SEMIANNUAL
REPORT
February 28, 1999
WARBURG PINCUS
LONG-SHORT MARKET NEUTRAL FUND
|--|
WARBURG PINCUS
LONG-SHORT EQUITY FUND
More complete information about the funds, including charges and expenses, is
provided in the Prospectus, which must precede or accompany this document and
which should be read carefully before investing. You may obtain additional
copies by calling 800-WARBURG (800-927-2874) or by writing to Warburg Pincus
Funds, P.O. Box 9030, Boston, MA 02205-9030.
[WARBURG PINCUS LOGO]
<PAGE>
From time to time, the funds' investment adviser and co-administrators may
waive some fees and/or reimburse some expenses, without which performance would
be lower. Waivers and/or reimbursements are subject to change.
Returns are historical and include change in share price and reinvestment
of dividends and capital gains. Past performance cannot guarantee future
results. Returns and share price will fluctuate, and redemption value may be
more or less than original cost.
Investment in shares of the funds can be more volatile and risky than some
other forms of investment. In addition, if the adviser takes long positions in
stocks that decline or short positions in stocks that increase in valve, then
the losses of the funds may exceed those of other stock mutual funds that hold
long positions only.
The views of the funds' management are as of the date of the letters and
portfolio holdings described in this document are as of February 28, 1999; these
views and portfolio holdings may have changed subsequent to these dates. Nothing
in this document is a recommendation to purchase or sell securities.
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Portfolio Managers' Letter -- February 28, 1999
- --------------------------------------------------------------------------------
April 20, 1999
Dear Shareholders:
We are writing to report on the results of the Warburg Pincus Long-Short
Market Neutral Fund (the "Fund") for the fiscal half-year ended February 28,
1999.
At February 28, 1999, the net asset value ("NAV") of the Fund's
Institutional shares was $14.89, compared to an NAV of $15.27 on August 31,
1998. As a result, the Institutional shares' total return was down 1.2%
(assuming the reinvestment of dividends and distributions totaling $0.20 per
share). By comparison, the Salomon Smith Barney U.S. One-Month Treasury Bill
Index(1) (the "Index") returned 2.0% during the same period.
At February 28, 1999, the NAV of the Fund's Common shares was $14.88,
compared to an NAV of $15.19 at their inception of investment operations on
September 8, 1998. The Common shares' total return between September 8, 1998 and
February 28, 1999 thus was down 0.7% (assuming the reinvestment of dividends and
distributions totaling $0.20 per share). By comparison, the Index returned 1.9%
during the same period.
The Fund's underperformance of its Index benchmark was primarily due to our
emphasis on two of the five "drivers" that we believe contribute most to
appreciation in stock prices. The first of these was good valuation, which was
attractively low for many companies following the global sell-off in equities in
the summer of 1998. The second was improvement both in earnings strength and
earnings expectations. Unfortunately for the Fund, we chose to highlight these
drivers during a period when investors appeared to be much more concerned with
choosing an investment theme for the market than with selecting stocks on the
basis of company fundamentals.
Among individual holdings, returns were particularly strong for two long
positions: Broadcom, a manufacturer of bandwidth-enhancing semiconductor chips
that started the period with a relatively reasonable valuation and whose
earnings growth was accelerating; and Southwest Airlines Co., whose emphasis on
cost-efficiency helped its earnings to grow faster than those of its peers. A
short position that proved particularly unsuccessful was Netscape
Communications. We sold this stock short based on its extraordinarily high
valuation and rapidly declining fundamentals, but it rose significantly on the
news that America Online intended to acquire it.
1
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Portfolio Managers' Letter -- February 28, 1999 (cont'd)
- --------------------------------------------------------------------------------
As developments occur that we believe would be of interest to you, we will
keep you informed. Meanwhile, if you have any questions about your portfolio or
the capital markets generally, please feel free to call upon us at any time.
Sincerely yours,
Credit Suisse Asset Management Structured Equity Management Team
William W. Priest, Jr., CEO and Managing Director
Eric N. Remole, Managing Director
Marc E. Bothwell, Vice President
Michael A. Welhoelter, Vice President
Investing in shares of the fund can be more volatile and risky than some other
forms of investments. In addition, if the adviser takes long positions in stocks
that decline or short positions in stocks that increase in value, then losses of
the fund may exceed those of other stock mutual funds that hold long positions
only.
(1) Monthly return equivalents of yield averages which are not marked to market.
The 1 month T-Bill index consists of the last 1 month T-Bill issues.
2
<PAGE>
Warburg Pincus Long-Short Equity Fund
Portfolio Managers' Letter -- February 28, 1999
- --------------------------------------------------------------------------------
April 20, 1999
Dear Shareholders:
We are writing to report on the results of the Warburg Pincus Long-Short
Equity Fund (the "Fund") for the fiscal half-year ended February 28, 1999.
At February 28, 1999, the NAV of the Fund's Institutional shares was
$16.76, compared to an NAV of $15.00 at their inception of investment operations
on September 11, 1998. As a result, the Institutional shares' total return
between September 11, 1998 and February 28, 1999 was 14.7% (assuming the
reinvestment of dividends and distributions totaling $0.45 per share). By
comparison, the Standard & Poor's 500 Index(1) (the "Index") returned 27.2%
during the same period.
At February 28, 1999, the NAV of the Fund's Common shares was $16.74,
compared to an NAV of $15.72 at their inception of investment operations on
October 30, 1998. The Common shares' total return between October 30, 1998 and
February 28, 1999 thus was 9.3% (assuming the reinvestment of dividends and
distributions totaling $0.45 per share). By comparison, the Index returned 13.2%
during the same period.
The Fund underperformed its Index benchmark due to two factors:
o As a young portfolio that was (and is) small and growing, the Fund
experienced disproportionate volatility as it absorbed comparatively
substantial new investments. We fully expect that the Fund's relative
performance will more closely track that of the Warburg Pincus
Long-Short Market Neutral Fund, whose shares form its primary asset, as
the Fund continues to grow larger.
o We emphasized two of the five "drivers" that we believe contribute most
to appreciation in stock prices. The first of these was valuation, which
was attractively low for many companies following the global sell-off in
equities in the summer of 1998. The second was improvement both in
earnings strength and earnings expectations. Unfortunately for the Fund,
we chose to highlight these drivers during a period when investors
appeared to be much more concerned with choosing an investment theme for
the market than with selecting stocks on the basis of company
fundamentals.
3
<PAGE>
Warburg Pincus Long-Short Equity Fund
Portfolio Managers' Letter -- February 28, 1999 (cont'd)
- --------------------------------------------------------------------------------
As developments occur that we believe would be of interest to you, we will
keep you informed. Meanwhile, if you have any questions about your portfolio or
the capital markets generally, please feel free to call upon us at any time.
Sincerely yours,
Credit Suisse Asset Management Structured Equity Management Team
William W. Priest, Jr., CEO and Managing Director
Eric N. Remole, Managing Director
Marc E. Bothwell, Vice President
Michael A. Welhoelter, Vice President
Investing in shares of the fund can be more volatile and risky than some other
forms of investments. In addition, if the adviser takes long positions in stocks
that decline or short positions in stocks that increase in value, then the
losses of the fund may exceed those of other stock mutual funds that hold long
positions only.
(1)The S&P Index is an unmanaged index (with no defined investment objective) of
common stocks, includes reinvestments of dividends, and is a registered
trademark of Standard & Poor's Corporation.
4
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments
February 28, 1999 (Unaudited)
- -------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
COMMON STOCKS 86.7%
Air Transport 3.5%
Continental Airlines, Inc.
Cl. B** 10,400 $ 360,100
Southwest Airlines Co. 18,900 569,362
---------
929,462
---------
Automotive 10.0%
Ford Motor Co. 5,900 349,944
General Motors Corp. 6,600 544,913
Johnson Controls, Inc. 18,900 1,162,350
Navistar International Corp. 14,400 619,200
---------
2,676,407
---------
Business Services 0.2%
Robert Half International, Inc. 1,800 64,800
---------
Chemicals 2.7%
Air Products & Chemicals, Inc. 12,200 391,925
Lyondell Petrochemical Co. 24,800 331,700
---------
723,625
---------
Communications & Media 1.7%
A. H. Belo Corp. Cl. A 18,900 342,562
CBS Corp. 2,700 99,562
Comsat Corp. 600 17,550
---------
459,674
---------
Computers, Software & Servicing 1.8%
Cadence Design Systems** 5,000 120,312
GTECH Holdings** 4,100 92,762
Microsoft Corp. 1,800 270,225
---------
483,299
---------
Construction & Building Materials 3.8%
Caterpillar, Inc. 2,300 104,794
Ingersoll-Rand Co. 8,600 408,500
Lafarge Corp. 8,600 274,125
Masco Corp. 8,600 225,750
---------
1,013,169
---------
Consumer Products 2.0%
Avon Products 7,200 299,700
Nu Skin Enterprises, Inc.** 11,300 235,888
---------
535,588
---------
See Accompanying Notes to Financial Statements.
5
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
COMMON STOCKS (cont'd)
Electric Utilities 2.8%
Niagara Mohawk Power 19,800 $ 289,575
Pinnacle West Capital 12,600 455,175
----------
744,750
----------
Electronics 5.3%
Broadcom Corp.** 3,600 216,675
Linear Technology Corp. 22,600 990,163
Teradyne, Inc. 1,400 66,675
UtiliCorp United Inc. 4,000 137,500
----------
1,411,013
----------
Entertainment 1.3%
Clear Channel Communications 5,900 354,000
----------
Financial Services 15.8%
AmSouth Bancorporation 6,800 319,600
Chubb Corp. (The) 900 53,775
Equitable Companies 1,800 121,613
Fannie Mae 800 56,000
First Union Corp. 1,800 95,963
Hartford Financial Services, Inc. 1,800 97,313
J.P. Morgan & Co. Inc. 3,600 401,175
Jefferson-Pilot Corp. 5,900 400,094
Lehman Brothers Holdings Inc. 10,800 572,400
Old Republic International 2,600 48,913
Regions Financial Corp. 7,200 273,600
SLM Holding 8,600 368,725
T. Rowe Price Associates, Inc. 5,400 166,388
Transamerica Corp. 10,800 783,675
20th Century Industries 5,900 112,838
UnionBanCal Corp. 10,800 339,525
----------
4,211,597
----------
Food & Beverage 5.1%
Coors, (Adolph) Cl. B 6,800 405,025
Fleming Companies, Inc. 47,300 348,838
SUPERVALU INC. 2,000 48,125
Tootsie Roll Industries 1,800 82,800
U.S. Foodservice** 10,000 464,375
----------
1,349,163
----------
See Accompanying Notes to Financial Statements.
6
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
COMMON STOCKS (cont'd)
Gas Utilities 0.3%
Peoples Energy 2,300 $ 78,056
----------
Health Care 3.0%
Aetna Inc. 2,600 192,563
Shared Medical Systems Corp. 1,400 71,400
Stryker Corp. 2,300 108,675
Wellpoint Health Networks, Inc.** 5,400 425,925
----------
798,563
----------
Manufacturing 2.9%
Aeroquip-Vickers, Inc. 4,100 232,163
Honeywell Inc. 4,500 314,719
Tyco International Ltd. 3,000 223,313
----------
770,195
----------
Metals & Mining 2.1%
Bethlehem Steel Corp. 11,300 99,581
Freeport-McMoran Copper & Gold, Inc. 17,600 166,100
Phelps Dodge Corp. 2,700 130,950
Ryerson Tull, Inc. 8,600 156,950
----------
553,581
----------
Oil & Gas Exploration 2.9%
Cooper Cameron Corp.** 6,800 157,250
Helmerich & Payne 23,000 375,188
Smith International, Inc. 5,000 121,563
Tidewater Inc. 6,300 118,519
----------
772,520
----------
Oil Services 1.8%
PennzEnergy Co. 21,600 202,500
Pennzoil-Quaker State Co. 21,600 268,650
----------
471,150
----------
Pharmaceuticals 0.2%
Bergen Brunswig Corp. 1,900 46,431
----------
Publishing & Information Services 0.4%
Donnelley (R.R.) & Sons Co. 2,800 95,900
----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
------ ----------
COMMON STOCKS (cont'd)
Real Estate 1.5%
Host Marriott Corp. 5,869 $ 63,459
Kimco Realty 5,200 197,275
Simon Debartolo Group 5,900 150,081
----------
410,815
----------
Rentals 0.3%
Hertz Corp. 1,800 71,663
----------
Retail 6.6%
Dayton Hudson Corp. 2,700 168,919
Dollar Tree Stores** 2,300 92,000
Federated Department Stores, Inc.** 2,300 87,544
Office Depot.** 15,300 546,019
Sears Roebuck & Co. 2,300 93,438
TJX Companies 26,600 759,763
----------
1,747,683
----------
Telecommunications 7.9%
AirTouch Communications** 1,400 127,488
AT&T Corp. 9,500 780,188
General Instrument Corp.** 11,300 330,525
Northern Telecom Ltd. 2,700 156,769
Tellabs, Inc.** 7,200 576,450
Vitesse Semiconductor Corp.** 3,200 147,000
----------
2,118,420
----------
Waste Management 0.8%
Browning-Ferris Industries 7,200 226,800
----------
TOTAL COMMON STOCKS (Cost $22,115,475) $23,118,324
----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
SECURITIES SOLD SHORT (85.8%)
Aerospace & Defense (2.9%)
Lockheed Martin Corp. (20,600) $ (776,363)
----------
Agriculture (2.4%)
IMC Global, Inc. (10,300) (205,356)
Pioneer Hi-Bred International (18,900) (442,969)
----------
(648,325)
----------
Air Transport (1.2%)
Delta Air Lines, Inc. (4,500) (273,656)
US Airways Group, Inc. (1,100) (52,113)
----------
(325,769)
----------
Automotive (0.6%)
Autoliv, Inc. (1,300) (49,400)
Genuine Parts Co. (3,600) (107,775)
----------
(157,175)
----------
Building & Building Materials (3.2%)
Armstrong World Industries (8,500) (418,094)
Home Depot, Inc. (The) (2,700) (161,156)
Johns Manville Corp. (10,300) (180,894)
Lennar Corp. (3,600) (83,475)
----------
(843,619)
----------
Business Services (1.4%)
ACNielsen Corp. (4,500) (117,000)
Electronic Data Systems Corp. (5,400) (251,100)
----------
(368,100)
----------
Chemicals (0.2%)
Cabot Corp. (2,200) (55,413)
----------
Communications & Media (2.3%)
Time Warner, Inc. (4,500) (290,250)
Univision Communications, Inc. - Cl. (2,200) (89,650)
USA Networks, Inc. (5,800) (230,550)
----------
(610,450)
----------
Computers, Software & Servicing (0.3%)
Hewlett-Packard Co. (1,200) (79,725)
----------
Conglomerates (1.0%)
General Electric Co. (2,700) (270,844)
----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
SECURITIES SOLD SHORT (cont'd)
Consumer Products (3.1%)
Fruit of the Loom, Inc., Cl. A (7,600) $ (96,425)
Gillette Co. (7,600) (407,550)
Whitman Corp. (17,100) (324,900)
----------
(828,875)
----------
Electric Utilities (2.8%)
Unicom Corp. (8,600) (305,838)
Wisconsin Energy Corp. (17,100) (437,119)
----------
(742,957)
----------
Electronics (7.9%)
Atmel Corp. (40,000) (687,500)
General Motors Corp. Cl-H (28,000) (1,321,250)
Vishay Intertechnology (6,700) (86,681)
----------
(2,095,431)
----------
Financial Services (17.5%)
American Financial Group (13,900) (513,431)
Bank America Corp. (21,500) (1,404,219)
Capital One Financial Corporation (1,300) (165,913)
CCB Financial Corp. (3,600) (186,975)
Morgan Stanley Dean Witter Discover (10,800) (977,400)
People's Bank/Connecticut (7,200) (201,600)
Providian Financial Corp. (5,400) (551,475)
Union Planters Corporation (7,600) (343,425)
Wachovia Corp. (4,000) (340,250)
Wesco Financial Corp. (200) (69,288)
----------
(4,753,976)
----------
Health Care (0.4%)
Humana, Inc. (3,600) (63,000)
United Healthcare (1,100) (54,244)
----------
(117,244)
----------
Industrial Goods & Materials (0.4%)
Owens-Illinois, Inc. (2,200) (52,663)
UNIFI Inc. (4,500) (54,281)
----------
(106,944)
----------
Medical Equipment (7.3%)
Beckman Coulter, Inc. (13,000) (628,063)
Perkin Elmer (11,900) (1,127,525)
Raychem Corp. (8,100) (184,781)
----------
(1,940,369)
----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
SECURITIES SOLD SHORT (cont'd)
Metals & Mining (0.7%)
Battle Mountain Gold (53,000) $ (178,875)
-----------
Office Equipment & Supplies (1.9%)
Harland (John H.) Co. (36,900) (495,844)
-----------
Oil & Gas Exploration (1.5%)
Baker Hughes, Inc. (13,500) (243,000)
USX - Marathon Group (7,600) (157,225)
-----------
(400,225)
-----------
Oil Services (2.6%)
Amerada Hess Corp. (13,900) (630,713)
Dynegy Inc. (4,500) (54,000)
-----------
(684,713)
-----------
Paper & Forest Products (4.4%)
Georgia Pacific (14,400) (1,054,800)
Kimberly-Clark Corp. (2,200) (103,950)
-----------
(1,158,750)
-----------
Pharmaceuticals (1.6%)
Dura Pharmaceuticals (6,700) (94,219)
Forest Laboratories, Inc. (4,500) (222,469)
Monsanto Co. (2,200) (100,238)
-----------
(416,926)
-----------
Real Estate (2.2%)
Archstone Communities Trust (5,400) (105,638)
Vornado Realty Trust (13,700) (470,938)
-----------
(576,576)
-----------
Recreation (1.8%)
Brunswick Corp. (22,000) (468,875)
-----------
Retail (5.2%)
Bausch & Lomb, Inc. (2,700) (162,844)
Black & Decker Corp. (1,000) (48,750)
Circuit City Stores (3,500) (189,875)
Gap, Inc. (4,000) (258,750)
General Nutrition (19,300) (258,138)
Ikon Office Solutions (24,700) (348,888)
Tele-Communications Liberty
Media, Inc. Cl-A (2,200) (118,525)
-----------
(1,385,770)
-----------
See Accompanying Notes to Financial Statements.
11
<PAGE>
Warburg Pincus Long-Short Market Neutral Fund
Schedule of Investments (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
SECURITIES SOLD SHORT (cont'd)
Telecommunications (5.8%)
Andrew Corp. (3,600) $ (54,450)
Cabletron Systems, Inc. (16,200) (131,625)
Citizens Utilities Co. Cl. B (9,100) (69,388)
Frontier Corp. (12,600) (452,813)
MCI WorldCom, Inc. (800) (66,000)
McLeodUSA, Inc. Class A (18,400) (708,400)
Qwest Communications International, (900) (55,294)
-----------
(1,537,970)
-----------
Tobacco (0.4%)
UST, Inc. (3,600) (106,425)
-----------
Transportation (0.8%)
FDX Corp. (900) (85,950)
Wisconsin Central Transportation Co (9,000) (123,750)
-----------
(209,700)
-----------
Waste Management (2.0%)
Republic Industries, Inc (43,600) (534,100)
-----------
TOTAL SECURITIES SOLD SHORT (Proceeds $21,993,870) (22,876,328)
-----------
TOTAL INVESTMENTS -- 0.9% (Cost $121,605*) $ 241,996
OTHER ASSETS IN EXCESS OF LIABILITIES -- 99.1% 26,423,257
-----------
TOTAL NET ASSETS -- 100.0% $26,665,253
===========
* Cost for Federal income tax purposes at February 28, 1999 is $381,079. The
gross appreciation (depreciation) on a tax basis is as follows:
Gross Appreciation - Investments $ 2,078,157
Gross Depreciation - Investments (1,282,845)
Gross Appreciation - Short Sales 1,152,435
Gross Depreciation - Short Sales (2,086,830)
-----------
Net Depreciation $ (139,083)
===========
- ----------
** Non-income producing securities.
See Accompanying Notes to Financial Statements.
12
<PAGE>
Warburg Pincus Long-Short Equity Fund
Schedule of Investments
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Number
of
Shares Value
--------- ---------
COMMON STOCK (2.1%)
Miscellaneous (2.1%)
Standard & Poor's Depositary
Receipts (Spiders) 200 $ 24,737
----------
(Cost $21,537)
INVESTMENT COMPANIES (69.4%)
Warburg Pincus Long-Short
Market Neutral Fund,
Institutional Shares 54,871 817,034
----------
(Cost $834,014)
TOTAL INVESTMENTS (71.5%) (Cost $855,551*) $ 841,771
----------
OTHER ASSETS IN EXCESS OF LIABILITIES (28.5%) 335,430
----------
TOTAL NET ASSETS (100.0%) $1,177,201
==========
- ----------
* Cost for Federal income tax purposes at February 28, 1999 is $856,961. The
gross appreciation (depreciation) on a tax basis is as follows:
Gross Appreciation $ 3,201
Gross Depreciation (18,391)
---------
Net Depreciation $ (15,190)
=========
See Accompanying Notes to Financial Statements.
13
<PAGE>
Warburg Pincus Funds
Statements of Assets and Liabilities
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-Short
Market Neutral Long-Short
Fund Equity Fund
-------------- -----------
<S> <C> <C>
Assets
Investments, at value
(cost - $22,115,475 and $855,551, respectively) $ 23,118,324 $ 841,771
Deposits with brokers and custodian bank for
securities sold short or futures contracts 26,518,975 327,025
Receivable for Fund shares sold 13,616 --
Receivable from investment adviser -- 8,312
Dividends and interest receivable 72,355 1,596
Prepaid expenses and other assets -- 19,393
------------ -----------
Total Assets 49,723,270 1,198,097
------------ -----------
Liabilities
Securities sold short (proceeds $21,993,870 for
Long-Short Market Neutral Fund) 22,876,328 --
Payable for Fund shares repurchased 109,839 --
Payable on open futures contracts -- 4,455
Advisory fee payable 43,288 --
Distrubution fee payable (Common shares) 10,250 149
Accrued expenses payable 18,312 16,292
------------ -----------
Total Liabilities 23,058,017 20,896
------------ -----------
Net Assets
Capital stock, $0.001 par value 1,798 70
Paid-in capital 27,072,963 1,085,840
Undistributed net investment income/(loss) 93,821 (3,583)
Accumulated net realized gain/(loss) from
investments, securities sold short, futures
and foreign currency related transactions, if any (623,720) 78,280
Net unrealized appreciation/(depreciation) on
investments and other, if any 120,391 16,594
------------ -----------
Net Assets $ 26,665,253 $ 1,177,201
============ ===========
Institutional Shares
Net assets $ 6,637,660 $ 122,539
------------ -----------
Shares outstanding 445,644 7,310
------------ -----------
Net asset value, offering price and redemption
price per share $ 14.89 $ 16.76
============ ===========
Common Shares
Net assets $ 20,027,593 $ 1,054,662
------------ -----------
Shares outstanding 1,345,598 63,013
------------ -----------
Net asset value, offering price and redemption
price per share $ 14.88 $ 16.74
============ ===========
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
Warburg Pincus Fund
Statements of Operations
For the six months ended February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-Short
Market Neutral Long-Short
Fund Equity Fund*
-------------- ------------
<S> <C> <C>
Investment Income
Dividends $ 111,171 $ 114
Interest 332,609 12,738
--------- ---------
Total Investment Income 443,780 12,852
--------- ---------
Expenses
Investment advisory fees 108,831 392
Administration fees 12,621 519
Custodian fees 28,418 7,120
Audit fees 279 --
Miscellaneous fees 1,946 170
Printing fees 1,237 2
Registration fees 5,951 5,491
Legal fees 391 1
Transfer agent fees 719 2
Insurance expense 103 2
Directors fees 6,447 5,949
Dividend expense 83,710 --
Distribution fees 10,250 148
--------- ---------
260,903 19,796
Less fees waived and reimbursed (22,169) (9,960)
--------- ---------
Total Expenses 238,734 9,836
--------- ---------
Net Investment Income/(Loss) 205,046 3,016
--------- ---------
Realized and Unrealized Gain/(Loss) on Investments
and Foreign Currency Transactions
Net realized gain/(loss) from:
Security transactions (714,707) (1,550)
Futures tranactions -- 103,507
Securities sold short 409,917 --
--------- ---------
(304,790) 101,957
--------- ---------
Net change in unrealized appreciation/(depreciation):
Investments (87,742) (13,780)
Futures -- 30,337
--------- ---------
(87,742) 16,557
--------- ---------
Net Gain/(Loss) On Investments And
Foreign Currency Transactions (392,532) 118,514
--------- ---------
Net Increase/(Decrease) In Net Assets
Resulting From Operations $(187,486) $ 121,530
========= =========
</TABLE>
- ----------
* Commenced operations on September 14, 1998.
See Accompanying Notes to Financial Statements.
15
<PAGE>
Warburg Pincus Funds
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-Short
Long-Short Market Neutral Fund Equity Fund
------------------------------------- --------------------
For the Six Months For the Period For the Period
Ended August 3, 1998* September 14, 1998*
February 28, 1999 August 31, 1998 to February 28, 1999
------------------ --------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Increase/(decrease) in net assets:
Operations:
Net investment income $ 205,046 $ 21,200 $ 3,016
Net gain/(loss) on investments (392,532) 89,659 118,514
------------ ------------ ------------
Net increase/(decrease) in net assets resulting
from operations (187,486) 110,859 121,530
------------ ------------ ------------
Dividends and Distributions to
shareholders:
Dividends to shareholders from net investment income:
Institutional shares (30,279) -- (6,444)
Common shares (90,662) -- (155)
Distributions to shareholders
from net realized capital gains:
Institutional shares (52,082) -- (23,069)
Common shares (159,858) -- (571)
------------ ------------ ------------
Total distributions to shareholders (332,881) -- (30,239)
------------ ------------ ------------
Net capital share transactions 20,883,338 6,191,423 1,085,910
------------ ------------ ------------
Total increase/(decrease)
in net assets 20,362,971 6,302,282 1,177,201
Net Assets:
Beginning of period 6,302,282 -- --
------------ ------------ ------------
End of period $ 26,665,253 $ 6,302,282 $ 1,177,201
============ ============ ============
</TABLE>
- ----------
* Commenced operations on September 14, 1998.
See Accompanying Notes to Financial Statements.
16
<PAGE>
Warburg Pincus Funds
Long-Short Market Neutral Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Common
------------------------------- --------------
For the Period
For the Six For the Period September 9,
Months Ended August 3, 1998* to
February 28, 1998* February 28,
1999 to August 31, 1999
(Unaudited) 1998 (Unaudited)
------------- -------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 15.27 $ 15.00 $ 15.19
------- ------- -------
Income from investment operations
Net investment income (loss) 0.19 0.05 0.08
Net gain (loss) on investments and
foreign currency transactions
(both realized and unrealized) (0.37) 0.22 (0.19)
------- ------- -------
Total from investment operations (0.18) 0.27 (0.11)
------- ------- -------
Less Distributions
Dividends from net investment income (0.07) -- (0.07)
Distributions from capital gains (0.13) -- (0.13)
------- ------- -------
Total distributions (0.20) -- (0.20)
------- ------- -------
Net asset value, end of period $ 14.89 $ 15.27 $ 14.88
======= ======= =======
Total return (1.17)%(c) (1.80)%(c) (0.73)%(c)
Ratios/Supplemental Data:
Net assets, end of period (000s omitted) $6,638 $6,302 $20,029
Ratio of expenses to average net assets
(including dividend expense) 3.20%(a)(b) 4.32%(a)(b) 3.36%(a)(b)
Ratio of expenses to average net assets
(excluding dividend expense) 1.99%(a)(b) 2.00%(a)(b) 2.25%(a)(b)
Ratio of net investment income (loss) to
average net assets 3.05%(b) 1.96%(b) 2.66%(b)
Fund turnover rate 252%(c) 130%(c) 252%(c)
</TABLE>
- ----------
(a) Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 2.22% (excluding dividend expense) and 3.45% (including dividend
expense) annualized for the six months ended February 28, 1999 and 5.12%
(excluding dividend expense) and 7.44% (including dividend expense)
annualized for the period ended August 31, 1998. Without the voluntary
waiver of advisory fees and administration fees, the ratios of expenses to
average net assets for the Common Class would have been 2.62% (excluding
dividend expense) and 3.72% (including dividend expense) annualized for the
period ended February 28, 1999.
(b) Annualized.
(c) Not Annualized.
* Commencement of operations.
See Accompanying Notes to Financial Statements.
17
<PAGE>
Warburg Pincus Funds
Long-Short Market Equity Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Common
---------------- --------------
For the Period For the Period
September 14, November 2,
1998* 1998* to
to February 28, February 28,
1999 1999
(Unaudited) (Unaudited)
--------------- --------------
<S> <C> <C>
Net asset value, beginning of period $ 15.00 $ 15.27
--------- ----------
Income from investment operations
Net investment income (loss) 0.05 0.05
Net gain (loss) on investments and
foreign currency transactions
(both realized and unrealized) 2.16 1.42
--------- ----------
Total from investment operations 2.21 1.47
--------- ----------
Less Distributions
Dividends from net investment income (0.10) (0.10)
Distributions from capital gains (0.35) (0.35)
--------- ----------
Total distributions (0.45) (0.45)
--------- ----------
Net asset value, end of period $ 16.76 $ 16.74
--------- ----------
Total return 14.72%(c) 9.32%(c)
Ratios/Supplemental Data:
Net assets, end of period (000s omitted) $ 6,638 $ 20,028
Ratio of expenses to average net assets 2.46%(a)(b) 2.72%(a)(b)
Ratio of net investment income (loss) to average net assets 1.19%(b) (1.52)%(b)
Fund turnover rate 22%(c) 22%(c)
</TABLE>
- ----------
(a) Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 5.14% annualized for the period ended February 28, 1999. Without
the voluntary waiver of advisory fees and administration fees, the ratios of
expenses to average net assets for the Common Class would have been 4.76%
annualized for the period ended February 28, 1999.
(b) Annualized.
(c) Not Annualized.
* Commencement of operations.
See Accompanying Notes to Financial Statements.
18
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
The Warburg Pincus Funds covered in this report are comprised of Warburg
Pincus Long-Short Market Neutral Fund ("Long-Short Neutral") and Warburg Pincus
Long-Short Equity Fund ("Long-Short Equity"), (each, a "Fund" and collectively,
the "Funds"), which are registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as non-diversified, open-end management investment
companies. Each Fund is authorized to offer three classes of shares: Common,
Advisor and Institutional, although only Common shares and Institutional shares
of each Fund are currently offered. Common shares for each Fund bear expenses
paid pursuant to a shareholder servicing and distribution plan at an annual rate
of .25% of the average daily net asset value of the Fund's outstanding Common
shares.
On October 23, 1998, pursuant to an Agreement and Plan of Reorganization,
each Fund acquired all of the assets and liabilities of a corresponding
investment series of The RBB Fund, Inc. (collectively, the "Acquired Funds").
The acquisitions were accomplished by a tax-free exchange of the following
shares of each Fund, in each case for the same amount of shares of the
corresponding class of the applicable Acquired Fund. Shares were reissued to
shareholders at the time of the reorganizations.
Fund Common Shares Institutional Shares
---- ------------- --------------------
Long-Short Neutral -- 310,521
Long-Short Equity -- 7,168
The net assets of each Fund directly after the reorganization were the same
as the corresponding Acquired Fund as described in the table below. Each Fund
assumed the prior operating history of the corresponding Acquired Fund.
Unrealized
Fund Net Assets Appreciation/(Depreciation)*
---- ---------- ----------------------------
Long-Short Neutral $4,693,517 $26,972
Long-Short Equity 109,073 (2,142)
The Funds may be permitted to engage in the investment strategies described in
the Notes to Financial Statements. The Funds are not obligated to pursue any of
the following strategies and do not represent that these techniques are
available now or will be available at any time in the future. Please refer to
each Fund's prospectuses and statement of additional information for a
description of its investment strategies.
- ----------
* The amount of each Fund's net assets includes the amount of unrealized
appreciation/(depreciation) listed above.
19
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies -- (cont'd)
A) SECURITY VALUATION -- The net asset value of each Fund is
determined daily as of the close of regular trading on the New York Stock
Exchange. Each Fund's securities for which market quotations are readily
available are valued at market value, which is currently determined using
the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, the securities are valued at the
mean between the last reported bid and asked prices. All other securities
and assets are valued as determined in good faith by the Fund's Board of
Directors. Short-term obligations with maturities of 60 days or less are
valued at amortized cost which approximates market value.
B) FOREIGN CURRENCY TRANSACTIONS -- Transactions denominated in
foreign currencies are recorded in each Fund's records at the current
prevailing exchange rates. Asset and liability accounts that are
denominated in a foreign currency are adjusted daily to reflect current
exchange rates. Transaction gains or losses resulting from changes in
exchange rates during the reporting period or upon settlement of the
foreign currency transaction are reported in operations for the current
period. It is not practical to isolate that portion of both realized and
unrealized gains and losses on investments in the statement of operations
that result from fluctuations in foreign currency exchange rates. Each Fund
reports certain foreign currency related transactions as components of
realized gains for financial reporting purposes, whereas such components
are treated as ordinary income (loss) for Federal income tax purposes.
C) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Dividends are recorded on the ex-dividend date. Certain
expenses are class specific expenses and vary by class. Expenses not
directly attributable to a specific Fund or class are allocated based on
relative net assets of each Fund and class, respectively.
20
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies -- (cont'd)
D) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Each Fund calculates
its dividends from net investment income. Net investment income includes
interest accrued and dividends earned on the Fund's portfolio securites for
the applicable period less applicable expenses. Each of the Long-Short
Neutral Fund and Long-Short Equity Funds will distribute substantially all
of its net realized capital gains and all net investment income, if any, to
its shareholders annually. The character of distributions made during the
year for net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes due to generally
accepted accounting principles (GAAP) and tax differences in the character
of income and expense recognition. These differences are primarily due to
differing treatments for net operating losses, mortgage-backed securities,
passive foreign investment companies, and forward foreign currency
contracts.
E) FEDERAL INCOME TAXES -- No provision is made for Federal taxes as
it is each Fund's intention to qualify for and elect the tax treatment
applicable to regulated investment companies under the Internal Revenue
Code of 1986, as amended and make the requisite distributions to its
shareholders which will be sufficient to relieve it from Federal income and
excise taxes.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
G) REPURCHASE AGREEMENTS -- Money market instruments may be purchased
from banks and non-bank dealers subject to the seller's agreement to
repurchase them at an agreed upon date and price. Collateral for repurchase
agreements may have longer maturities than the maximum permissible
remaining maturity of portfolio investments. The seller will be required on
a daily basis to maintain the value of the securities subject to the
agreement at not less than the repurchase price. The agreements are
conditional upon the collateral being deposited under the Federal Reserve
book-entry system or held in a separate account by each Fund's custodian or
an authorized securities depository. Neither of the Funds had open
repurchase agreements at February 28, 1999.
21
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies -- (cont'd)
H) FUTURES TRANSACTIONS -- A Fund invests in futures contracts for the
purpose of hedging its existing portfolio securities, or securities that
the Fund intends to purchase, against fluctuations in value caused by
changes in prevailing market interest rates or securities prices, or for
other purposes. Certain Funds may enter into futures contracts subject to
certain limitations. Upon entering into a futures contract, each Fund is
required to deposit cash or pledge U.S. Government securities of an initial
margin. Subsequent payments, which are dependent on the daily fluctuations
in the value of the underlying instrument, are made or received by the Fund
each day (daily variations margin) and are recorded as unrealized gains or
losses until the contracts are closed. When the contracts are closed, the
Fund records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transaction and the Fund's basis in
the contracts. Risks of entering into futures contracts include the
possibility that there will be an imperfect price correlation between the
futures contracts and the underlying securities. Second, it is possible
that a lack of liquidity for futures contracts could exist in the secondary
market, resulting in an inability to close a futures position prior to its
maturity date. Third, the purchase of a futures contract involves the risk
that a Fund could lose more than the original margin deposit required to
initiate a futures transaction.
As of February 28, 1999, Long-Short Equity held the following futures
contracts:
Futures Expiration Contract Contract Unrealized
Contracts Date Amount Value Gain/Loss
--------- ---------- -------- -------- ----------
S&P 500 Futures 03/18/99 896,288 $926,625 $30,337
I) TBA PURCHASE COMMITMENTS -- The Funds may enter into "TBA" (to be
announced) purchases commitments to purchase securities for a fixed price
at a future date, typically not exceeding 45 days. TBA purchase commitments
may be considered securities in themselves, and involve a risk of loss if
the value of the security to be purchased declines prior to settlement
date, which risk is in addition to the risk of decline in each Fund's other
assets. Unsettled TBA purchase commitments are valued at the current market
value of the underlying securities, according to the procedures described
under "Security Valuation" above.
22
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies -- (cont'd)
J) SECURITIES LENDING -- Loans of the securities are required at all
times to be secured by collateral at least equal to 102% of the market
value of domestic securities on loan including any accrued interest thereon
and 105% of the market value of foreign securities on loan including any
accrued interest thereon. However, in the event of default or bankruptcy by
the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. Neither of the Funds had
securities on loan to brokers at February 28, 1999.
K) SHORT SALES -- When a Fund's investment adviser believes that a
security is overvalued, it may sell the security short by borrowing the
same security from a broker or other institution and selling the security.
A Fund will incur a loss as a result of the short sale if the price of the
borrowed security increases between the date of the short sale and the date
on which the Fund replaces such security. A Fund will realize a gain if
there is a decline in price of the security between those dates, which
decline exceeds the cost of borrowing the security and other transaction
costs. There can be no assurance that a Fund will be able to close out a
short position at any particular time or at an acceptable price. Although a
Fund's gain is limited to the amount at which it sold a security short, its
potential loss is limited only by the maximum attainable price of the
security (which at least theoretically is unlimited) less the price at
which the security was sold. Until a Fund replaces a borrowed security, it
will maintain at all times cash, or liquid securities in an amount which,
when added to any amount deposited with a broker as collateral will at
least equal the current market value of the security sold short. Depending
on arrangements made with brokers, a Fund may not receive any payments
(including interest) on collateral deposited with them. Long-Short Neutral
and Long-Short Equity will not make a short sale if, after giving effect to
such sale, the market value of all securities sold short exceeds 100% of
the value of a Fund's net assets.
L) OTHER -- Securities denominated in currencies other than the U.S.
dollar are subject to changes in value due to fluctuations in exchange
rates.
Some countries in which the Funds invest require governmental approval
for the repatriation of investment income, capital or the proceeds of sales
of securities by foreign investors. In addition, if there is
23
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies -- (cont'd)
a deterioration in a country's balance of payments or for other reasons, a
country may impose temporary restrictions on foreign capital remittances
abroad.
The securities exchanges of certain foreign markets are substantially
smaller, less liquid and more volatile than the major securities markets in
the United States. Consequently, acquisition and disposition of securities
by each Fund may be inhibited. In addition, a significant proportion of the
aggregate market value of equity securities listed on the major securities
exchanges in emerging markets are held by a smaller number of investors.
This may limit the number of shares available for acquisition or
disposition by a Fund.
Lower-rated debt securities (commonly known as "junk bonds") possess
speculative characteristics and are subject to greater market fluctuations
and risk of lost income and principal than higher-rated debt securities for
a variety of reasons. Also, during an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to service
their principal and interest payment obligations, to meet projected
business goals and to obtain additional financing.
In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of lower-rated
debt securities and (to the extent a Fund invests in junk bonds) the Fund's
net asset value.
Note 2. Transactions with Affiliates and Related Parties
Pursuant to Investment Advisory Agreements, Credit Suisse Asset Management
("CSAM") an indirect, wholly-owned subsidiary of Credit Suisse Group, serves as
investment adviser for the two Funds described herein.
For its advisory services, CSAM is entitled to receive the following fees,
computed daily and payable monthly on each Fund's average daily net assets:
Fund Annual Rate
---- ---------------------------------
Long-Short Neutral 1.50% of average daily net assets
Long-Short Equity 0.10% of average daily net assets
24
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 2. Transactions with Affiliates and Related Parties -- (cont'd)
CSAM may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any of the Funds. For the six months ended February 28, 1999,
advisory fees and waivers for each of the twelve investment Funds were as
follows:
Gross Net
Fund Advisory Fee Waiver Advisory Fee
------ ------------ --------- ------------
Long-Short Neutral $108,831 $(10,243) $98,588
Long-Short Equity 392 (392) --
CSAM reimbursed Long-Short Equity $9,565 for the six months ended February
28, 1999.
State Street Bank and Trust Company ("State Street"), serves as each Fund's
transfer and dividend disbursing agent. State Street has delegated most of its
Fund service obligations to Boston Financial Data Services, Inc. (BFDS), a 50%
owned subsidiary of State Street.
Counsellors Funds Service, Inc. ("CFSI"), a wholly-owned subsidiary of
Warburg Pincus Asset Management, Inc., and PFPC Inc. ("PFPC"), an indirect,
wholly-owned subsidiary of PNC Bank Corp., serve as each Fund's
co-administrators. For administration services, each Fund pays CFSI a fee
calculated at an annual rate of .05% of the Fund's first $125 million in average
daily net assets of the Common shares and .10% of average daily net assets of
the Common shares over $125 million. No compensation is payable by the Funds to
CFSI for co-administration services for the Institutional shares. CSFI may, at
its discretion, voluntarily waive all or any portion of its co-administration
fees for any of the Funds. For the period October 23, 1998 to February 28, 1999,
co-administration fees earned and waived by CFSI were as follows:
<TABLE>
<CAPTION>
Gross Net
Fund Administration Fee Waiver Administration Fee
------ ------------------- -------- ------------------
<S> <C> <C> <C>
Long-Short Neutral $2,042 $(1,633) $409
Long-Short Equity 29 -- 29
</TABLE>
Prior to October 23, 1998, Provident Distributors, Inc. ("PDI") served as
administrative service agent. An administrative service fee was computed daily
and payable quarterly at an annual rate of .15% of the average daily net assets
of the corresponding portfolios of the RBB Fund.
25
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 2. Transactions with Affiliates and Related Parties -- (cont'd)
The administrative service agent may at its discretion voluntarily waive
all or any portion of its administrative fee for any of the Funds. For the
period ended October 23, 1998, administrative service fees earned and waived by
PDI were as follows:
<TABLE>
<CAPTION>
Gross Administrative Net Administrative
Fund Service Fee Waiver Service Fee
---- -------------------- ----------- ------------------
<S> <C> <C> <C>
Long-Short Neutral $1,510 (1,224) 286
Long-Short Equity 3 (3) --
</TABLE>
For administration services, PFPC currently receives a fee calculated at
annual rate of .125% on each Fund's average daily net assets, subject to a
minimum annual fee and exclusive of out-of-pocket expenses. PFPC may, at its
discretion, voluntarily waive all or any portion of it administration fee for
any of the Funds. For the six months ended February 28, 1999, co-administration
fees earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
Gross Administrative Net Administrative
Fund Fee Waiver Fee
------ -------------------- -------- ------------------
<S> <C> <C> <C>
Long-Short Neutral $9,069 $(9,069) $--
Long-Short Equity 487 -- 487
</TABLE>
Counsellors Securities Inc. ("CSI"), also a wholly-owned subsidiary of
Warburg Pincus Asset Management, Inc., serves as each Fund's distributor. No
compensation is payable by any Fund to CSI for its distribution services for
Institutional shares. For its distribution services for the Common shares, CSI
receives a fee calculated at an annual rate of .25% of the average daily net
assets of the Common shares of each Fund. For the six months ended February 28,
1999, distribution fees earned by CSI were as follows:
Fund Distribution Fee
------ ----------------
Long-Short Neutral $10,250
Long-Short Equity 148
Note 3. Purchases and Sales of Securities
For the six months ended February 28, 1999, purchases and sales of
investment securities (other than short-term investments) were as follows:
<TABLE>
<CAPTION>
Investment Securities Short Securities
----------------------------- ----------------
Fund Purchases Sales Sales
------ ----------- ---------- ----------------
<S> <C> <C> <C>
Long-Short Neutral $34,139,490 $7,284,002 $25,852,087
Long-Short Equity 1,010,865 155,626 --
</TABLE>
26
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 4. Capital Shares
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
Long-Short Market Neutral Fund
-----------------------------------------------------------------------------------------------------
Institutional Common
------------------------------------------------------------ ---------------------------------
For the Six Months Ended For the Period September 9, 1998*
February 28, 1999 For the Period August 3, 1998* Through February 28, 1999
(Unaudited) Through August 31, 1998 (Unaudited)
------------------------ ------------------------------ ---------------------------------
Shares Value Shares Value Shares Value
-------- ----------- ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 295,597 $ 4,466,851 412,744 $6,191,423 1,467,167 $22,198,712
Shares issued in
reinvestment of
dividends 5,561 82,361 -- -- 16,915 250,336
Shares repurchased (268,258) (4,033,548) -- -- (138,484) (2,081,374)
-------- ----------- ------- ---------- --------- -----------
Net increase 32,900 $ 515,664 412,744 $6,191,423 1,345,598 $20,367,674
======== =========== ======= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Long-Short Equity Fund
--------------------------------------------------------------------
Institutional Common
----------------------------------- --------------------------------
For the Period September 14, 1998* For the Period November 2, 1998*
Through February 28, 1999 Through February 28, 1999
(Unaudited) (Unaudited)
----------------------------------- --------------------------------
Shares Value Shares Value
------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Shares sold 65,685 $ 1,010,030 64,503 $1,071,231
Shares issued in
reinvestment of
dividends 1,757 29,513 43 720
Shares repurchased (60,132) (1,000,000) (1,533) (25,584)
------- ----------- ------ ----------
Net increase 7,310 $ 39,543 63,013 $1,046,367
======= =========== ====== ==========
</TABLE>
- ----------
*Commencement of operations
On February 28, 1999, one shareholder held approximately 95% of the
outstanding shares of the Long-Short Neutral Common shares and one shareholder
held approximately 96% of the outstanding shares of the Long-Short Equity Common
shares.
27
<PAGE>
Warburg Pincus Funds
Notes to Financial Statements (cont'd)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Note 5. Forward Foreign Currency Contracts
The Funds will generally enter into forward foreign currency exchange
contracts as a way of managing foreign exchange rate risk and to enhance total
return. Each Fund may enter into these contracts to fix the U.S. dollar value of
a security that it has agreed to buy or sell for the period between the date the
trade was entered into and the date the security is delivered and paid for. Each
Fund may also use these contracts to hedge the U.S. dollar value of securities
denominated in foreign currencies that it already owns. The Fund may enter into
these contracts for the purchase or sale of a specific foreign currency at a
fixed price on a future date as a hedge or cross-hedge against either
transactions or portfolio positions.
Forward foreign currency contracts are valued at the forward rate, and are
marked-to-market daily. The change in market value is recorded by each Fund as
an unrealized gain or loss. When the contract is closed, each Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Each Fund's
policy is to include this portion of realized and unrealized gains and losses on
investments that result from foreign currency changes with other foreign
currency gains and losses on the Statement of Operations.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of each Fund's portfolio securities, but
it does establish a rate of exchange that can be achieved in the future.
Although forward foreign currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, a Fund
could be exposed to risks if the counterparty to the contract is unable to meet
the terms of the contract. During the six months ended February 28, 1999,
neither Fund entered into forward foreign currency contracts.
28
<PAGE>
[WARBURG PINCUS LOGO]
P.O. BOX 9030, BOSTON, MA O2205-9030
800-WARBURG (800-927-2874) o www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPLSF-3-0299
