WARBURG PINCUS INSTITUTIONAL FUND INC, 497, 1998-03-05

WARBURG PINCUS INSTITUTIONAL FUND INC
497, 1998-03-05

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<PAGE> 1

PROSPECTUS

February 27, 1998

WARBURG PINCUS INSTITUTIONAL FUND, INC.

-------------- POST-VENTURE CAPITAL PORTFOLIO

-------------- SMALL COMPANY GROWTH PORTFOLIO

-------------- SMALL COMPANY VALUE PORTFOLIO

-------------- VALUE PORTFOLIO

[WARBURG PINCUS LOGO]
<PAGE> 2

WARBURG PINCUS INSTITUTIONAL FUND, INC.
SMALL COMPANY GROWTH PORTFOLIO

SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 27, 1998

Effective as of the close of The New York Stock Exchange, Inc. on November 7,
1997 ("Closure"), Warburg Pincus Institutional Fund, Inc. -- Small Company
Growth Portfolio (the "Portfolio") was closed to purchases by certain new
investors. The sale of additional Portfolio shares is currently limited to the
following investors:

- persons who were both beneficial and record owners of Portfolio shares at
Closure;

- beneficial owners of Portfolio shares at Closure through accounts maintained
by intermediaries (such as brokerage firms and other industry professionals)
by arrangement with the Portfolio and/or the Portfolio's distributor;

- a retirement plan, which was an owner of Portfolio shares at Closure,
purchasing Portfolio shares in the ordinary course of its operations for the
benefit of new or existing plan participants;

- clients of the Portfolio's investment adviser (the "Adviser"); and

- directors, officers and employees of the Adviser and its affiliates.

Distributions of dividends and capital gains will continue to be reinvested
unless a shareholder elects otherwise. The Portfolio may reopen in the future
depending on market conditions and other relevant considerations.

Dated: February 27, 1998 WPINT-16-0298
<PAGE> 3

PROSPECTUS February 27, 1998

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

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

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

VALUE PORTFOLIO seeks total return by investing primarily in equity securities
of large-sized domestic 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"). 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 maintains 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 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 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> 4

THE PORTFOLIOS' EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Small Small
Post-Venture Company Company
Capital Growth Value Value
Portfolio Portfolio Portfolio Portfolio
------------ ------- ------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............... 0 0 0 0
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees+.................................. .64% .70% .56% .43%
12b-1 Fees........................................ 0 0 0 0
Other Expenses+................................... .61% .29% .43% .32%
------- --- --- ----
Total Portfolio Operating Expenses (after fee
waivers)+....................................... 1.25% .99% .99% .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........................................... $13 $ 10 $10 $ 8
3 years.......................................... $40 $ 32 $32 $24
5 years.......................................... n.a. $ 55 n.a. n.a.
10 years.......................................... n.a. $ 121 n.a. n.a.
</TABLE>

- --------------------------------------------------------------------------------
+ Annual Portfolio Operating Expenses for the Small Company Growth Portfolio are
based on actual expenses for the fiscal year ended October 31, 1997, net of
any applicable fee waivers or expense reimbursements. Annual Portfolio
Expenses for the Post-Venture Capital, Small Company Value and Value
Portfolios are based on estimated expenses for the fiscal year ending October
31, 1998, net of any applicable fee waivers or expense reimbursements. Absent
such waivers and/or reimbursements, Management Fees for the Post-Venture
Capital, Small Company Growth, Small Company Value and Value Portfolios would
have equalled 1.10%, .90%, .90% and .75%, respectively; Other Expenses would
have equalled .71%, .29%, .53% and .42%, respectively; and Total Portfolio
Operating Expenses would have equalled 1.81%, 1.19%, 1.43% and 1.17%,
respectively. The investment adviser and co-administrator are under no
obligation to continue any waivers and/or reimbursements.

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

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%.

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<PAGE> 5

FINANCIAL HIGHLIGHTS++
- --------------------------------------------------------------------------------

The following information for the fiscal year ended October 31, 1997 and the
fiscal period ended October 31, 1996 has been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report dated December 19, 1997 is
incorporated by reference in the Statement of Additional Information. Further
information about the performance of the Small Company Growth and Value
Portfolios is contained in the Fund's annual report dated October 31, 1997,
copies of which may be obtained without charge by calling the Fund at (800)
369-2728.

SMALL COMPANY GROWTH PORTFOLIO

<TABLE>
<CAPTION>
December 29, 1995
(Commencement of
For the Year Operations)
Ended through
October 31, 1997 October 31, 1996
---------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $12.92 $10.00
--------- ----------
Income from Investment Operations:
Net Investment (Loss).................................... (0.05) (0.01)
Net Gain on Securities (both realized and unrealized).... 3.02 2.93
--------- ----------
Total from Investment Operations......................... 2.97 2.92
--------- ----------
NET ASSET VALUE, END OF PERIOD............................. $15.89 $12.92
========= ==========
Total Return............................................... 22.99% 29.20%+
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........................... $217,861 $96,827
Ratios to average daily net assets:
Operating expenses....................................... .99%@ .99%@*
Net investment income (loss)............................. (.53%) (.18%)*
Decrease reflected in above operating expense, ratios due
to waivers/reimbursements.............................. .20% .69%*
Portfolio Turnover Rate.................................... 91.59% 57.38%+
Average Commission Rate#................................... $0.0526 $0.0560
</TABLE>

VALUE PORTFOLIO

<TABLE>
<CAPTION>
June 30, 1997
(Commencement of
Operations) through
October 31, 1997
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $10.00
-----------
Net Investment Income.................................................. 0.03
Net Unrealized and Realized Gain on Securities......................... 0.61
-----------
Total from Investment Operations....................................... 0.64
-----------
NET ASSET VALUE, END OF PERIOD........................................... $10.64
===========
Total Return............................................................. 6.40%+
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000s)......................................... $15,565
Ratios to average daily net assets:
Operating expenses..................................................... .75%*
Net investment income (loss)........................................... 1.60%*
Decrease reflected in above operating expense, ratios due to
waivers/reimbursements............................................... 1.67%*
Portfolio Turnover Rate.................................................. 34.81%+
Average Commission Rate#................................................. $0.0599
</TABLE>

- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no effect on the Portfolio's
expense ratio.
+ 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.
++ No financial highlights have been presented with respect to the Post-Venture
Capital and Small Company Value Portfolios, which commenced operations on
October 31, 1997. The audited statements of assets and liabilities of these
Portfolios as of October 31, 1997, together with the report thereon of
Coopers & Lybrand L.L.P. dated December 19, 1997, are incorporated by
reference into the Statement of Additional Information.

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<PAGE> 6

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.

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 Capital 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 Pincus Asset Management, Inc. ("Warburg"), the Portfolios' investment
adviser, 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, 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

4
<PAGE> 7

positions in companies that may have been acquired at prices significantly below
the initial public offering price. This may create a potential adverse impact in
the short-term on the market price of a company's stock due to sales in the open
market by a venture capitalist or others who acquired the stock at lower prices
prior to the company's IPO. 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 400 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 Portfolio's investments in Private Funds offer
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

5
<PAGE> 8

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
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

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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 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 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. 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 considers a "small" company to be one that has a
market capitalization, measured at the time the Portfolio purchases a security
of that company, within the range of capitalizations of companies represented in
the Russell 2000 Index. (As of January 31, 1998, the Russell 2000 Index included
companies with market capitalizations between $23.7 million and $2.7 billion.)
Companies whose capitalization no longer meets this definition after purchase
continue to be considered small companies for purposes of the Portfolio's policy
of investing at least 65% of its assets in small companies. In addition, the
Portfolio has the flexibility to invest in companies with a market
capitalization of any size when the 65% policy is met. As a result of these
policies, the average market capitalization of the Portfolio at any particular
time may exceed $2.7 billion, particularly at times when the market values of
small company stocks are rising. 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, which are not included within the Portfolio's 65% policy on
investing in small companies described above. The Portfolio may also invest in
convertible debt and preferred stock. 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 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 companies of any size 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 gener-

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ally stand to benefit from new products or services, technological
developments or changes in management and other factors.

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.
The Portfolio considers a "small" company to be one that has a market
capitalization, measured at the time the Portfolio purchases a security of that
company, within the range of capitalizations of companies represented in the
Russell 2000 Index. (As of January 31, 1998, the Russell 2000 Index included
companies with market capitalizations between $23.7 million and $2.7 billion.)
Companies whose capitalization no longer meets this definition after purchase
continue to be considered small companies for purposes of the Portfolio's policy
of investing at least 65% of its assets in small companies. In addition, the
Portfolio has the flexibility to invest in companies with a market
capitalization of any size when the 65% policy is met. As a result of these
policies, the average market capitalization of the Portfolio at any particular
time may exceed $2.7 billion, particularly at times when the market values of
small company stocks are rising.
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, which are not included
within the Portfolio's 65% policy on investing in small companies described
above.

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.
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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, 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.
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.
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 or Warburg. As a shareholder in
any mutual fund, the Portfolio will bear its ratable share of the

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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.
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.
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 below the minimum required for 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.
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.
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.
U.S. GOVERNMENT SECURITIES. 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.

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<PAGE> 13

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. It is not
possible to predict the portfolio turnover rates for the Portfolios. However,
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 higher dealer
mark-ups or underwriting commissions as well as other transaction costs,
including correspondingly higher brokerage commissions. In addition, short-term
gains realized from portfolio turnover may be taxable to shareholders as
ordinary income. See "Dividends, Distributions and Taxes -- Taxes" 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.

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<PAGE> 14

changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
FOREIGN SECURITIES. Each Portfolio 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 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.
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

12
<PAGE> 15

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 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.
SMALL CAPITALIZATION AND EMERGING GROWTH COMPANIES; UNSEASONED
ISSUERS. Investing in securities of emerging growth and small- and medium-sized
companies and companies with continuous operations of less than three years
("unseasoned issuers") may involve greater risks than investing in larger, more
established companies since these securities may have limited marketability and,
thus, may be more volatile than securities of larger, more established companies
or the market averages in general. Because these issuers 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. These issuers may have limited product
lines, markets or financial resources and may lack management depth. In
addition, these issuers are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning these issuers
than for larger, more established ones. Securities of issuers in "special
situations" also may be more volatile, since the market value of these
securities may decline in value if the anticipated benefits do not materialize.
Companies in "special situations" include, but are not limited to, companies
involved in an acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; litigation
which, if resolved favorably, would improve the value of the companies'
securities; or a change in corporate control. Although investing in securities
of small- and medium-sized and emerging growth companies, unseasoned issuers or
issuers in "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 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.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies

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<PAGE> 16

involving options, futures and forward currency contracts. These strategies,
commonly referred to as "derivatives," may be used (i) for the purpose of
hedging against a decline in value of 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 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

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<PAGE> 17

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.
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 a position without incurring
substantial losses, if at

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<PAGE> 18

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. 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 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

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<PAGE> 19

the underlying security is below the exercise price of the warrant on its
expiration date, the warrant will generally expire without value.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each Portfolio
(except the Small Company Value 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. 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 prices of such
securities may be higher or lower than the prices available in the market on the
dates when the investments are actually delivered to the buyers.
Each Portfolio will establish a segregated account with its custodian
consisting of cash or liquid securities in an amount equal to the amount if its
when-issued and delayed-delivery purchase commitments and will segregate the
securities underlying commitments to sell securities for delayed delivery.
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

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<PAGE> 20

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 Portfolio's net assets (taken at
current value) may be held as collateral for such sales at any one time.
BELOW INVESTMENT GRADE SECURITIES. Each of the Post-Venture Capital and Small
Company Value Portfolios may invest up to 20% of its total assets in only
investment grade debt securities. The Value Portfolio may invest or hold up to
10% of its net assets in fixed-income securities (including convertible bonds)
rated below investment grade.
Up to 5% of the net assets of the Small Company Growth Portfolio may be held
in convertible securities rated below investment grade. Up to 5% of the net
assets of the Small Company Value Portfolio and up to 10% of the net assets of
the Value Portfolio may be invested in convertible securities rated below
investment grade at the time of purchase.
Below investment grade debt securities may be rated as low as C by Moody's or
D by S&P, or be deemed by Warburg 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. A
security rated D by S&P is in default or is expected to default upon maturity or
payment date. Below investment grade securities (commonly referred to as "junk
bonds") (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
investment grade securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is

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<PAGE> 21

significantly greater because these securities generally are unsecured and
frequently are subordinated to the prior payment of senior Indebtedness.
The market values of below investment grade securities are more volatile than
those of investment grade securities. In addition, the Portfolio may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the 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.
NON-DIVERSIFIED STATUS. The Small Company 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
- --------------------------------------------------------------------------------
Each of the Post-Venture Capital and Value Portfolios 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.

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<PAGE> 22

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 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 Small Company Growth, Small Company
Value and Value Portfolios pay Warburg a fee calculated at an annual rate of
.90%, .90% and .75%, 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-investment
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 advisory firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of January 31,
1998, Warburg managed approximately $19.9 billion of assets, including
approximately $11.2 billion of investment company assets. Incorporated in 1970,
Warburg is indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has
no business other than being a holding company of Warburg and its affiliates.
Lionel I. Pincus, the managing partner of WP&Co., may be deemed to control both
WP&Co. and Warburg. Warburg's address is 466 Lexington Avenue, New York, New
York 10017-3147.
Abbott. Abbott is an independent specialized investment firm with assets under
management of approximately $2.3 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.

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PORTFOLIO MANAGERS.
Post-Venture Capital Portfolio. Elizabeth B. Dater and Stephen J. Lurito have
been the Co-Portfolio Managers for the Post-Venture Capital Portfolio since its
inception. Ms. Dater is a 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
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 Thaddeus I. Gray, Investment Managers and Managing
Directors of Abbott, manage the Portfolio's investments in Private Funds. Mr.
Held and Mr. Gray have been associated with Abbott and its predecessor firm
since 1986 and 1989, respectively.
Small Company Growth Portfolio. Ms. Dater and Mr. Lurito, described above,
have also been Co-Portfolio Managers of the Small Company Growth Portfolio since
its inception.
Small Company Value Portfolio. George U. Wyper has been the Portfolio Manager
of the Small Company Value Portfolio since its inception. 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. Kyle F. Frey, a Senior Vice President of Warburg, has
been Associate Portfolio Manager and Research Analyst of the Portfolio since its
inception and has been with Warburg since 1989.
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).
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

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and its various service providers, furnishing corporate secretarial services,
which include preparing materials for meetings of the Board, preparing proxy
statements and annual and semiannual reports, assisting in the preparation of
tax returns and 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. ("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, each Portfolio pays 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.
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
each Portfolio's non-U.S assets. State Street's principal business address is
225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. It has delegated to
Boston Financial Data Services, Inc. ("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.

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<PAGE> 25

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 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 Institutional Fund, Inc.
P.O. Box 4906
Grand Central Station
New York, New York 10163

Attn: Institutional Services

Overnight to:

Warburg, Pincus Institutional Fund, Inc.
335 Madison Avenue
15th Floor
New York, New York 10017

Attn: Institutional Services

Completed and signed account applications should be sent to the above.
RETIREMENT PLANS. For information about investing in a Portfolio through a
tax-advantaged retirement plan, such as an Individual Retirement Account
("IRA"), an investor should telephone the Fund at (800) 369-2728 or write to the
Fund at an 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, address and/or privileges, an
investor should telephone (800) 369-2728. Shareholders are responsible for
maintaining current account registrations and addresses with the Fund. No
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
- --------------------------------------------------------------------------------
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 $1,000,000 and there
is no minimum subsequent investment. The minimum initial investment

23
<PAGE> 26

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.
BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to Warburg Pincus Institutional Fund, Inc. (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
will not be accepted as payment and will be returned to the sender. If payment
is received in proper form prior to the close of regular trading on The New York
Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on a day
that the Fund calculates its net asset value (a "business day"), the purchase
will be made at the relevant Portfolio's net asset value calculated at the end
of that day. If payment is received at or 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 payment is received. Checks or money orders in payment for
more than one Portfolio 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.

24
<PAGE> 27

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 Company
ABA #0110 000 28

Attn: Mutual Funds/Custody Department

Warburg Pincus Institutional Fund, Inc.:
[Portfolio name]
DDA# 9904-649-2

F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the relevant Portfolio on that day and are
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received at or
after the close of regular trading on the NYSE, the payment will be held
uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not 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.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application,
transactions may be conducted by telephone. Investors should realize that in
conducting transactions by telephone they may be giving up a measure of security
that they may have if they were to conduct such transactions in writing. Neither
the Fund nor its agents will be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. Reasonable procedures
will be employed on behalf of the Fund designed to give reasonable assurance
that instructions communicated by telephone are genuine. Such procedures include
providing written confirmation of telephone transactions, tape recording
telephone instructions and requiring specific personal information prior to
acting upon telephone instructions.
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

25
<PAGE> 28

should contact the Service Organization acting on its behalf concerning the fees
(if any) charged in connection with a purchase, exchange 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 or, if applicable, their designees may enter confirmed
purchase or redemption orders on behalf of clients and customers, with payment
to follow no later than the 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. A Portfolio may be deemed to have received
a purchase or redemption order when a Service Organization, or, if applicable,
its authorized designee, accepts the order. Such orders received by a Portfolio
in proper form will be priced at the Portfolio's net asset value next computed
after they are accepted by the Service Organization or its authorized designee.
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 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. 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
- --------------------------------------------------------------------------------
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. If an
investor desires to redeem shares by mail, a written request for redemption
should be sent to an address indicated above under "How to Open an Account." 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. Payment of redemption proceeds may be delayed in connection with account
changes. Each mail redemption request must be signed by the registered owner(s)
(or 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

26
<PAGE> 29

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 the Fund by telephone, an investor may
deliver the redemption request to the Fund by mail at an address shown above
under "How to Open an Account." 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, money order or
federal funds wire 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 at or 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.
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

27
<PAGE> 30

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. A Portfolio may
refuse exchange purchases at any time without notice.
Currently, shares of the Portfolios may be exchanged for shares of the
following portfolios of the Fund, which are described in a separate prospectus:
- - 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;
- - 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
- - INTERNATIONAL EQUITY PORTFOLIO -- an equity portfolio seeking long-term
capital appreciation by investing primarily in equity securities of non-United
States issuers;
- - JAPAN GROWTH PORTFOLIO -- an equity portfolio seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers;
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.
Each Portfolio reserves 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. Examples of when an exchange
purchase could be refused are when a Portfolio receives or anticipates receiving
large exchange orders at or about the same time and when a pattern of exchanges
within a short period of time (often associated with a market timing strategy)
is discerned. The Portfolios reserve the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.

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<PAGE> 31

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 less 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 an address set forth under "How to Open an Account" 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 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%

29
<PAGE> 32

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 five years. However, the 18% rate applies
only to assets acquired after December 31, 2000 unless the taxpayer elects to
treat an asset held prior to such date as sold for fair market value on January
1, 2001. In the case of individuals whose ordinary income is taxed at a 15%
rate, the 20% rate is reduced to 10% and the 10% rate for assets held for more
than five years is reduced to eight percent. 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.
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 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 deduc-

30
<PAGE> 33

tions. Certain limitations will be imposed on the extent to which the credit
(but not the deduction) for foreign taxes may be claimed.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of 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. 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.

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<PAGE> 34

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 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
Post-Venture Capital Portfolio, with the Venture Capital 100 Index (compiled by
Venture Capital Journal), appropriate indexes prepared by Frank Russell Company
relating to securities represented in the Portfolio and the S&P 500 Index, which
are unmanaged indexes of common stocks; in the case of the Small Company Growth
Portfolio, with appropriate indexes prepared by Frank Russell Company relating
to securities represented in the Portfolio and the S&P 500 Index; in the case of
the Small Company Value Portfolio, with appropriate indexes prepared by Frank
Russell Company relating to securities represented in the Portfolio, or the T.
Rowe Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes; and, in the case of the Value Portfolio, with appropriate indexes
prepared by Frank Russell Company relating to securities represented in the
Portfolio and the S&P 500 Index; or

32
<PAGE> 35

(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, Mutual Fund Magazine, SmartMoney, The Wall Street Journal and
Worth. Morningstar, Inc. rates funds in broad categories based on risk/reward
analyses over various time periods. In addition, each 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 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 updates of Portfolio activity, which may include a discussion of
significant portfolio holdings; analysis of holdings by industry, country,
credit quality and other characteristics; and comparison and analysis of the
Portfolio with respect to relevant market and industry benchmarks. 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 measures of risk, the continuum
of risk and return relating to different investments and the potential impact of
foreign stocks on a portfolio otherwise composed of domestic securities.

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<PAGE> 36

the managing partner of WP&Co., may be deemed to be a controlling person of each
of the Post-Venture Capital and Small Company Value Portfolios because he may be
deemed to possess or share investment power over shares owned by clients of
Warburg and by companies that WP&Co. may be deemed to control.
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 or on the Warburg Pincus Funds Web site at www.warburg.com.

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

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.

34
<PAGE> 37

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 38

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Portfolios' Expenses................................. 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 4
Portfolio Transactions and Turnover Rate................. 11
Special Risk Considerations and Certain Investment
Strategies............................................. 11
Investment Guidelines.................................... 19
Management of the Fund................................... 20
How to Open an Account................................... 23
How to Purchase Shares................................... 23
How to Redeem and Exchange Shares........................ 26
Dividends, Distributions and Taxes....................... 29
Net Asset Value.......................................... 31
The Portfolios' Performance.............................. 32
General Information...................................... 33
</TABLE>

[WARBURG PINCUS LOGO]

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

COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPINU-1-0298
<PAGE> 39

PROSPECTUS

February 27, 1998

WARBURG PINCUS INSTITUTIONAL FUND, INC.

-------------- EMERGING MARKETS PORTFOLIO

-------------- GLOBAL FIXED INCOME PORTFOLIO

-------------- INTERNATIONAL EQUITY PORTFOLIO

-------------- JAPAN GROWTH PORTFOLIO

[WARBURG PINCUS LOGO]
<PAGE> 40

PROSPECTUS February 27, 1998

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.

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.

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

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."

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.
- --------------------------------------------------------------------------------

THE PORTFOLIOS' EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Global
Emerging Fixed International Japan
Markets Income Equity Growth
Portfolio Portfolio Portfolio Portfolio
-------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................ 0 0 0 0
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees+................................... .72% .15% .66% .40%
12b-1 Fees......................................... 0 0 0 0
Other Expenses+.................................... .53% .45% .29% .85%
----- ----- ------ -----
Total Portfolio Operating Expenses (after fee
waivers)+........................................ 1.25% .60% .95% 1.25%
===== ===== ====== =====
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 $ 6 $ 10 $13
3 years........................................... $ 40 $19 $ 30 $40
5 years........................................... $ 69 n.a. $ 53 n.a.
10 years........................................... $151 n.a. $ 117 n.a.
</TABLE>

- --------------------------------------------------------------------------------
+ Annual Portfolio Operating Expenses for the Emerging Markets and International
Equity Portfolios are based on actual expenses for the fiscal year ended
October 31, 1997, net of any applicable fee waivers or expense reimbursements.
Annual Portfolio Expenses for the Global Fixed Income and Japan Growth
Portfolios are based on estimated expenses for the fiscal year ending October
31, 1998, net of any applicable fee waivers or expense reimbursements. Absent
such waivers and/or reimbursements, Management Fees for the Emerging Markets,
Global Fixed Income, International Equity and Japan Growth Portfolios would
have equalled 1.00%, .65%, .80% and 1.10%, respectively; Other Expenses would
have equalled .65%, .50%, .29% and .97%, respectively; and Total Portfolio
Operating Expenses would have equalled 1.65%, 1.15%, 1.09% and 2.07%,
respectively. The investment adviser and co-administrator are under no
obligation to continue any waivers and/or reimbursements.

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

2
<PAGE> 42

FINANCIAL HIGHLIGHTS++
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
September 30, 1996
(Commencement of
Operations)
through
For the Year October 31, 1996
Ended ------------------
EMERGING MARKETS PORTFOLIO October 31, 1997
----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $9.86 $10.00
-------- ----------
Income from Investment Operations:
Net Investment Income (Loss)............................. 0.10 (0.01)
Net Gain (Loss) on Securities and Foreign Currency
Related Items (both realized and unrealized)........... (0.53) (0.15)
-------- ----------
Total from Investment Operations......................... (0.43) (0.14)
-------- ----------
Less Distributions:
Dividends from net investment income..................... (.02) 0.00
Distributions from net realized gains.................... (.05) 0.00
-------- ----------
Total Distributions...................................... (.07) 0.00
-------- ----------
NET ASSET VALUE, END OF PERIOD............................. $9.36 $ 9.86
======== ==========
Total Return............................................... (4.43%) (1.40%)+
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........................... $37,281 $29,698
Ratios to average daily net assets:
Operating expenses....................................... 1.25%@ 1.25%@*
Net investment income (loss)............................. .92% 1.75%*
Decrease reflected in above operating expense ratios due
to waivers/reimbursements.............................. .40% 2.18%*
Portfolio Turnover Rate.................................... 107.21% 2.39%+
Average Commission Rate#................................... $0.0042 $0.0120
</TABLE>

- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no affect on the Portfolio's
expense ratio.
+ 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.
++ No financial highlights have been presented with respect to the Global Fixed
Income Portfolio, which had not commenced operations as of October 31, 1997.
The audited statement of assets and liabilities of the Global Fixed Income
Portfolio as of October 15, 1997, together with the report of Coopers &
Lybrand L.L.P., appears in the Statement of Additional Information. In
addition, no financial highlights have been presented with respect to the
Japan Growth Portfolio, which commenced operations on October 31, 1997. The
audited statement of assets and liabilities of the Japan Growth Portfolio as
of October 31, 1997, together with the report thereon of Coopers & Lybrand
L.L.P., dated December 19, 1997, is incorporated by reference into the
Statement of Additional Information.

3
<PAGE> 43

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
For the Period
September 1, 1992
(Commencement of
For the Year Ended October 31, Operations) through
------------------------------------------------------ October 31,
1997 1996 1995 1994 1993 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.............. 0.20 0.26 0.15 0.17 0.10 0.02
Net Gain (Loss) on
Securities and
Foreign Currency
Related Items (both
realized and
unrealized)......... 0.78 1.28 (0.64) 2.87 3.87 (0.40)
----- ----- ----- ----- ----- -----------
Total from Investment
Operations.......... 0.98 1.54 (0.49) 3.04 3.97 (0.38)
----- ----- ----- ----- ----- -----------
Less Distributions:
Dividends from net
investment income... (0.13) (0.50) (0.18) (0.07) (0.10) 0.00
Distributions from net
realized gains...... (0.48) 0.00 (0.57) (0.12) 0.00 0.00
----- ----- ----- ----- ----- -----------
Total
Distributions..... (0.61) (0.50) (0.75) (0.19) (0.10) 0.00
----- ----- ----- ----- ----- -----------
NET ASSET VALUE, END OF
PERIOD................ $16.51 $16.14 $15.10 $16.34 $13.49 $ 9.62
===== ===== ===== ===== ===== ===========
Total Return............ 6.20% 10.48% (2.83%) 22.62% 41.61% (3.80%)*
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000s)......... $1,169,817.. $937,443 $507,759 $331,297 $109,280 $18,613
Ratios to average daily
net assets:
Operating expenses.... .95%@ .96%@ .95% .95% .95% .95%*
Net investment income
(loss).............. .98% 1.05% 1.20% .59% .75% 1.22%*
Decrease reflected in
above operating
expense ratios due
to waivers/
reimbursements...... .14% .18% .23% .29% .44% .85%*
Portfolio Turnover
Rate.................. 69.99% 29.91% 39.70% 19.34% 19.40% 8.25%+
Average Commission
Rate#................. $0.0169 $0.0154 -- -- -- --
</TABLE>

- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the
Portfolio's expenses by .00% and .01% for the years ended October 31, 1997 and
1996, respectively. The operating expense ratio after reflecting these
arrangements were .95% and .95% for the years ended October 31, 1997 and 1996,
respectively.
+ 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. The average commission rate is not required for fiscal
years beginning before September 1, 1995.

4
<PAGE> 44

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
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
Pincus Asset Management, Inc. ("Warburg"), the Portfolios' investment adviser,
based on publicly available information and inquiries made to the issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the "IFC") or by the United Nations,
(ii) which is included in the IFC Investable Index or the Morgan

5
<PAGE> 45

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,
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, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland, the 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
Investment Company Act of 1940, as amended (the "1940 Act"), invest in the
securities of closed-end investment companies that invest in foreign securities.
As a shareholder in a closed-end investment company, the 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.

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, denomi-

6
<PAGE> 46

nated 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 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.

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.

7
<PAGE> 47

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
1940 Act, invest in the securities of closed-end investment companies that
invest in foreign securities. When 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).

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 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 --

8
<PAGE> 48

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 Japan,
or (C) which have issued securities which are traded principally in Japan, and
(ii) Japanese governmental entities or political subdivisions. Determinations as
to the eligibility of issuers under the foregoing definition will be made by
Warburg based on publicly available information and inquiries made to the
companies. The portion of the 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.

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 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.
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.

9
<PAGE> 49

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 or Warburg. 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.
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.
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 Portfolio. Among the types of debt securities in which the
Emerging Markets Portfolio may invest are Brady Bonds and loan participations
and assignments.
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

10
<PAGE> 50

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 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.
U.S. GOVERNMENT SECURITIES. 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.
ZERO COUPON SECURITIES. Each of the Emerging Markets, Global Fixed Income and
Japan Growth Portfolios 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.
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.

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Growth Portfolio's annual turnover rate should not exceed 100%. High portfolio
turnover rates (100% or more) may result in higher dealer mark-ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" 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, the Japan Growth Portfolio is authorized to
purchase securities on a when-issued basis and purchase or sell securities for
delayed delivery, the Emerging Markets and Japan Growth Portfolios may invest in
asset-backed and mortgage-backed securities, and each Portfolio is authorized to
engage in the following investment strategies: (i) lending portfolio securities
and (ii) 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.
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.
FOREIGN SECURITIES. The Portfolios will invest substantially in foreign
securities. There are certain risks involved in investing in securities of
companies and governments of foreign nations which are in addition to the usual
risks inherent in domestic investments. These risks include those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of

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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 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.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described above associated with investing in foreign securities generally. In
addition, because the International Equity Portfolio may from time to time have
large positions in Japanese securities and the Japan Growth Portfolio invests
primarily in Japan, they 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 a
Portfolio,

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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
the Portfolio's net asset value fluctuating in response.
The decline in the Japanese securities markets since 1989 has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those in the United States, even
after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993, a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms in the Japanese economy cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect a Portfolio investing there.
For additional information, see "Investment Policies -- Japanese Investments" in
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 developed
countries considered to be "emerging markets." Investing in securities of
issuers located in emerging markets involves not only the risks described above
with respect to investing in foreign securities, but also other risks, including
exposure to economic structures that are generally less diverse and mature than,
and to political systems that can be expected to have less stability than, those
of developed countries. For example, many investments in emerging markets
experienced significant declines in value due to political and currency
volatility in emerging markets countries during the latter part of 1997. Other
characteristics of emerging markets that may affect investment there include
certain national policies that may restrict investment by foreign-

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<PAGE> 54

ers 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.
SMALL CAPITALIZATION AND EMERGING GROWTH COMPANIES; UNSEASONED
ISSUERS. Investing in securities of emerging growth and small- and medium-sized
companies and companies with continuous operations of less than three years
("unseasoned issuers"), which may include JASDAQ and Frontier Market securities,
may involve greater risks than investing in larger, more established companies
since these securities may have limited marketability and, thus, may be more
volatile than securities of larger, more established companies or the market
averages in general. Because these issuers 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. These issuers may have limited product lines, markets or
financial resources and may lack management depth. In addition, these issuers
are typically subject to a greater degree of changes in earnings and business
prospects than are larger, more established companies. There is typically less
publicly available information concerning these issuers than for larger, more
established ones. Although investing in securities of small- and medium-sized
and emerging growth companies or unseasoned issuers 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 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 Emerging Markets,
International Equity and Japan Growth 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

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established by securities and commodities exchanges and other applicable
regulatory authorities.
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.
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.

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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 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 Emerging Markets, International Equity and Japan Growth 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, is
unavailable for direct investment or available only on less attractive terms.
Swaps have risks associated with them, including possible default by the
counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.

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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 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,
currency transactions, and with respect to the Emerging Markets, International
Equity and Japan Growth Portfolios, swaps for, among other reasons, hedging
purposes. A hedge is designed to offset a loss on a portfolio position with a
gain in the hedge position; at the same time, however, a properly correlated
hedge will result in a gain in the portfolio position being offset by a loss in
the hedge position. As a result, the use of options, futures contracts, currency
exchange transactions, and with respect to the Emerging Markets, International
Equity and Japan Growth Portfolios, swaps for hedging purposes could limit any
potential gain from an increase in value of the position hedged. In addition,
the movement in the portfolio position hedged may not be of the same magnitude
as movement in the hedge. 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 a 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

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futures contracts; and forward currency contracts and, in the case of the
Emerging Markets, International Equity and Japan Growth 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.
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 10% (15% in the case of the Emerging Markets 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

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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
(except the Japan Growth 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. 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 prices of such securities may be
higher or lower than the prices available in the market on the dates when the
investments are actually delivered to the buyers. A Portfolio will establish a
segregated account with its custodian consisting of cash or liquid securities 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.

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BELOW INVESTMENT GRADE SECURITIES. The Emerging markets Portfolio may invest
or hold up to 35% of its net assets in fixed-income securities (including
convertible bonds) rated below investment grade.
Although it does not currently intend to do so, the Japan Growth Portfolio may
invest or hold up to 5% of its net assets in securities rated below investment
grade and in unrated securities of equivalent quality, including convertible and
non-convertible debt securities downgraded below investment grade subsequent to
purchase by the Portfolio. Up to 5% of each of the Emerging Markets and
International Equity 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 may be invested in convertible securities rated below
investment grade at the time of purchase or deemed by Warburg to be of
equivalent quality.
Below investment grade debt securities may be rated as low as C by Moody's or
D by S&P, or be deemed by Warburg 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. A
security rated D by S&P is in default or is expected to default upon maturity or
payment date. Below investment grade securities (commonly referred to as "junk
bonds") (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
investment grade securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is significantly
greater because these securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
The market values of below investment grade securities are more volatile than
those of investment grade 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 a 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.
NON-DIVERSIFIED STATUS. The Emerging Markets, Global Fixed Income and Japan
Growth 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 Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. As a non-

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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 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). 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: Emerging Markets Portfolio -- 1.00%, Global Fixed Income
Portfolio -- .65%, International Equity Portfolio -- .80%, and Japan Growth
Portfolio -- 1.10%. 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.

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<PAGE> 62

Warburg is a professional investment advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of January 31, 1998,
Warburg managed approximately $19.9 billion of assets, including approximately
$11.2 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS.
Emerging Markets Portfolio. Richard H. King has been Co-Portfolio Manager of
the Emerging Markets Portfolio since its inception and Vincent J. McBride has
been Co-Portfolio Manager of the Portfolio since September 1997. Mr. King, a
Managing Director of Warburg, has been with Warburg since 1989. 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.
Global Fixed Income Portfolio. The Portfolio Manager of the Global Fixed
Income Portfolio is Dale C. Christensen. Mr. Christensen is a Managing Director
of Warburg and has been with Warburg since 1989.
International Equity Portfolio. Mr. King, described above, has been Portfolio
Manager of the International Equity Portfolio since its inception. P. Nicholas
Edwards, Harold W. Ehrlich and Mr. McBride, described above, have been Associate
Portfolio Managers of the International Equity Portfolio since joining Warburg.
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.
Japan Growth Portfolio. Mr. Edwards, described above, has been the Portfolio
Manager for the Japan Growth Portfolio since its inception.
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 and semiannual reports, assisting in the preparation of
tax returns and developing and monitoring compliance procedures for the
23
<PAGE> 63

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 Emerging Markets, International Equity and Japan Growth
Portfolios 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, 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. 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
each Portfolio's non-U.S assets. State Street's principal business address is
225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities 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.

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<PAGE> 64

Attn: Institutional Services

Overnight to:

Warburg Pincus Institutional Funds Inc.
335 Madison Avenue
15th Floor
New York, New York 10017

Attn: Institutional Services

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<PAGE> 65

<TABLE>
<CAPTION>
Minimum Initial Minimum Subsequent
Portfolio Investment* Investment**
---------------------------------------------------- --------------- ------------------
<S> <C> <C>
Emerging Markets $ 2,000,000 $ 50,000
Global Fixed Income 3,000,000 50,000
International Equity 3,000,000 50,000
Japan Growth 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.
BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to Warburg Pincus Institutional Fund, Inc. (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
will not be accepted as payment and will be returned to the sender. If payment
is received in proper form prior to the close of regular trading on The New York
Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on a day
that the Fund calculates its net asset value (a "business day"), the purchase
will be made at the relevant Portfolio's net asset value calculated at the end
of that day. If payment is received at or 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 payment is received. Checks or money orders in payment for
more than one Portfolio should be

26
<PAGE> 66

accompanied by a breakdown of amounts to be invested in each Portfolio. 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 Company
ABA #0110 000 28

Attn: Mutual Funds/Custody Department

Warburg Pincus Institutional Fund, Inc.:
[Portfolio name]
DDA# 9904-649-2

F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the relevant Portfolio on that day and are
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received at or
after the close of regular trading on the NYSE, the payment will be held
uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not 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.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application,
transactions may be conducted by telephone. Investors should realize that in
conducting transactions by telephone they may be giving up a measure of security
that they may have if they were to conduct such transactions in writing. Neither
a 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.
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

27
<PAGE> 67

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, exchange 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 or, if applicable, their designees may enter confirmed
purchase or redemption orders on behalf of clients and customers, with payment
to follow no later than the 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. A Portfolio may be deemed to have received
a purchase or redemption order when a Service Organization, or, if applicable,
its authorized designee, accepts the order. Such orders received by a Portfolio
in proper form will be priced at the Portfolio's net asset value next computed
after they are accepted by the Service Organization or its authorized designee.
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 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. 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.

28
<PAGE> 68

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 the Fund by telephone, an investor may
deliver the redemption request to the Fund by mail at an address shown above
under "How to Open an Account." 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, money order or
federal funds wire 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 at or 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.
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.

29
<PAGE> 69

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. A Portfolio may refuse
exchange purchases at any time without prior notice.
Currently, shares of the Portfolios may be exchanged for shares of the
following portfolios of the Fund, which are described in a separate prospectus:
- POST-VENTURE CAPITAL PORTFOLIO -- an equity portfolio seeking long-term
growth of capital by investing primarily in equity securities of issuers in
their post-venture capital stage of development;
- SMALL COMPANY GROWTH PORTFOLIO -- an equity portfolio seeking capital growth
by investing primarily in equity securities of small-sized domestic
companies;
- SMALL COMPANY VALUE PORTFOLIO -- an equity portfolio seeking long-term
capital appreciation by investing primarily in equity securities of small
capitalization companies; and
- VALUE PORTFOLIO -- an equity portfolio seeking total return by investing
primarily in equity securities of large-sized domestic 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.
Each Portfolio reserves 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. Examples of when an exchange
purchase could be refused are when a Portfolio receives or anticipates receiving
large exchange orders at or about the same time and when a pattern of exchanges
within a short period of time (often associated with a "market timing" strategy)
is discerned. The Portfolios reserve the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.

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<PAGE> 70

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 less 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" 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 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%

31
<PAGE> 71

32
<PAGE> 72

tions. Certain limitations will be imposed on the extent to which the credit
(but not the deduction) for foreign taxes may be claimed.
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.
JAPAN GROWTH PORTFOLIO. In the opinion of the 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.

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<PAGE> 73

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
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
Emerging Markets Portfolio, with the IFC Emerging Market Free Index, the

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<PAGE> 74

IFC Investible Index and the Morgan Stanley Capital International Emerging
Markets 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); in
the case of the International Equity Portfolio, the Morgan Stanley Capital
International Europe, Australasia, Far East ("EAFE") Index and/or other indexes
prepared by Morgan Stanley relating to securities represented in the Portfolio,
the Salomon Russell Global Equity Index, the FT-Actuaries World Indices (jointly
compiled by The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest
Securities Ltd.) and the S&P 500 Index; and in the case of the Japan Growth
Portfolio, the EAFE Index, the Salomon Russell Global Equity Index, the
FT-Actuaries World Indices, 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; 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, Mutual Fund Magazine, SmartMoney, The Wall
Street Journal and Worth. Morningstar, Inc. rates funds in broad categories
based on risk/reward analyses over various time periods. In addition, each
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 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 activity, which may include a discussion of
significant portfolio holdings; analysis of holdings by industry, country,
credit quality and other characteristics; and comparison and analysis of the
Portfolio with respect to relevant market and industry benchmarks. Each
Portfolio may also discuss measures of risk, the continuum of risk and return
relating to different investments, and the potential impact of foreign stocks on
a portfolio otherwise composed of domestic securities.

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<PAGE> 75

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, four 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. In addition, Lionel I. Pincus, the
managing partner of WP&Co., may be deemed to be a controlling person of the
Japan Growth Portfolio because he may be deemed to possess or share investment
power over shares owned by clients of Warburg and by companies that WP&Co. may
be deemed to control.
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 or on the Warburg Pincus Funds Web Site at www.warburg.com.

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

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TABLE OF CONTENTS

<TABLE>
<S> <C>
The Portfolios' Expenses................................. 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 5
Portfolio Transactions and Turnover Rate................. 11
Special Risk Considerations and Certain Investment
Strategies............................................. 12
Investment Guidelines.................................... 22
Management of the Fund................................... 22
How to Open an Account................................... 25
How to Purchase Shares................................... 26
How to Redeem and Exchange Shares........................ 28
Dividends, Distributions and Taxes....................... 31
Net Asset Value.......................................... 33
The Portfolios' Performance.............................. 34
General Information...................................... 36
</TABLE>

LOGO

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

COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPINI-1-0298
<PAGE> 77
STATEMENT OF ADDITIONAL INFORMATION
February 27, 1998
WARBURG PINCUS INSTITUTIONAL FUND, INC.

POST-VENTURE CAPITAL PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
VALUE PORTFOLIO
EMERGING MARKETS PORTFOLIO
GLOBAL FIXED INCOME PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
JAPAN GROWTH PORTFOLIO
P.O. Box 4906, Grand Central Station, New York, NY 10163
For information, call (800) 369-2728
CONTENTS

Page

Investment Objectives...................................................... 2
Investment Policies........................................................ 2
Management Of The Fund..................................................... 39
Additional Purchase And Redemption Information............................. 48
Exchange Privilege......................................................... 48
Additional Information Concerning Taxes.................................... 49
Determination Of Performance............................................... 54
Independent Accountants And Counsel........................................ 56
Miscellaneous.............................................................. 57
Financial Statements....................................................... 59
Appendix -- Description of Ratings......................................... A-1
Statements of Assets and Liabilities....................................... F-1

This Statement of Additional Information is meant to be read in conjunction with
the Prospectus of Warburg Pincus Institutional Fund, Inc. (the "Fund") dated
February 27, 1998, relating to the Post-Venture Capital, Small Company Growth,
Small Company Value and Value Portfolios (the "U.S. Portfolios") and the Fund's
Prospectus dated February 27, 1998, relating to the Emerging Markets, Global
Fixed Income, International Equity and Japan Growth Portfolios (the
"International Portfolios" and together with the U.S. Portfolios the
"Portfolios") as amended or supplemented from time to time (the "Prospectuses"),
and is incorporated by reference in its entirety into those Prospectuses.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Portfolios should be made solely upon the
information contained herein. Copies of the Fund's Prospectuses and information
regarding each Portfolio's current performance may be obtained
<PAGE> 78
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 4906, Grand Central Station, New York, NY
10163.
INVESTMENT OBJECTIVES

The investment objective of the Small Company Value, Value and
International Equity Portfolios is long-term capital appreciation. The
investment objective of the Small Company Growth and Emerging Markets Portfolios
is capital growth. The investment objective of each of the Post-Venture Capital
and Japan Growth Portfolios is long-term growth of capital. 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 Prospectuses.

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

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loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.

In the case of options written by a 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, 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.

Prior to their expirations, put and call options may be sold
in closing sale or

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<PAGE> 80
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 to be at market risk on the security and could face
higher transaction costs, including

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<PAGE> 81
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.

Securities 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 securities indexes. A securities index measures
the movement of a certain group of securities by assigning relative values to
the securities included in the index, fluctuating with changes in the market
values of the securities included in the index. Some securities index options
are based on a broad market index, such as the NYSE Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indexes may also be
based on a particular industry or market segment.

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

OTC Options. 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 securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a 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> 82
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 securities index futures contracts and purchase and
write (sell) related options traded on exchanges designated by the Commodity
Futures Trading Commission (the "CFTC") or consistent with CFTC regulations on
foreign exchanges. These transactions may be entered into for "bona fide
hedging" purposes as defined in CFTC regulations and other permissible purposes
including hedging against changes in the value of portfolio securities due to
anticipated changes in currency values, interest rates and/or market conditions
and increasing return.

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
Prospectuses), 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. Securities indexes are capitalization
weighted indexes which

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<PAGE> 83
reflect the market value of the securities listed on the indexes. A securities
index futures contract is an agreement to be settled by delivery of an amount of
cash equal to a specified multiplier times the difference between the value of
the index at the close of the last trading day on the contract and the price at
which the agreement is made.

No consideration is paid or received by a 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
securities index underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marking-to-market." 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

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<PAGE> 84
out positions on such options will be subject to the existence of a liquid
market.

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

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<PAGE> 85
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.

Hedging. In addition to entering into options and futures
transactions for other

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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 securities prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular security. The risk of
imperfect correlation increases as the composition of 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.
Securities index futures transactions may be subject to additional correlation
risks. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the securities
index and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in the securities index and movements in
the price of securities index futures, a correct forecast of general market
trends by Warburg still may not result in a successful hedging transaction.

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 predict
correctly movements in the directions of the hedge and the hedged position and
the correlation between them, which predictions could prove to be inaccurate.
This requires different skills and techniques than predicting changes in the
price of individual securities, and there can be no assurance that the use of
these strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these

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<PAGE> 87
transactions will affect the Portfolio's performance.

Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. As described in the Prospectuses, 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 Portfolios
will, and the U.S. 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

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

Increased Expenses. The operating expenses of the
International Portfolios (and, to the extent they invest in foreign securities,
the U.S. 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 International
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.

Dollar-Denominated Debt Securities of Foreign Issuers. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries. The relative performance of various
countries' fixed income markets historically has reflected

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<PAGE> 89
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.

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.

JAPAN AND ITS SECURITIES MARKETS

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

THE INFORMATION SET FORTH IN THIS SECTION HAS BEEN EXTRACTED
FROM VARIOUS GOVERNMENTAL PUBLICATIONS AND OTHER SOURCES. THE 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 ANY 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 (lower house) and a House of Councillors (upper house). Various
political parties are represented in the Diet, including the conservative
Liberal Democratic Party ("LDP"), which until August 1993, had been in power
nationally since its formation in 1955. The LDP ceased to have a majority of the
lower house in June 1993, when certain members of the lower house left the LDP
and formed two new political parties. After an election for the lower house was
held on July 18, 1993 and the LDP failed to secure a majority, seven parties
formed a coalition to control the lower house and chose Morihiro Hosokawa, the
Representative of the Japan New Party, to head their coalition. In April 1994,
amid accusations of financial improprieties, Prime Minister Hosokawa announced
that he would resign. Tsutomu Hata succeeded Mr. Hosokawa as prime minister and
formed a new cabinet as a minority coalition government. In June 1994, Mr. Hata
yielded to political pressure from opposition parties and resigned. He was
succeeded by Social Democratic Party ("SDP") leader Tomiichi Murayama, Japan's
first Socialist prime minister since 1948, who was chosen by a new and unstable
alliance between left-wing and conservative parties, including the LDP. On
September 18, 1994, 187 opposition politicians founded a new party, the Reform
Party, led by Ichiro Ozawa, to oppose the government of Prime Minister Murayama
in the next elections. Political realignment continued in 1995, as

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the Social Democrats incurred significant losses in the July elections. In
August 1995, the LDP elected Ryutaro Hashimoto, the minister for international
trade and industry, as its new leader, and in January 1996, he became prime
minister. Mr. Hashimoto dissolved the Diet and called a general election in
October 1996, in which the LDP won 239 of the 500 lower-house seats. As a
result, LDP members filled all the new cabinet seats for the first time in three
years. The LDP, along with its former coalition partners (the SDP and Shinto
Sakigake) agreed to continue to work together, but only in loose alliance.
Meanwhile, many dissatisfied Diet members from the main opposition party have
left the party to join the LDP. By September 1997, enough Diet members from the
main opposition party and other parties had defected to the LDP for the LDP to
regain its simple majority in the lower house. Japan's continuing political
instability may hamper its ability to establish and maintain effective economic
and fiscal policies, and recent and future political developments may lead to
changes in policy that might adversely affect a Portfolio's investments.

Economic Background

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

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

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

Japan's economy is a market economy in which industry and
commerce are predominantly privately owned and operated. However, the Japanese
government is involved

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in establishing and meeting objectives for developing the economy and improving
the standard of living of the Japanese people.

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

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

GROSS DOMESTIC PRODUCT (GDP)
(yen in billions)
<TABLE>
<CAPTION>
1997* 1996 1995 1994 1993 1992 1991 1990
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumption Expenditures
Private............ (Y)308,472 (Y)299,440 (Y)290,515 (Y)286,154 (Y)278,703 (Y)272,294 (Y)261,891 (Y)249,288
Government........... 50,239 48,969 47,555 45,743 44,771 43,262 41,356 38,807
Gross Fixed
Capital
Formation............ 143,217 148,190 136,792 137,291 140,433 143,525 143,998 136,467
Increase (Decrease) in
Stocks............... 828 1,058 947 50 620 1,489 3,453 2,430
Exports of Goods and
Services............... 55,979 49,598 45,393 44,410 44,197 47,384 46,723 45,920
Imports of Goods and
Services............... 51,331 46,900 38,272 34,387 33,343 36,891 39,121 42,872
GDP (Expenditures)......... 507,403 500,356 482,930 479,260 475,381 471,064 458,299 430,040
Change in GDP from
Preceding Year......... 1.4% 3.6% 0.8% 0.8% 0.9% 2.8% 6.6% --
</TABLE>

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

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<PAGE> 92
<TABLE>
<CAPTION>
WHOLESALE PRICE INDEX CONSUMER PRICE INDEX
(Base Year: 1990) (Base Year: 1990)

All Change from Change from
Year Commodities Preceding Year General Preceding Year
---- ----------- -------------- ------- --------------
<S> <C> <C> <C> <C>
1990 100.0 -- 100.0 --
1991 100.2 0.2 103.3 3.3
1992 98.7 (1.5) 105.1 1.8
1993 95.0 (3.7) 106.4 1.3
1994 93.0 (2.0) 107.1 0.7
1995 92.2 (0.8) 107.0 (0.1)
1996 92.8 0.6 107.2 0.2
1997 94.5* 1.7 108.9** 1.7

Source: International Monetary Fund, Source: International Monetary Fund,
International Financial Statistics International Financial Statistics
</TABLE>

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

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

Currency Fluctuation. Investments by a 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:

AVERAGE CURRENCY EXCHANGE RATES

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

Source: International Monetary Fund, International Financial Statistics

Securities Markets

The Exchange Market. The Japanese exchange market is a highly
systemized, government regulated market currently consisting of eight stock
exchanges. The three main Japanese Exchanges (Tokyo, Osaka and Nagoya) are
comprised of First and Second Sections. The First Sections have more stringent
listing standards with respect to a company's number of years in existence,
number of outstanding shares and trading volume and, accordingly, list

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larger, more established companies than the Second Sections. The Tokyo Stock
Exchange ("TSE") is the largest exchange and, as of December 31, 1997, the First
Section of the TSE listed 1,324 companies with market capitalization in excess
of 273.9 trillion yen (approximately $2.1 trillion as of such date). The Second
Sections of the main Japanese Exchanges generally list smaller, less capitalized
companies than those traded on the First Sections. As of December 31, 1997, the
Second Section of the TSE listed 478 companies with market capitalization in
excess of 7 trillion yen (approximately $53.6 billion as of such date).

The OTC Market. The Japanese OTC market ("JASDAQ") is less
systemized than the stock exchanges. Trading of equity securities through the
JASDAQ market is conducted by securities firms in Japan, primarily through an
organization which acts as a "matching agent," as opposed to a recognized stock
exchange. Consequently, securities traded through JASDAQ may, from time to time,
and especially in falling markets, become illiquid and experience short-term
price volatility and wide spreads between bid and offer prices. This combination
of limited liquidity and price volatility may have an adverse effect on the
investment performance of a Portfolio. In periods of rapid price increases, the
limited liquidity of JASDAQ restricts a 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 a 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 and volatility
considerations than JASDAQ.

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

The Frontier Market is a second over-the-counter market and is
under the jurisdiction of JASDAQ, which is overseen by the Japanese Securities
and Exchange Commission. The Frontier Market has less stringent entry
requirements than those described above for JASDAQ and is designed to enable
early stage companies access to capital markets. Frontier Market companies need
not have a history of earnings, provided their spending on research and
development equals at least 3% of net sales. In addition, companies traded
through the Frontier Market are not required to have two million shares
outstanding at the

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<PAGE> 94
time of registration. As a result, investments in companies traded through the
Frontier Market may involve a greater degree of risk than investments in
companies traded through JASDAQ. The Frontier Market was created in July 1995,
and as of the date of this Statement of Additional Information, a limited number
of issues were traded through this market.

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

Other Factors

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

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 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. While the market values of
below

18
<PAGE> 95
investment grade securities tend to react less to fluctuations in interest rate
levels than do those of investment grade 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 investment grade
securities. In addition, below investment grade securities generally present a
higher degree of credit risk. Issuers of below investment grade securities are
often highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their obligations during an
economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater because below investment grade securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.

The market for below investment grade 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 investment grade securities. The lack of a liquid secondary market,
as well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and a 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 below investment grade securities is more
volatile than that of investment grade 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, below investment grade 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.

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

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<PAGE> 96
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 (20% in the case of
the Post-Venture Capital, Small Company Value and Japan Growth Portfolios). 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 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. 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 a
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 a
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 a 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

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may result in the Portfolio incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.

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.

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

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.

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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 outstanding at the time the warrant is issued or is issued together
with the warrant.

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

Non-Publicly Traded and Illiquid Securities. Each Portfolio
(other than the Post-Venture Capital, Value and Emerging Markets 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, Value and
Emerging Markets 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.

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.

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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 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

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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 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 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 liquid securities having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is maintained. Reverse
repurchase agreements and dollar rolls that are accounted for as financings are
considered to be borrowings under the 1940 Act.

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Foreign Debt Securities. (Post-Venture Capital, Small Company
Value, Emerging Markets, Global Fixed Income and Japan Growth Portfolios) 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 a 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 government 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 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.

Mortgage-Backed Securities. (Post-Venture Capital, Small
Company Value, Emerging Growth and Japan Growth Portfolios) Each of these
Portfolios 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

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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 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. In addition, collateralized mortgage obligations may be less
marketable than other securities.

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 (Emerging Markets and Japan Growth

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<PAGE> 103
Portfolios). Each of these Portfolios may invest in asset-backed securities (in
the case of the Japan Growth Portfolio, up to 5% of its net assets), 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. The Emerging Markets and Japan Growth Portfolios may purchase
asset-backed securities that are unrated.

Non-Diversified Status (Small Company Growth, Emerging
Markets, Global Fixed Income and Japan Growth Portfolios). These 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, Global Fixed Income
and Japan Growth Portfolios) These Portfolios 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

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<PAGE> 104
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.

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

"Special situation companies" are 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. Warburg believes, however, that if it 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 of an 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 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.

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Investment Policies of the Emerging Markets Portfolio Only

Loan Participations and Assignments. The Emerging Markets
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 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 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 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.

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.

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.

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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 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

General. Certain investment limitations may not be changed
without the affirmative vote of the holders of a majority of the relevant
Portfolio's outstanding shares ("Fundamental Restrictions"). Such majority is
defined as the lesser of (i) 67% or more of the shares present at the meeting,
if the holders of more than 50% of the outstanding shares of the Portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares. If a percentage restriction (other than the percentage limitations set
forth in each No. 1 below and the percentage limitation set forth in No. 12
below with respect to the Value and Emerging Markets Portfolios) is adhered to
at the time of an investment, a later increase or

30
<PAGE> 107
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.

Global Fixed Income and International Equity Portfolios. The
following investment limitations numbered 1 through 12 are Fundamental
Restrictions. Investment limitations 13 through 14 may be changed by a vote of
the Board at any time.

Each of the Global Fixed Income and International Equity
Portfolios 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

31
<PAGE> 108
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.

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 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 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.

Small Company Growth, Value and Emerging Markets Portfolios.
The following investment limitations numbered 1 through 9 are Fundamental
Restrictions. Investment limitations 10 through 13 may be changed by a vote of
the Board at any time.

Each of the Small Company Growth, Value and Emerging Markets
Portfolios may not:

1. Borrow money except that the Portfolios may (a) borrow from
banks for

32
<PAGE> 109
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.

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

33
<PAGE> 110
with a merger, consolidation, acquisition, reorganization or offer of exchange,
or as otherwise permitted under the 1940 Act.

11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the 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 Value Portfolio's and
the Emerging Markets 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.

Post-Venture Capital, Small Company Value and Japan Growth
Portfolios. The following investment limitations numbered 1 through 10 are
Fundamental Restrictions. Investment limitations 11 through 15 may be changed by
a vote of the Board at any time.

Each of the Post-Venture Capital, Small Company Value and
Japan Growth Portfolios may not:

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.

34
<PAGE> 111
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.

6. With respect to the Small Company Value and Japan Growth
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."

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

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

35
<PAGE> 112
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 Prospectuses discuss 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 and futures contracts will be
valued similarly. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary market
for such security. Short-term obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
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.
Notwithstanding the foregoing, 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 certain foreign countries is
completed at various times prior to the close of business on each business day
in New York (i.e., a day on which The New York Stock Exchange, Inc. (the "NYSE")
is open for trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New

36
<PAGE> 113
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. 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. 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

37
<PAGE> 114
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. For the fiscal year ended
October 31, 1997, $15,457, $14,871, $25,395 and $486,802 was paid by the Small
Company Growth, Value, Emerging Markets and International Equity Portfolios,
respectively, to brokers and dealers who provided such research and other
services. Research received from brokers or dealers is supplemental to Warburg's
own research program. The fees to Warburg under its agreements with each
Portfolio are not reduced by reason of its receiving any brokerage and research
services.

The Fund paid the following commissions to broker-dealers for
execution of portfolio transactions on behalf of the indicated Portfolios for
the indicated fiscal years ended October 31. Since the Global Fixed Income
Portfolio had not commenced operations as of October 31, 1997, it paid no
brokerage commissions.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value $22,297 N/A N/A
- -----------------------------------------------------------------------------------------------
Small Company Value 0 N/A N/A
- -----------------------------------------------------------------------------------------------
Small Company Growth $251,682 $69,950 N/A
- -----------------------------------------------------------------------------------------------
Post-Venture Capital 0 N/A N/A
- -----------------------------------------------------------------------------------------------
International Equity $4,321,534 $1,273,733 $612,312
- -----------------------------------------------------------------------------------------------
Emerging Markets $289,393 $90,762 N/A
- -----------------------------------------------------------------------------------------------
Japan Growth 0 N/A N/A
- -----------------------------------------------------------------------------------------------
</TABLE>

38
<PAGE> 115
The table below shows the amount of outstanding repurchase
agreements that each of the following Portfolios had, as of October 31, 1997,
with Goldman, Sachs & Co., one of the regular broker-dealers of the Fund.

<TABLE>
<CAPTION>
- ------------------------------------------------------------
<S> <C>
Emerging Markets $2,302,000
- ------------------------------------------------------------

Small Company Growth $13,631,000
- ------------------------------------------------------------

Value $1,706,000
- ------------------------------------------------------------

International Equity $80,780,000
- ------------------------------------------------------------
</TABLE>

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.

39
<PAGE> 116
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. To the extent that its
portfolio is traded for the short-term, a 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 a Portfolio may be higher
than mutual funds having a similar objective that do not utilize these
strategies.

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.

<TABLE>
<S> <C>
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; Director/Trustee
of other investment companies advised by Warburg.

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); Director/Trustee of other investment
companies advised by Warburg.
</TABLE>

40
<PAGE> 117
<TABLE>
<S> <C>
John L. Furth* (67) Chairman of the Board
466 Lexington Avenue Vice Chairman, Director and Managing Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970; Director of Counsellors
Securities. Chairman of the Board of other investment
companies advised by Warburg.

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

Thomas A. Melfe (66) 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.; Director/Trustee of other investment companies advised by
Warburg.

Arnold M. Reichman * (49) Director
466 Lexington Avenue Managing Director, Chief Operating Officer and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated with Warburg since 1984;
Director and officer of Counsellors Securities; Director of The
RBB Fund, Inc.; Director/Trustee of other investment companies
advised by Warburg.
</TABLE>

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

41
<PAGE> 118
<TABLE>
<S> <C>
Alexander B. Trowbridge (68) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business consulting)
Washington, DC 20004 from January 1990 to November 1996; Director or Trustee of New
England Mutual Life Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc. (solid and
hazardous waste collection and disposal), The Rouse Company
(real estate development), Harris Corp. (electronics and
communications equipment), The Gillette Co. (personal care
products) and Sun Company Inc. (petroleum refining and
marketing); Director/Trustee of other investment companies
advised by Warburg.

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

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

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

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

42
<PAGE> 119
<TABLE>
<S> <C>
Daniel S. Madden, CPA (32) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; 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; Officer of other investment
companies advised by Warburg.

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

No employee of Warburg, PFPC Inc., the 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.

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

<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by Warburg*
---------------- ---- -------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $44,500
Donald J. Donohue*** $1,500 $44,500
Jack W. Fritz $1,500 $44,500
Jeffrey E. Garten**** N/A N/A
Thomas A. Melfe $1,500 $44,500
Alexander B. Trowbridge $1,500 $44,500
</TABLE>

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

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

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<PAGE> 120
As of January 30, 1998, the Directors and officers of the Fund
as a group owned less than 1% of the outstanding shares of each Portfolio.

Post-Venture Capital Portfolio. Elizabeth B. Dater is
Co-Portfolio Manager of the Post-Venture Capital Portfolio and manages other
Warburg Pincus Funds. Prior to joining Warburg in 1978, she was a vice president
of Research at Fiduciary Trust Company of New York and an institutional sales
assistant at Lehman Brothers. Ms. Dater has been a regular panelist on Maryland
Public Television's Wall Street Week with Louis Rukeyser since 1976. Ms. Dater
earned a B.A. degree from Boston University in Massachusetts.

Stephen J. Lurito is Co-Portfolio Manager of the Post-Venture
Capital Portfolio and manages other Warburg Pincus Funds. Mr. Lurito 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.

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 Thaddeus I. Gray, 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
other Warburg Pincus Funds. 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 1989, Mr. Gray was
an assistant vice president at Commerzbank Capital Markets Corporation, where he
managed the area responsible for underwriting and distributing all new issues of
securities. Prior to this, he was an associate with Credit Commercial de France
in Paris in the Corporate Finance Department. Mr. Gray received his B.A. in
History from the University of Pennsylvania and his M.B.A. in Finance from New
York University. He is also a Chartered Financial Analyst.

Small Company Growth Portfolio. Ms. Dater and Mr. Lurito are
also Co-Portfolio Managers of the Small Company Growth Portfolio.

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<PAGE> 121
Small Company Value Portfolio. George U. Wyper is Portfolio
Manager of the Small Company Value Portfolio and manages other Warburg Pincus
Funds. 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.

Kyle F. Frey, Associate Portfolio Manager and Research
Analyst of the Small Company Value Portfolio, serves in similar positions with
other Warburg Pincus Funds. 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.

Value Portfolio. 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.

Emerging Markets, International Equity and Japan Growth
Portfolios. Richard H. King is Co-Portfolio Manager of the Emerging Markets
Portfolio and Portfolio Manager of the International Equity Portfolio and
manages other Warburg Pincus Funds. 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. King earned a B.A. degree from Durham University in
England.

P. Nicholas Edwards is Portfolio Manager of the Japan
Growth Portfolio and Associate Portfolio Manager and Research Analyst of the
International Equity Portfolio and serves in similar positions with other
Warburg Pincus Funds. 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.

Harold W. Ehrlich is Associate Portfolio Manager and
Research Analyst of

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<PAGE> 122
the Emerging Markets and International Equity Portfolios and
serves in similar positions with other Warburg Pincus Funds. 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.

Vincent J. McBride is Co-Portfolio Manager of the Emerging
Markets Portfolio and Associate Portfolio Manager and Research Analyst of the
International Equity Portfolio and serves in similar positions with other
Warburg Pincus Funds. 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.

Global Fixed Income Portfolio. Dale C. Christensen is
Portfolio Manager of the Global Fixed Income Portfolio and manages other Warburg
Pincus Funds. He also 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. Mr. Christensen 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.

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 "Sub-Investment Advisory Agreement," 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 Prospectuses.+ These fees are
calculated at an annual rate based on a percentage of a Portfolio's average
daily net assets. See the Prospectuses, "Management of the Fund."

Warburg earned the following investment advisory fees with
respect to the

+ With respect to the Post-Venture Capital Portfolio, the services
provided by Abbott under the Sub-Investment Advisory Agreement are also
described in the relevant Prospectus; Warburg pays Abbott for
sub-investment advisory services out of the fees Warburg receives from
the Portfolio.

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<PAGE> 123
Portfolios shown for the indicated fiscal years ended October 31
and voluntarily waived the amounts shown.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1997 Waiver 1996 Waiver 1995 Waiver
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Small Company $1,405,403 $314,893 $268,768 $122,453 N/A N/A
Growth
- -------------------------------------------------------------------------------------------------
Value+ $22,250 $22,250 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------
Emerging Markets $376,368 $103,632 $21,487 $21,487 N/A N/A
- -------------------------------------------------------------------------------------------------
International $9,423,008 $1,627,352 $5,644,429 $1,182,795 $3,095,950 $778,770
Equity
- -------------------------------------------------------------------------------------------------
</TABLE>

+ Warburg reimbursed expenses in the amount of $24,195 to the Value
Portfolio.

Counsellors Service earned the following administration fees
with respect to the Portfolios shown for the indicated fiscal years ended
October 31.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Company Growth $156,156 $29,863 N/A
- -----------------------------------------------------------------------------------------
Value $2,967 N/A N/A
- -----------------------------------------------------------------------------------------
Emerging Markets $37,637 $2,149 N/A
- -----------------------------------------------------------------------------------------
International Equity $1,177,876 $705,554 $386,993
- -----------------------------------------------------------------------------------------
</TABLE>

PFPC earned the following administration fees with respect to
the Portfolios shown for the indicated fiscal years ended October 31 and
voluntarily waived the amounts shown.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1997 Waiver 1996 Waiver 1995 Waiver
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Small Company $156,156 0 $29,863 $9,901 N/A N/A
Growth
- ---------------------------------------------------------------------------------------------------
Value $2,966 $2,966 N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------
Emerging Markets $45,164 $45,164 $2,578 $2,578 N/A N/A
- ---------------------------------------------------------------------------------------------------
</TABLE>

47
<PAGE> 124
<TABLE>

<S> <C> <C> <C> <C> <C> <C>
International $963,938 0 $702,540 $119,850 $436,710 $110,078
Equity
- ---------------------------------------------------------------------------------------------------
</TABLE>

Since the Post-Venture Capital, Small Company Value and Japan
Growth Portfolios commenced investment operations on October 31, 1997, and the
Global Fixed Income had not commenced investment operations as of October 31,
1997, no fees were paid to Warburg, PFPC or Counsellors Service by those
Portfolios in that fiscal year.

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 the each Portfolio's U.S.
and non-U.S. 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.
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 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

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

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<PAGE> 125
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
Prospectuses 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.

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. Subject to the
restrictions on exchange purchases contained in the Prospectuses and any other
applicable restrictions, this privilege is available to shareholders residing in
any state in which the Portfolio's shares being acquired may legally be sold.

Subject to the restrictions described above, upon receipt of
proper instructions and all necessary supporting documents, shares submitted for
exchange are redeemed at the then-current net asset value of the Portfolio and
the proceeds are invested on

49
<PAGE> 126
the same day, at a price as described above, in shares of the Portfolio being
acquired. The exchange privilege may be modified or terminated at any time upon
30 days' notice to shareholders.

ADDITIONAL INFORMATION CONCERNING TAXES

The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership and
disposition of shares in the 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; and (b) 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.

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

50
<PAGE> 127
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 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 such taxes paid by the Portfolio
upon filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").

The Code imposes a 4% nondeductible excise tax on each
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

51
<PAGE> 128
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.

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.

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

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<PAGE> 129
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% rate to the portion of a PFIC's long-term gain attributable to
assets held more than 18 months.

Recently, legislation was enacted that provides a
mark-to-market election for regulated investment companies effective for taxable
years beginning after December 31, 1997. This election would result in a
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

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<PAGE> 130
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 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

54
<PAGE> 131
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 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 each
Portfolio listed below for the fiscal periods ended October 31, 1997 were as
follows (performance figures calculated without waiver of fees by the Fund's
service provider(s), if any, are noted in italics):

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PORTFOLIO (INCEPTION ONE-YEAR FIVE-YEARS SINCE INCEPTION
DATE)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Company 22.99% 22.76% N/A N/A 28.55% 28.38%
Growth
(12/29/95)
- ---------------------------------------------------------------------------------------------------
Value+ N/A N/A N/A N/A 6.40% 6.00%
(12/30/97)
- ---------------------------------------------------------------------------------------------------
Emerging (4.43%) (4.86%) N/A N/A (5.31%) (5.83%)
Markets
(9/30/96)
- ---------------------------------------------------------------------------------------------------
International 6.20% 6.05% 14.63% 14.43% 13.27% 13.05%
Equity
(9/1/92)
- ---------------------------------------------------------------------------------------------------
</TABLE>

+ Non-annualized.

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

55
<PAGE> 132
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.

Yield is calculated by annualizing the net investment income
generated by the Portfolio over a specified thirty-day period according to the
following formula:
6
YIELD = 2 [( a-b ) +1) -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, 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 26
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> 133
EAFE INDEX VS. S&P 500 INDEX
1972-1996
ANNUAL TOTAL RETURN+

<TABLE>
<CAPTION>
YEAR EAFE INDEX S&P 500 INDEX
---- ---------- -------------
<S> <C> <C>
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975* 31.21 31.55
1976 -.36 19.15
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
1994* 6.24 -1.54
1995 9.42 34.11
1996 4.40 20.26
1997 0.24 31.01
</TABLE>
- -------------------------
+ Without reinvestment of dividends.

* The EAFE Index has outperformed the S&P 500 Index 14 out of the last 26
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 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
Post-Venture Capital, Small

57
<PAGE> 134
Company Growth, Small Company Value, Value, Emerging Markets, International
Equity and Japan Growth 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.

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

MISCELLANEOUS

As of January 30, 1998, the names, addresses and percentage
ownership of each person that owned 5% or more of the outstanding shares of a
Portfolio are as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Portfolio Name and Address Percentage Owned
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Post-Venture Capital Warburg Pincus Asset Management, Inc. 55.43%
Attn: Stephen Distler
466 Lexington Avenue, 10th Floor
New York, NY 10017-3140
----------------------------------------------------------------------------------
Guarantee & Trust Co. TTEE 6.91%
Stuart Goode IRA R/O
70 E 77th St. Apt. 9A
New York, NY 10021-1811
-----------------------------------------------------------------------------------------------------------
Small Company Employee Benefit Plan Group Trust of George A. Buck 12.92%
Growth Consulting Act I*
U/A DTD 5/3/1983
C/O John McGuinness
3 Chase MetroTech Ctr. Fl. 5
Brooklyn, NY 11245-0002
----------------------------------------------------------------------------------
Trustees of Amherst College 11.93%
Amherst College, Ms. Sharon Siegel
Treasurer Office
Box 2203 P.O. Box 5000
Amherst, MA 01002-5000
----------------------------------------------------------------------------------
Northern Trust Co TTE* 6.49%
FBO Southern California
Rock Products C/O Mutual Funds
P.O. Box 92956
Chicago, IL 60675
----------------------------------------------------------------------------------
</TABLE>

58
<PAGE> 135
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Portfolio Name and Address Percentage Owned
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co. Inc.* 5.56%
Attn. Mutual Funds Dept.
101 Montgomery St.
San Francisco, CA 94104-4122
----------------------------------------------------------------------------------
MAC & Co 5.23%
FBO Oberlin College
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
----------------------------------------------------------------------------------
Educational Testing Service 5.02%
Michael Bockisch
42 Rosedale RD #Z
Princeton, NJ 08540-6702
-----------------------------------------------------------------------------------------------------------
Small Company Retirement Plan Non-Legal Employees of 6.96%
Value Simpson Thacher & Bartlett*
Ellen Rosen Attn Coordinator
425 Lexington Avenue
New York, NY 10017-3903
----------------------------------------------------------------------------------
Pakula Productions P/S/P 5.83%
Mr. Alan J. Pakula
160 E 72nd St., 6th Floor
New York, NY 10021-4364
----------------------------------------------------------------------------------
Delaware Charter 5.55%
Guarantee & Trust Co.
FBO Benefit Martin Lipton
PO Box 8963
Wilmington, DE 19899-8963
-----------------------------------------------------------------------------------------------------------
Value National Financial Services Corp.* 99.88%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
-----------------------------------------------------------------------------------------------------------
Emerging Markets Louis R. Morrell/Irene A. Comito Co-Trustees 74.80%
Wake Forest University Trust
U/A DTD 6/25/41
P.O. Box 7354
Winston-Salem, NC 27109-7354
----------------------------------------------------------------------------------
The Juilliard School 7.35%
60 Lincoln Center Plaza
New York, NY 10023-6588
----------------------------------------------------------------------------------
</TABLE>

59
<PAGE> 136
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Portfolio Name and Address Percentage Owned
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan Growth Warburg Pincus Asset Management, Inc. 98.41%
Attn: Stephen Distler
466 Lexington Avenue, 10th Floor
New York, NY 10017-3140
-----------------------------------------------------------------------------------------------------------
</TABLE>

* Each Portfolio believes these entities are not the beneficial owners of
shares held of record by them.

As of January 30, 1998, Mr. Lionel I. Pincus, the managing
partner of Warburg Pincus & Co., may be deemed to have beneficially owned
85.43%, 8.7%, 82%, .12%, 6.1%, 5.7% and 98.81% of the outstanding shares of the
Post-Venture Capital, Small Company Growth, Small Company Value, Value, Emerging
Markets, International Equity and Japan Growth Portfolios, respectively,
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, 1997, which
either accompanies this Statement of Additional Information or has previously
been provided to the investor to whom this Statement of Additional Information
is being sent, is incorporated herein by reference with respect to all
information regarding the Post-Venture Capital, Small Company Growth, Small
Company Value, Value, Emerging Markets, International Equity and Japan Growth
Portfolios included therein. The Fund will furnish without charge a copy of the
annual 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 accompany this Statement of Additional
Information.

60
<PAGE> 137
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 and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
<PAGE> 138
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. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

A-2
<PAGE> 139
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> 140
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> 141
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
GLOBAL FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 15, 1997

<TABLE>
<CAPTION>
Assets:
<S> <C>
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
------
</TABLE>

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

F-2
<PAGE> 142
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.

F-3