement--Small Company Growth
Portfolio.(2)

(d) Investment Advisory Agreement -- Managed EAFE[R] Countries
Portfolio (formerly known as Foreign Developed Markets
Portfolio). (2)

(e) Investment Advisory Agreement--Emerging Markets Portfolio.
(3)

(f) Investment Advisory Agreement -- Value Portfolio. (5)

(g) Investment Advisory Agreement -- Japan Growth Portfolio.(1)

(h) Investment Advisory Agreement -- Small Company Value
Portfolio.(1)

(i) Investment Advisory Agreement -- Post-Venture Capital
Portfolio.(1)

(j) Sub-Investment Advisory Agreement between Abbott Capital
Management, LLC and the Post-Venture Capital Portfolio.(1)

6(a) Form of Distribution Agreement.(2)

(b) Form of Distribution Agreement pertaining to the Small
Company Growth Portfolio.(2)

- ----------

(6) Incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on April 19, 1996.

(7) Incorporated by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on July 2, 1996.

C-4
<PAGE>

(d) Form of Distribution Agreement pertaining to the Small
Company Value Portfolio.(1)

(e) Form of Distribution Agreement pertaining to the Post-Venture
Capital Portfolio.(1)

7 Not applicable.

8(a) Form of Custodian Agreement with PNC Bank, National
Association.(2)

(b) Form of Custody Agreement with Fiduciary Trust Company
International--International Equity Portfolio.(2)

(d) Form of Custodian Contract with State Street Bank and Trust
Company ("State Street")--Small Company Growth Portfolio and
Emerging Markets Portfolio.(9)

(e) Form of Custody Agreement with Fiduciary Trust Company
International--Managed EAFE[R] Countries Portfolio (formerly
known as Foreign Developed Markets Portfolio).(8)

(f) Form of Custody Agreement with Fiduciary Trust Company
International--Value Portfolio.(8)

- ----------

(8) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 10 to the Registration Statement on Form
N-1A of Warburg, Pincus International Equity Fund, filed on September 25,
1995 (Securities Act File No. 33-27031).

(9) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
of Warburg, Pincus Japan Growth Fund, Inc. filed on December 18, 1995
(Securities Act File No. 33-63655).

C-5
<PAGE>

(g) Form of Custody Agreement with PNC Bank --Japan Growth
Portfolio, Small Company Value Portfolio and Post-Venture
Capital Portfolio.(1)

(h) Form of Custody Agreement with State Street Bank & Trust
Company -- Japan Growth Portfolio, Post-Venture Capital
Portfolio and Small Company Value Portfolio.(1)

9(a) Form of Transfer Agency Agreement.(9)

(b)(1) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Small Company Growth Portfolio
under the Transfer Agency Agreement.(2)

(b)(2) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Japan Growth Portfolio under
the Transfer Agency and Service Agreement.(1)

(b)(3) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Small Company Value Portfolio
under the Transfer Agency and Service Agreement.(1)

(b)(4) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Post-Venture Capital Portfolio
under the Transfer Agency and Service Agreement.(1)

(c)(1) Form of Co-Administration Agreements with Counsellors Funds
Service, Inc.(9)

(c)(2) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc. with respect to Japan Growth Portfolio.(1)

(c)(3) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc. with respect to Small Company Value
Portfolio.(1)

(c)(4) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc. with respect to Post-Venture Capital
Portfolio.(1)

(d)(1) Form of Co-Administration Agreements with PFPC Inc.(9)

(d)(2) Form of Letter Agreement with PFPC Inc. relating to the
Managed EAFE[R] Countries Portfolio (formerly known as
Foreign Developed Markets Portfolio).(6)

C-6
<PAGE>

(d)(3) Form of Letter Agreement with PFPC, Inc. relating to the
Emerging Markets Portfolio.(3)

(d)(4) Form of Letter Agreement with PFPC Inc. relating to the Value
Portfolio. (5)

(d)(5) Form of Co-Administration Agreement with PFPC Inc. relating
to the Japan Growth Portfolio.(1)

(d)(6) Form of Co-Administration Agreement with PFPC Inc. relating
to the Small Company Value Portfolio.(1)

(d)(6) Form of Co-Administration Agreement with PFPC Inc. relating
to the Post-Venture Capital Portfolio.(1)

(e) Form of Services Agreement.(1)

10(a) Consent of Willkie Farr & Gallagher, counsel to the Fund.

(b) Consent of Willkie Farr & Gallagher, counsel to the Fund and
Opinion of Willkie Farr & Gallagher relating to the
establishment of the Japan Growth Portfolio, Small Company
Value Portfolio and Post-Venture Capital Portfolio.(1)

11 Consent of Coopers & Lybrand L.L.P., Independent Accountants.

12 Not applicable.

13(a) Purchase Agreement pertaining to the International Equity
Portfolio and Global Fixed Income Portfolio.(2)

(b) Form of Purchase Agreement pertaining to the Small Company
Growth Portfolio.(2)

(c) Form of Purchase Agreement pertaining to the Managed EAFE[R]
Countries Portfolio (formerly known as Foreign Developed
Markets Portfolio).(6)

(d) Form of Purchase Agreement pertaining to the Emerging Market
Portfolio.(3)

(e) Purchase Agreement pertaining to the Value Portfolio.(5)

C-7
<PAGE>

(f) Purchase Agreement pertaining to the Japan Growth
Portfolio.(1)

(g) Purchase Agreement pertaining to the Small Company Value
Portfolio.(1)

(h) Purchase Agreement pertaining to the Post-Venture Capital
Portfolio.(1)

14 Retirement Plans.(2)

15 Not applicable.

16 Schedule of Computation of Performance Quotation.

17 Financial Data Schedules.

Item 25. Persons Controlled by or Under Common Control
with Registrant
---------------------------------------------

Not applicable.

Item 26. Number of Holders of Securities
-------------------------------

Number of Record Holders
Title of Class as of September 30, 1997
-------------- ------------------------

International Equity Portfolio-
shares of common stock
par value $.001 per share 440

Small Company Growth Portfolio-
shares of common stock
par value $.001 per share 57

Global Fixed Income Portfolio-
shares of common stock
par value $.001 per share 0

Managed EAFE[R] Countries Portfolio
(formerly known as Foreign
Developed Markets) Portfolio
shares of common stock par
value $.001 per share 2

Emerging Markets Portfolio shares
of common stock par value $.001
per share 9

Value Portfolio shares
of common stock par value $.001
per share 2

C-8
<PAGE>

Item 27. Indemnification
---------------

Registrant, officers and directors or trustees of Warburg
Pincus Asset Management, Inc. ("Warburg"), of Counsellors Securities Inc.
("Counsellors Securities") and of Registrant are covered by insurance policies
indemnifying them for liability incurred in connection with the operation of
Registrant. Discussion of this coverage is incorporated by reference to Item 27
of Part C of the Registration Statement of Warburg, Pincus Post-Venture Capital
Fund, Inc., filed on June 21, 1995.

Item 28. Business and Other Connections of
Investment Adviser
---------------------------------

Warburg, a wholly owned subsidiary of Warburg, Pincus Asset
Management Holdings, Inc. acts as investment adviser to each Portfolio. Warburg
renders investment advice to a wide variety of individual and institutional
clients. The list required by this Item 28 of officers and directors of Warburg,
together with information as to their other business, profession, vocation or
employment of a substantial nature during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Warburg (SEC File No.
801-07321).

Abbott Capital Management, LLC ("Abbott") acts as
sub-investment adviser for the Registrant's Post-Venture Capital Portfolio.
Abbott renders investment advice and provides full-service private equity
programs to clients. The list required by this Item 28 of Officers and Directors
of Abbott, together with information as to their other business, profession,
vocation, or employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by Abbott (SEC
File No. 801-27914).

Item 29. Principal Underwriter
---------------------

(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for The RBB
Fund, Inc., Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation
Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund;
Warburg Pincus Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg
Pincus Global Fixed Income Fund; Warburg Pincus Global Post-Venture Capital
Fund; Warburg Pincus Growth & Income Fund; Warburg Pincus Health Sciences Fund;
Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg, Pincus Small Company Growth Fund; Warburg
Pincus Small Company Value Fund; Warburg Pincus Strategic Value Fund; Warburg
Pincus Tax Free Fund; Warburg Pincus Trust; and Warburg Pincus Trust II.

C-9
<PAGE>

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

Item 30. Location of Accounts and Records
--------------------------------

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

(2) Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)

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

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

(5) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)

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

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

(8) PNC Bank, National Association
1600 Broad Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)

C-10
<PAGE>

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

Item 31. Management Services
-------------------

Not applicable.

Item 32. Undertakings.
------------

(a) Registrant hereby undertakes to file a post-effective amendment
with financial statements of the Global Fixed Income Portfolio, the Value
Portfolio, the Japan Growth Portfolio, the Small Company Value Portfolio and the
Post-Venture Capital Portfolio which need not be certified, within four to six
months from the date the relevant Portfolio commences operations.

(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the latest annual report to shareholders
for the relevant Portfolio, upon request and without charge.

(c) Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a director or
directors of Registrant when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares. Registrant undertakes further, in
connection with the meeting, to comply with the provisions of Section 16(c) of
the 1940 Act relating to communications with the shareholders of certain
common-law trusts.

C-11
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended, and has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 21st day of October, 1997.

WARBURG, PINCUS INSTITUTIONAL FUND, INC.

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

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

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

/s/John L. Furth Chairman of the October 21, 1997
- --------------------------- Board of Directors
John L. Furth

/s/Eugene L. Podsiadlo President October 21, 1997
- ---------------------------
Eugene L. Podsiadlo

/s/Howard Conroy Vice President October 21, 1997
- --------------------------- and Chief Financial
Howard Conroy Officer

/s/Daniel S. Madden Treasurer and October 21, 1997
- --------------------------- Chief Accounting
Daniel S. Madden Officer

/s/Richard N. Cooper Director October 21, 1997
- ---------------------------
Richard N. Cooper

/s/Donald J. Donahue Director October 21, 1997
- ---------------------------
Donald J. Donahue

/s/Jack W. Fritz Director October 21, 1997
- ---------------------------
Jack W. Fritz

/s/Thomas A. Melfe Director October 21, 1997
- ---------------------------
Thomas A. Melfe

/s/Arnold M. Reichman Director October 21, 1997
- ---------------------------
Arnold M. Reichman

/s/Alexander B. Trowbridge Director October 21, 1997
- ---------------------------
Alexander B. Trowbridge

<PAGE>

INDEX TO EXHIBITS

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

10(a) Consent of Willkie Farr & Gallagher, counsel
to the Fund.

11 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.

16 Schedule of Computation of Performance Quotations.

17 Financial Data Schedules.

<PAGE>

CONSENT OF COUNSEL

Warburg, Pincus Institutional Fund, Inc.

We hereby consent to being named in the Statement of Additional Information
included in Post-Effective Amendment No. 14 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 333-47880,
Investment Company Act File No. 811-6670) of Warburg, Pincus Institutional Fund,
Inc. (the "Fund") under the caption "Independent Accountants and Counsel" and to
the Fund's filing a copy of this Consent as an exhibit to the Amendment.

Willkie Farr & Gallagher

New York, New York
October 17, 1997

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the following with respect to Post-Effective Amendment No. 14
pursuant to the Securities Act of 1933, as amended, to the Registration
Statement on Form N-1A of Warburg, Pincus Institutional Fund, Inc. (File No.
33-47880):

1. The incorporation by reference of our report dated December
18, 1996 on our audit of the financial statements and
financial highlights of Warburg, Pincus Institutional Fund,
Inc.-International Equity Portfolio, the Small Company Growth
Portfolio, and the Emerging Markets Portfolio.

2. The inclusion of our report dated October 16, 1997 on our
audit of the Statement of Assets and Liabilities of Warburg,
Pincus Institutional Fund, Inc.-Global Fixed Income Portfolio.

3. The reference to our Firm under the captions "Financial
Highlights" in the Prospectus and "Independent Accountants and
Counsel" in the Statement of Additional Information.

/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 16, 1997

<PAGE>

Warburg, Pincus Institutional Fund, Inc.
Schedule 16 Calculations

International Equity Portfolio

For the Six Months Ended April 30, 1997

Return Without Waivers:

((10,753-10,000)/10,000) = 7.53%

Managed EAFE(R) Countries Portfolio

For the One Month Ended April 30, 1997

Return Without Waivers:

((10,160-10,000)/10,000) = 1.60%

Emerging Markets Portfolio

For the Six Months Ended April 30, 1997

Return Without Waivers:

((11,238-10,000)/10,000) = 12.38%

Small Company Growth Portfolio

For the Six Months Ended April 30, 1997

Return Without Waivers:

((8,955-10,000)/10,000) = -10.45%