Warburg Pincus Advisor Funds October 31, 1998
Balanced Fund
Growth & Income Fund
Capital Appreciation Fund
[LOGO]
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 800-369-2728 or by writing to Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, MA 02205-9030.
[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.
The views of the funds' management are as of the date of the letters and
portfolio holdings described in this document are as of October 31, 1998; 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 ADVISOR BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Balanced Fund (the "Fund") is maximum total
return through a combination of long-term growth of capital and current income,
consistent with preservation of capital. The Fund pursues its objective by
investing in equity and fixed-income securities.
For the 12 months ended October 31, 1998, the Fund had a return of 4.93%,
vs. returns of 10.77% for the S&P 500 Index,* 9.12% for the Lipper Balanced
Funds Index** and 21.98% for the Lehman Intermediate Government/Corporate Bond
Index.***
The period was a generally favorable one for domestic financial markets,
supported by continued low inflation and declining interest rates. Most major
stock indexes had solid gains, though small-cap stocks suffered as investors
shunned less-liquid issues amidst considerable market volatility. Bonds also
rallied, with the notable exception of high-yield bonds, which were lackluster
performers due largely to heightened fears of a slowing economy. Though stocks
and bonds both advanced, they hardly did so in tandem (for the three months
ended September, for example, most bond indexes rose more than 4%, while most
stock indexes fell more than 10%).
Against this backdrop, the Fund had a modest gain, lagging its benchmarks
for the period. The Fund's performance was a reflection of both its fixed-income
and equity components. With respect to equities, the Fund was hampered,
primarily, by its weighting in small caps. However, it should be stressed that
the Fund's exposure to smaller-capitalization companies declined significantly
during the period as we began to implement a change in investment strategy.
(Effective May 14, 1998, the equity investment strategy of the Fund was modified
to, among other things, place greater emphasis on the securities of larger-cap
companies. The Fund's average weighted market-cap at the end of the period was
approximately $37 billion, up from about $26 billion on June 30 and about $11
billion at the start of the period.) That said, any exposure to small caps
proved to be a liability during the period. Also hampering the Fund somewhat was
its increased value orientation (which represented another shift in long-term
strategy), as large-cap growth stocks continued to pace the market's advance.
With respect to sector exposure, we made a few noteworthy changes to the
Fund in the wake of a portfolio management change in March. Most notably, we
increased our exposure to the telecommunications & equipment sector and lowered
our weighting in the electronics area, which we generally viewed as expensive on
a valuation basis. We did, though, remain broadly diversified by
1
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WARBURG PINCUS ADVISOR BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
sector, since stock valuations within and across sectors remained generally too
narrow to justify aggressive overweightings, in our view.
Within the Fund's fixed-income component, we held a mix of Treasuries and
high-quality mortgage-backed and corporate securities. This hampered the Fund
vs. funds heavily biased toward Treasuries during the 12 months, since
Treasuries paced the rally in bonds (these issues were especially strong
performers late in the period, when they were prime beneficiaries of a worldwide
"flight to quality"). Though our diversified approach cost the Fund in terms of
total return, it reflected our desire to provide what we deem to be attractive
levels of risk-adjusted yield.
Going forward, we will continue to adjust our stock and bond allocations as
we deem appropriate on a risk/reward basis. Within the Fund's bond component,
which we view foremost as a provider of income and capital preservation, our
focus will remain on high-quality, intermediate-term issues. In this context,
our attempt to enhance the Fund's total return vs. that of its peer group will
concentrate primarily on stock selection. Our efforts will remain devoted to
identifying mid- and large-capitalization stocks we believe have the best
risk-adjusted expected returns, given their current valuations and fundamental
prospects.
Brian S. Posner Scott T. Lewis Dale C. Christensen
Co-Portfolio Manager Co-Portfolio Manager Co-Portfolio Manager
2
<PAGE>
WARBURG PINCUS ADVISOR BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS ADVISOR
BALANCED FUND FROM SEPTEMBER 30, 1994* AS OF OCTOBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in Warburg
Pincus Advisor Balanced Fund (the "Fund") from July 31, 1995 to October 31,
1998, compared to the S&P 500 Index,* the Lipper Balanced Funds Index** and the
Lehman Intermediate Government/Corporate Bond Index*** for the same time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
LEHMAN BROTHERS
BALANCED LIPPER BALANCED INTERMEDIATE
FUND S&P 500 INDEX GOV. CORP. INDEX
-------- -------- --------------- ----------------
AUG-95 10382.46 10017.40 10078.00 10091.00
SEP-95 10493.56 10439.53 10318.66 10164.06
OCT-95 10241.27 10408.63 10292.66 10277.29
NOV-95 10727.17 10856.41 10612.56 10412.43
DEC-95 10902.15 11066.81 10779.60 10521.56
JAN-96 11215.00 11448.84 10974.17 10612.36
FEB-96 11233.96 11549.70 10979.44 10487.87
MAR-96 11242.20 11662.66 11020.83 10433.97
APR-96 11546.30 11834.33 11093.90 10397.24
MAY-96 11802.89 12138.59 11207.28 10389.44
JUN-96 11517.51 12184.84 11244.26 10499.78
JUL-96 11012.61 11647.37 10954.95 10530.96
AUG-96 11374.61 11893.24 11127.81 10539.28
SEP-96 11721.47 12561.28 11539.43 10686.09
OCT-96 11865.12 12907.35 11784.18 10874.92
NOV-96 12248.17 13881.08 12333.44 11018.46
DEC-96 12280.51 13606.37 12182.24 10947.95
JAN-97 12522.83 14455.55 12555.14 10990.53
FEB-97 12435.59 14568.88 12601.59 11011.53
MAR-97 12153.44 13972.14 12235.51 10935.66
APR-97 12338.92 14805.01 12603.19 11064.15
MAY-97 12973.43 15704.72 13119.16 11155.98
JUN-97 13373.28 16407.34 13545.93 11257.84
JUL-97 14138.58 17711.24 14316.97 11486.93
AUG-97 13952.16 16720.65 13862.97 11429.27
SEP-97 14713.94 17635.10 14415.83 11562.19
OCT-97 14133.64 17047.85 14153.03 11690.30
NOV-97 14054.50 17835.46 14412.03 11716.02
DEC-97 14244.23 18142.23 14625.33 11809.75
JAN-98 14190.10 18342.52 14729.17 11964.45
FEB-98 14831.50 19663.55 15313.92 11955.48
MAR-98 15159.27 20670.52 15782.22 11993.86
APR-98 15398.79 20878.46 15892.85 12053.95
MAY-98 15246.34 20520.40 15732.33 12141.94
JUN-98 15513.15 21353.94 16022.44 12219.89
JUL-98 15403.01 21127.16 15834.65 12263.03
AUG-98 13989.01 18073.02 14470.50 12455.80
SEP-98 14398.89 19230.95 15095.04 12768.69
OCT-98 14827.98 20795.01 15659.75 12756.18
Average Annual
Total Returns
for periods ended
10/31/98
(Advisor Shares)
-----------------
1 year............................................... 4.93%
Since Inception (7/31/95)............................ 12.86%
Fund
----
1 Year Total Return (9/30/97-9/30/98)....................... -2.12%
Average Annual Total Return Since Inception
(7/31/95-9/30/98)......................................... 12.18%
- ------------------
* The S&P 500 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinverstment of dividends, and is a
registered trademark of Standard & Poor's Corporation.
** The Lipper Balanced Funds Index is an equal-weighted performance index,
adjusted for capital-gains distributions and income dividends, of the
largest qualifying funds in this investment objective, and is compiled by
Lipper Analytical Services Inc.
*** The Lehman Intermediate Government/Corporate Bond Index is an unmanaged
index (with no defined investment objective) of intermediate-term
government and corporate bonds, and is calculated by Lehman Brothers Inc.
3
<PAGE>
WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Growth & Income Fund (the "Fund") is long-
term growth of capital, income and a reasonable current return. The Fund pursues
its objective by investing primarily in equity securities and seeks to achieve
its income objective by investing in dividend-paying equity securities.
For the 12 months ended October 31, 1998, the Fund had a return of 8.70%,
vs. a return of 21.98% for the S&P 500 Index*.
The 12-month period was ultimately a strong one for the U.S. stock market,
though it was marked by periods of extreme volatility. Following new highs it
set in mid July, the market suffered a severe decline, with the S&P 500 Index
plunging almost 20% by early September. The selloff was driven by a material
deterioration in actual and forecasted U.S. corporate profit trends, as well as
growing concerns over economic and political crises abroad. However, the market
did finish the period on a positive note, rallying on the heels of two Federal
Reserve interest-rate cuts.
Against this backdrop, the Fund lagged the S&P 500 Index by a significant
margin. The Fund's underperformance was largely attributable to its limited
participation in market rallies, in particular those sharp, "narrow" rallies
driven by relatively few stocks. (By illustration, the index's sharp rise
between June 1 and July 17 was powered by stocks representing the 20 largest
growth companies.) And while rallies tended to be narrow, market declines during
the period were generally broad-based. All told, these trends hampered the Fund.
Consistent with our value bias, we maintained limited exposure to the handful of
large-cap growth stocks that, in fact, accounted for the bulk of the index's
advance. We deemed most of these companies to be expensive from a valuation
perspective, and underweighted them in favor of stocks we believed had better
risk-adjusted prospects.
We remained broadly diversified by sector during the period. That said, we
made a number of strategy changes within certain industry groups, most notably
among financial-services companies. The market's sharp decline in August and
September created some compelling valuations here among stocks we had heretofore
regarded as expensive. This prompted us to shift our focus away from insurance
and mortgage-services stocks (specifically the government-sponsored enterprise
companies) and toward banking, brokerage and consumer-lending stocks. We added
names such as Lehman Brothers Holdings, American Express and Household
International, which we deemed to be oversold on investors' general concerns
regarding balance sheet risk. In our view, the valuations of these stocks did
not reflect the underlying earnings power of these companies under normal
operating conditions.
We modestly increased our exposure to the consumer area, specifically the
food, beverages & tobacco sector. We continued to find attractive buying
opportunities here, particularly among food companies in the process of
4
<PAGE>
WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
restructuring their operations such as Keebler and H.J. Heinz. Elsewhere in the
consumer area, we maintained exposure to the retail sector, where our holdings
included department stores (e.g., Federated Department Stores and May Department
Stores), as well as selected specialty retailers (most notably, Consolidated
Stores and Payless ShoeSource). In very general terms, our positive view on the
prospects for retail stocks is based on the industry's improved
inventory-management skills (which has continued to enhance balance sheet
returns), combined with reasonable valuations.
Other noteworthy areas of emphasis for the Fund during the period included
computer stocks. Our holdings here, which included IBM and Sun Microsystems,
represented what we deemed to be undervalued stocks of companies with attractive
rates of return and good long-term earnings growth potential. That said, we
limited our exposure to other technology stocks during the period. We viewed
most software stocks as unattractive on a valuation basis, and largely avoided
commodity-type technology stocks (e.g., semiconductor stocks) due to our
concerns over weakness in commodity prices.
We also maintained some exposure to energy stocks. Our focus through the
period was on multinational, integrated oil companies whose profit growth and
free-cash generation is not heavily dependent on rising oil prices. Rather, we
continued to emphasize companies whose growth is geared to expanding production
profiles and continuous productivity enhancements. Our largest holdings here
during the period included British Petroleum and Total.
The rest of the Fund remained diversified across a wide range of sectors.
These included the telecommunications & equipment area, where we held a mix of
local and long-distance service providers, and health care, where we emphasized
health-maintenance-organization companies. We deemed several HMO stocks to be
attractively priced, given their reasonable valuations and higher underlying
growth rates vs. other insurance-related stocks.
Looking ahead, we believe that economic weakness abroad will continue to
cloud the earnings picture in the U.S. and threaten specific stocks. And while
the Federal Reserve's recent actions have helped calm the market, equities will
likely continue to face frequent bouts of volatility. However, we also believe
that a number of attractive investment opportunities exist from a
relative-valuation perspective. In this context, our efforts will remain
concentrated on identifying stocks we deem to have the best risk-adjusted
longer-term prospects.
Brian S. Posner
Portfolio Manager
5
<PAGE>
WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS ADVISOR
GROWTH & INCOME FUND FROM DECEMBER 31, 1991 AS OF OCTOBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in
Warburg Pincus Advisor Growth & Income Fund (the "Fund") from May 15, 1995
(inception) to October 31, 1998, compared to the S&P 500 Index* for the same
period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
GROWTH & INCOME S&P500
FUND INDEX
--------------- ------
MAY-95 10033.62 10384.90
JUN-95 10198.99 10628.01
JUL-95 10704.89 10987.98
AUG-95 11048.91 11007.10
SEP-95 10905.50 11470.94
OCT-95 10457.33 11436.99
NOV-95 11129.59 11929.00
DEC-95 10971.57 12160.19
JAN-96 11648.83 12579.96
FEB-96 11570.41 12690.79
MAR-96 11653.68 12814.90
APR-96 11831.98 13003.54
MAY-96 11910.43 13337.86
JUN-96 11050.95 13388.68
JUL-96 10216.25 12798.10
AUG-96 10615.76 13068.27
SEP-96 10468.01 13802.32
OCT-96 10560.78 14182.57
NOV-96 11195.85 15252.50
DEC-96 10796.25 14950.66
JAN-97 11245.80 15883.73
FEB-97 11409.92 16008.25
MAR-97 10974.65 15352.56
APR-97 11324.29 16267.72
MAY-97 12109.22 17256.31
JUN-97 12550.13 18028.36
JUL-97 13532.06 19461.07
AUG-97 13202.36 18372.61
SEP-97 13889.93 19377.41
OCT-97 13308.79 18732.15
NOV-97 13653.49 19597.57
DEC-97 14016.67 19934.65
JAN-98 14102.18 20154.73
FEB-98 15045.61 21606.27
MAR-98 15632.39 22712.73
APR-98 15708.99 22941.22
MAY-98 15649.29 22547.78
JUN-98 15791.70 23463.67
JUL-98 15374.80 23214.48
AUG-98 13099.33 19858.60
SEP-98 13504.10 21130.94
OCT-98 14468.29 22849.52
Average Annual
Total Returns
for periods ended
10/31/98
(Advisor Shares)
-----------------
1 year............................................... 8.70%
Since Inception (5/15/95)............................ 11.23%
FUND
----
1 Year Total Return (9/30/97-9/30/98)....................... -2.79%
Average Annual Total Return Since Inception
(5/15/95-9/30/98)......................................... 9.28%
- ------------------
* The S&P 500 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinvestment of dividends, and is a
registered trademark of Standard & Poor's Corporation.
6
<PAGE>
WARBURG PINCUS ADVISOR CAPITAL APPRECIATION FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Capital Appreciation Fund (the "Fund") is
long-term capital appreciation. The Fund invests primarily in a broadly
diversified portfolio of equity securities of domestic companies. The Fund
attempts to identify sectors of the market and companies within market sectors
that it believes will outperform the overall market.
For the 12 months ended October 31, 1998, the Fund had a return of 12.23%,
vs. a return of 21.98% for the S&P 500 Index*.
The U.S. stock market as a whole had strong performance over the November-
through-October span, supported by a continued favorable inflation and interest-
rate backdrop. The market's solid advance belied an increasingly uncertain
earnings environment, however. A number of negative developments clouded the
overall earnings picture, foremost a widening financial crisis in emerging
markets and a slowdown in global economic growth. All told, these forces weighed
heavily on stocks during the latter part of the period, with the S&P 500 Index
declining more than 7% from its mid-July peak through October.
Against this backdrop, the Fund lagged the S&P 500 Index, in large part due
to its overweighting in financial stocks. Though these were good performers in
absolute terms, they trailed the broader market, hampered by concerns regarding
financial turmoil abroad and a much-publicized "hedge fund" crisis at home. The
Fund was also hindered by its underweighting in the handful of large-cap growth
stocks that propelled the index's advance. We viewed most as expensive, and
largely avoided them in favor of stocks we deemed to offer growth at a
reasonable price.
We made several noteworthy sector adjustments to the Fund as the period
progressed. We reduced our weighting in the financial area, reflecting profit-
taking in specific issues as well as our desire, in the banks and savings &
loans sector, to limit the Fund's exposure to credit risk. That said, we had a
modest overweighting in financial stocks at the end of the period. We remained
of the view that many financial companies have good long-term prospects, recent
concerns over weakness in global financial markets notwithstanding (Freddie Mac,
for example, was the Fund's largest position at the end of the period). Factors
that stand to be support the group's long-term growth include favorable
demographic trends, most specifically, a maturing population's rising demand for
financial assets.
7
<PAGE>
WARBURG PINCUS ADVISOR CAPITAL APPRECIATION FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
We also increased our weighting in the health-care area, with a focus on
pharmaceutical stocks. These, too, stand to benefit from long-term population
trends, as aging baby boomers devote ever-more resources to health-care needs,
in particular to prescription products. We took advantage of periodic market
downturns to add several drug stocks we deemed to be attractively priced.
Another area we added to was the communications & media sector, emphasizing
companies that stand to benefit over the long term from cable's growing share of
the television market. Our increased weighting here also reflected our
heightened emphasis on companies that generate the bulk of their revenues from
domestic sources, given a slowing global economy.
Other weightings we raised included the technology area. This reflected, in
general, a strong decline in personal-computer inventory liquidations during the
latter part of the period. More importantly, our increased technology weighting
was based largely on the growth of the Internet, which stands to have a
potentially lucrative long-term impact on specific Internet-equipment companies.
In this context, stocks we added included EMC and Sun Microsystems.
Weightings we reduced included the energy area. We had limited exposure
here through much of the period, due to our general concerns regarding the
economy and weakness in commodity prices. That said, we continued to find stocks
here we deemed to be attractive, and held several integrated oil companies at
the end of the period.
Looking ahead, there are certainly grounds for optimism regarding the
longer-term prospects for stocks. Notably, the Federal Reserve, which reduced
interest rates twice near the end of the period and again in November, appears
to remain in an accommodative mode. This could result in further rate cuts at
home and abroad and stabilize some of the world's more-unsettled economies. That
said, we believe the global economy will continue to slow, at least over the
near term. In this context, we expect to remain biased in favor of
growth-oriented, as opposed to economically sensitive, areas of the market.
Susan L. Black
Portfolio Manager
8
<PAGE>
WARBURG PINCUS ADVISOR CAPITAL APPRECIATION FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS ADVISOR
CAPITAL APPRECIATION FUND SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in Warburg
Pincus Advisor Capital Appreciation Fund (the "Fund") from April 4, 1991
(inception) to October 31, 1998, compared to the S&P 500 Index* for the same
time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
CAPITAL APPRECIATION S&P 500
FUND INDEX
-------------------- -------
APR-91 9842.19 10030.40
MAY-91 10191.03 10444.05
JUN-91 9626.83 9971.98
JUL-91 10060.99 10445.85
AUG-91 10311.48 10678.06
SEP-91 9977.50 10501.34
OCT-91 10152.84 10653.08
NOV-91 9727.02 10213.22
DEC-91 10980.09 11378.96
JAN-92 10837.39 11180.51
FEB-92 10862.57 11314.90
MAR-92 10602.34 11096.29
APR-92 10610.73 11433.40
MAY-92 10870.96 11472.50
JUN-92 10638.69 11302.48
JUL-92 10974.56 11775.71
AUG-92 10722.65 11522.42
SEP-92 10890.59 11656.42
OCT-92 11150.89 11710.28
NOV-92 11562.33 12093.55
DEC-92 11761.67 12245.08
JAN-93 11974.71 12360.80
FEB-93 12063.48 12519.76
MAR-93 12551.70 12783.18
APR-93 12019.09 12488.52
MAY-93 12436.30 12801.36
JUN-93 12649.34 12840.92
JUL-93 12640.46 12802.65
AUG-93 13350.60 13273.02
SEP-93 13457.12 13170.82
OCT-93 13563.64 13456.10
NOV-93 13057.67 13312.93
DEC-93 13565.78 13477.34
JAN-94 13961.65 13945.54
FEB-94 13633.37 13558.14
MAR-94 12783.70 12969.85
APR-94 12745.08 13150.65
MAY-94 13121.64 13345.28
JUN-94 12725.77 13019.92
JUL-94 13102.33 13460.77
AUG-94 13729.92 13997.99
SEP-94 13565.78 13653.78
OCT-94 13729.92 13970.69
NOV-94 13131.29 13452.10
DEC-94 13109.42 13650.25
JAN-95 13036.48 14014.57
FEB-95 13672.15 14553.15
MAR-95 14339.08 14984.21
APR-95 14568.34 15436.59
MAY-95 14891.39 16030.74
JUN-95 15547.90 16406.02
JUL-95 16371.15 16961.69
AUG-95 16537.88 16991.21
SEP-95 16913.03 17707.22
OCT-95 16944.29 17654.80
NOV-95 17694.59 18414.31
DEC-95 18023.05 18771.18
JAN-96 18628.17 19419.16
FEB-96 19126.50 19590.25
MAR-96 19494.32 19781.84
APR-96 19719.76 20073.03
MAY-96 20087.58 20589.11
JUN-96 19838.41 20667.55
JUL-96 18948.53 19755.90
AUG-96 19660.43 20172.95
SEP-96 20882.54 21306.07
OCT-96 21036.78 21893.05
NOV-96 22306.35 23544.66
DEC-96 22116.70 23078.71
JAN-97 22959.75 24519.05
FEB-97 23144.16 24711.28
MAR-97 22274.77 23699.11
APR-97 23289.06 25111.81
MAY-97 24527.28 26637.86
JUN-97 25436.19 27829.64
JUL-97 27741.38 30041.26
AUG-97 26542.68 28361.05
SEP-97 28307.80 29912.11
OCT-97 27425.24 28916.04
NOV-97 28149.27 30251.96
DEC-97 28920.56 30772.30
JAN-98 28744.14 31112.02
FEB-98 30586.64 33352.71
MAR-98 32109.85 35060.70
APR-98 32848.38 35413.41
MAY-98 32046.88 34806.07
JUN-98 33729.34 36219.90
JUL-98 33793.43 35835.24
AUG-98 27896.47 30654.90
SEP-98 29852.02 32618.96
OCT-98 30780.42 35271.86
Average Annual
Total Returns
for periods ended
10/31/98
(Advisor Shares)
-----------------
1 year............................................... 12.23%
5 year............................................... 17.81%
Since Inception (4/4/91)............................. 15.98%
FUND
----
1 Year Total Return (9/30/97-9/30/98)....................... 5.45%
5 Year Average Annual Total Return (9/30/93-9/30/98)........ 17.27%
Average Annual Total Return Since Inception
(4/4/91-9/30/98).......................................... 15.70%
- ------------------
* The S&P 500 Index is an unmanaged index (with no defined investment objective)
of common stocks, includes reinvestment of dividends, and is a registered
trademark of Standard & Poor's Corporation.
9
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (45.2%)
Aerospace & Defense (1.2%)
Gulfstream Aerospace Corp. + 9,700 $ 429,225
----------
Banks & Savings & Loans (2.4%)
Citigroup, Inc. 6,000 282,375
Fleet Financial Group, Inc. 4,800 191,700
Washington Mutual, Inc. 10,375 388,414
----------
862,489
----------
Building & Building Materials (0.4%)
USG Corp.+ 3,000 143,062
----------
Business Services (0.9%)
Harte-Hanks Communications, Inc. 8,800 213,950
Robert Half International, Inc.+ 3,000 120,375
----------
334,325
----------
Chemicals (0.8%)
Avery-Dennison Corp. 3,700 153,319
Du Pont (E.I.) de Nemours & Co. 2,000 115,000
----------
268,319
----------
Communications & Media (1.8%)
CBS Corp. 4,340 121,249
Clear Channel Communications, Inc. + 2,500 113,906
MediaOne Group, Inc. + 5,800 245,412
Outdoor Systems, Inc. + 7,000 154,437
----------
635,004
----------
Computers (4.3%)
BMC Software, Inc. + 4,100 197,056
Citrix Systems, Inc.+ 2,400 170,100
COMPAQ Computer Corp. + 6,500 205,562
International Business Machines Corp. 3,200 475,000
National Instruments Corp.+ 3,000 82,125
Sun Microsystems, Inc.+ 7,000 407,750
----------
1,537,593
----------
Conglomerates (2.1%)
Harsco Corp. 6,900 225,975
TRW, Inc. 4,900 278,994
United Technologies Corp. 2,700 257,175
----------
762,144
----------
Consumer Durables (0.8%)
Ford Motor Co. 2,200 119,350
La-Z-Boy, Inc. 8,700 159,862
----------
279,212
----------
</TABLE>
See Accompanying Notes to Financial Statements.
10
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Consumer Non-Durables (1.3%)
Premark International, Inc. 12,100 $ 383,419
WestPoint Stevens, Inc.+ 2,400 68,250
----------
451,669
----------
Electronics (0.8%)
Intel Corp. 2,100 187,294
Maxim Integrated Products, Inc. + 2,600 92,787
----------
280,081
----------
Energy (1.4%)
Exxon Corp. 5,600 391,875
Occidental Petroleum Corp. 6,200 123,225
----------
515,100
----------
Environmental Services (1.0%)
Allied Waste Industries, Inc.+ 6,100 131,912
Waste Management, Inc. 4,600 207,575
----------
339,487
----------
Financial Services (7.6%)
Berkshire Hathaway, Inc. Class B+ 100 214,800
FINOVA Group, Inc. 5,000 243,750
Freddie Mac 6,200 356,500
Household International, Inc. 8,700 318,094
Legg Mason, Inc. 10,932 290,381
Lehman Brothers Holdings, Inc. 4,700 178,306
Life Re Corp. 1,000 93,312
MBIA, Inc. 1,800 110,025
Merrill Lynch & Co., Inc. 1,100 65,175
Metris Companies, Inc. 1,082 35,571
MGIC Investment Corp. 7,900 308,100
National Western Life Insurance Co. Class A+ 1,500 175,500
Old Republic International Corp. 4,100 77,900
Provident Cos., Inc. 3,000 87,187
Terra Nova (Bermuda) Holdings, Ltd. Class A 5,550 154,012
----------
2,708,613
----------
Food, Beverages & Tobacco (3.1%)
Anheuser-Busch Co., Inc. 5,600 332,850
Heinz (H.J.) Co. 3,700 215,062
Keebler Foods Co. + 6,000 172,500
Philip Morris Companies, Inc. 7,600 383,437
----------
1,103,849
----------
</TABLE>
See Accompanying Notes to Financial Statements.
11
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONT'D)
Healthcare (3.0%)
Baxter International, Inc. 1,700 $ 101,894
Becton, Dickinson & Co. 7,800 328,575
Tenet Healthcare Corp. + 8,500 237,469
Trigon Healthcare, Inc. + 11,100 416,250
----------
1,084,188
----------
Industrial Mfg. & Processing (1.3%)
Tyco International Ltd. 2,700 167,231
UNOVA, Inc. + 21,600 311,850
----------
479,081
----------
Metals & Mining (0.2%)
Universal Stainless & Alloy Products, Inc. + 11,500 78,703
----------
Pharmaceuticals (1.8%)
Bristol-Myers Squibb Co. 2,200 243,237
Merck & Co., Inc. 1,300 175,825
Warner-Lambert Co. 2,700 211,613
----------
630,675
----------
Real Estate (0.6%)
Healthcare Realty Trust, Inc. (REIT) 9,900 232,031
----------
Retail (2.6%)
CompUSA, Inc. + 10,600 147,075
Fingerhut Companies, Inc. 3,400 28,688
Home Depot, Inc. 5,100 221,850
May Department Stores Co. 3,300 201,300
Payless ShoeSource, Inc. + 1,200 56,325
Saks, Inc. 11,300 257,075
----------
912,313
----------
Telecommunications & Equipment (4.2%)
AT&T Corp. 1,400 87,150
Bell Atlantic Corp. 6,900 366,563
BellSouth Corp. 1,500 119,719
Intermedia Communications, Inc. + 3,000 55,500
MCI WorldCom, Inc. + 7,200 397,800
QUALCOMM, Inc. + 1,500 83,438
Qwest Communications International, Inc. 4,500 176,063
SBC Communications, Inc. 4,400 203,775
----------
1,490,008
----------
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONT'D)
Transportation (0.6%)
Landstar Systems, Inc. + 2,900 $ 102,950
M.S. Carriers, Inc. + 2,100 45,150
Mark VII, Inc. + 3,400 56,100
----------
204,200
----------
Utilities-Electric (1.0%)
Allegheny Energy, Inc. 2,600 79,950
American Electric Power Co., Inc. 2,900 141,919
Wisconsin Energy Corp. 4,700 143,938
----------
365,807
----------
TOTAL COMMON STOCKS (Cost $13,137,989) 16,127,178
----------
FOREIGN STOCKS (3.0%)
France (0.9%)
Rhone Poulenc SA ADR 2,350 109,716
Total SA ADR 3,910 228,735
----------
338,451
----------
Netherlands (0.6%)
Royal Dutch Petroleum Co. ADR 4,000 197,000
----------
United Kingdom (1.5%)
British Petroleum Co. PLC ADR 4,620 408,581
WPP Group PLC ADR 2,200 109,450
----------
518,031
----------
TOTAL FOREIGN STOCKS (Cost $986,105) 1,053,482
----------
PREFERRED STOCKS (2.5%)
Real Estate (1.9%)
Equity Residential Properties Trust Series C 9.125%
(REIT)(Callable 09/09/06 @ $25.00) 10,000 262,500
Ingersoll-Rand Co. 0.780% (Convertible 05/15/01) PRIDES 15,200 323,000
Prologis Trust Series C 8.540% (Callable 11/13/26 @
$50.00) 2,000 91,500
----------
677,000
----------
Industrial Mfg. & Processing (0.6%)
MediaOne Group, Inc. 9.100% (Mandatory Conversion
08/15/01 @ .8101/1.0 common share of ATI) 4,300 231,663
----------
TOTAL PREFERRED STOCKS (Cost $937,094) 908,663
----------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS+
(MOODY'S/S&P) RATE% MATURITY DATE PAR VALUE
------------- ----- ------------- --- -----
(000)
<S> <C> <C> <C> <C> <C>
U.S. CORPORATE BONDS (7.2%)
Banks & Savings & Loans (3.4%)
African Development Bank Debentures
(Yankee Bond 6.37) (Aa1, AA-) 9.300 07/01/00 $ 370 $ 395,900
Bayerische Landesbank Deposit Note
Series D (Callable 02/09/03 @
$100.00) (Aaa, AAA) 6.200 02/09/06 350 359,625
Countrywide Home Loan Medium Term
Note (A3, A) 6.380 10/08/02 250 252,188
Deutsche Bank Financial Notes (Aa2, AA+) 7.500 04/25/09 200 214,750
-----------
1,222,463
-----------
Financial Services (0.7%)
First Union Corp. Subordinated
Debentures (Putable 10/15/05 @
$100.00) (A2, A-) 6.550 10/15/35 250 258,125
-----------
Capital Equipment (0.7%)
Ingersoll-Rand Medium Term Note
(Putable 11/19/2003 @ $100.00) (A3, A-) 6.230 11/19/27 245 259,088
-----------
Retail (0.5%)
Lowe's Companies
(Putable 05/15/07 @ $100.00) (A2, A) 7.110 05/13/37 160 177,600
-----------
Industrial Mfg. & Processing (1.4%)
Philip Morris Cos. Inc.
(Putable 06/01/01 @ $100.00) (A2, A) 6.950 06/01/06 200 210,000
Times Mirror Co.
(Putable 09/15/04 @ $100.00) (A2, A+) 6.610 09/15/27 250 269,688
-----------
479,688
-----------
Utilities-Electric (0.5%)
Potomac Electric Power Co.
(Callable 05/15/02 @ $103.21) (A1, A) 8.500 05/15/27 150 163,500
-----------
TOTAL U.S. CORPORATE BONDS (Cost $2,466,161) 2,560,464
-----------
ASSET/MORTGAGE BACKED SECURITIES (13.2%)
Amresco Commercial Mortgage Funding I
Series 1997-C1 Class A1 (Aaa, AAA) 6.730 06/17/29 462 477,279
First USA Credit Card Master Trust
Series 1998-4 Class A (Aaa, AAA) 5.528 03/18/08 700 688,195
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS+
(MOODY'S/S&P) RATE% MATURITY DATE PAR VALUE
------------- ----- ------------- --- -----
(000)
<S> <C> <C> <C> <C> <C>
ASSET/MORTGAGE BACKED SECURITIES (cont'd)
GE Capital Mortgage Services, Inc.
Series 1994-7 Class A10 (Aaa, AAA) 6.000 02/25/09 $ 484 $ 490,184
General Motors Acceptance Corp.
Class A2 98 (Aaa, AAA) 6.700 01/08/08 500 518,423
Government National Mortgage
Association Pass Through Pool
#002217X (Aaa, AAA) 6.500 08/15/03 6 6,547
MBNA Master Credit Card Trust Series
1996-K Class A (Aaa, AAA) 5.720 03/15/06 480 479,232
MBNA Master Credit Card Trust Series
1998-J Class A (Aaa, AAA) 5.250 02/15/06 510 508,008
Morgan Stanley Mortgage Trust
Series 40 Class B (NR, AAA) 7.000 07/20/21 600 607,500
Mortgage Capital Funding
Series A2 9.55 AL (NR, AAA) 6.663 01/18/08 330 341,298
Nomura Asset Securities Corp. (Aaa, AAA) 6.690 03/16/13 600 616,545
-----------
TOTAL ASSET/MORTGAGE BACKED SECURITIES (Cost $4,680,158) 4,733,211
-----------
U.S. TREASURY OBLIGATIONS (14.0%)
U.S. Treasury Notes (5.2%)
U.S. Treasury Notes (Aaa, AAA) 6.375 08/15/02 350 373,960
U.S. Treasury Notes (Aaa, AAA) 6.125 08/15/07 1,355 1,496,659
-----------
1,870,619
-----------
U.S. Treasury Strip Notes (8.8%)
U.S. Treasury Strip (Aaa, AAA) 5.815# 05/15/02 1,255 1,076,763
U.S. Treasury Strip (Aaa, AAA) 5.636# 02/15/05 2,760 2,072,522
-----------
3,149,285
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $4,819,225) 5,019,904
-----------
AGENCY OBLIGATIONS (5.4%)
Fannie Mae (Aaa, AAA) 6.560 12/10/07 480 508,729
Fannie May Series 1998-M4 Class B
REMIC 98-M4 (Aaa, AAA) 6.424 12/25/23 600 612,669
Federal Home Loan Bank (Aaa, AAA) 5.500 07/14/00 380 385,441
Federal Home Loan Bank (Aaa, AAA) 5.125 09/15/03 410 414,637
-----------
TOTAL AGENCY OBLIGATIONS (Cost $1,888,133) 1,921,476
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
(000)
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.6%)
Repurchase agreement with State Street Bank & Trust Co.
dated 10/30/98 at 5.40% to be repurchased at $3,062,377
on 11/02/98. (Collateralized by a pro rata amount of U.S.
Treasury Notes ranging in par values from
$21,390,000-$50,000,000, 3.375%-5.500%,
02/28/03-04/15/28. Pro rata market value of collateral is
$3,122,237.) (Cost $3,061,000) 3,061 $ 3,061,000
-----------
TOTAL INVESTMENTS AT VALUE (99.1%) (Cost $31,975,865*) 35,385,378
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%) 324,335
-----------
NET ASSETS (100.0%) (applicable to 2,632,260 Common Shares
and 12,473 Advisor Shares) $35,709,713
===========
NET ASSET VALUE, offering and redemption price per Common
Share ($35,541,713 divided by 2,632,260) $ 13.50
===========
NET ASSET VALUE, offering and redemption price per Advisor
Share ($168,000 divided by 12,473) $ 13.47
===========
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
NR = Not Rated
REIT = Real Estate Investment Trust
REMIC = Real Estate Mortgage Investment Conduit
PRIDES = Preferred Redeemable Increased Dividends Equity Securities
- --------------------------------------------------------------------------------
+ Non-income producing security.
+ Credit Ratings by Moody's Investors Service Inc. and Standard & Poor's Ratings
Group are unaudited.
# Rate shown reflects yield to maturity on date of purchase.
* Cost for federal income tax purposes is $32,010,568.
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (86.9%)
Aerospace & Defense (4.8%)
General Dynamics Corp. 181,000 $ 10,712,937
Gulfstream Aerospace Corp. + 189,700 8,394,225
Litton Industries, Inc. + 130,500 8,515,125
Raytheon Co. 193,500 10,836,000
------------
38,458,287
------------
Banks & Savings & Loans (3.2%)
Citigroup Inc. 345,000 16,236,562
Washington Mutual, Inc. 257,800 9,651,387
------------
25,887,949
------------
Building & Building Materials (1.5%)
USG Corp. + 250,200 11,931,412
------------
Business Services (1.0%)
WPP Group PLC 910,100 4,526,736
WPP Group PLC ADR 68,500 3,407,875
------------
7,934,611
------------
Capital Equipment (3.9%)
AlliedSignal, Inc. 172,000 6,697,250
American Standard Companies + 170,500 5,445,344
Caterpillar, Inc. 47,600 2,142,000
Emerson Electric Co. 99,800 6,586,800
ITT Industries, Inc. 295,300 10,556,975
------------
31,428,369
------------
Chemicals (2.4%)
Ferro Corp. 178,500 4,551,750
Rhone-Poulenc SA ADR Series A 166,086 7,754,140
Union Carbide Corp. 178,800 6,883,800
------------
19,189,690
------------
Communications & Media (0.5%)
Scripps (E.W.) Co. Class A 84,000 3,717,000
------------
Computers (6.4%)
COMPAQ Computer Corp. + 348,200 11,011,825
International Business Machines Corp. 159,700 23,705,469
Sun Microsystems, Inc. + 236,900 13,799,425
Unisys Corp. + 95,100 2,532,037
------------
51,048,756
------------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Conglomerates (3.2%)
Harsco Corp. 254,150 $ 8,323,412
TRW, Inc. 183,200 10,430,950
United Technologies Corp. 69,500 6,619,875
------------
25,374,237
------------
Consumer Durables (3.6%)
Chrysler Corp. 207,800 10,000,375
Ford Motor Co. 275,900 14,967,575
Maytag Corp. 76,565 3,785,182
------------
28,753,132
------------
Consumer Non-Durables (1.3%)
Premark International, Inc. 338,400 10,723,050
------------
Electronics (1.0%)
Dallas Semiconductor Corp. 149,800 5,542,600
Tektronix, Inc. 155,400 2,777,775
------------
8,320,375
------------
Energy (6.7%)
British Petroleum Co. PLC ADR 295,087 26,096,757
Burlington Resources, Inc. 192,500 7,928,594
Royal Dutch Petroleum Co. ADR 132,100 6,505,925
Total SA ADR 225,200 13,174,200
------------
53,705,476
------------
Environmental Services (1.5%)
Waste Management, Inc. 262,600 11,849,825
------------
Financial Services (10.5%)
American Express Co. 79,750 7,047,906
Associates First Capital Corp. Class A 46,887 3,305,533
Fannie Mae 87,400 6,189,012
FINOVE Group, Inc. 160,300 7,814,625
Household International, Inc. 124,900 4,566,656
Lehman Brothers Holdings, Inc. 390,500 14,814,594
MBIA, Inc. 212,800 13,007,400
MGIC Investment Corp. 179,100 6,984,900
Old Republic International Corp. 242,900 4,615,100
PMI Group, Inc. 234,900 11,847,769
Terra Nova Bermuda Holdings, Ltd. Class A 152,800 4,240,200
------------
84,433,695
------------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Food, Beverages & Tobacco (8.1%)
Anheuser-Busch Companies, Inc. 317,000 $ 18,841,687
Corn Products International, Inc. 167,900 4,785,150
Heinz (H.J.) Co. 84,800 4,929,000
Interstate Bakeries Corp. 49,800 1,248,113
Keebler Foods Co. 263,600 7,578,500
Philip Morris Companies, Inc. 313,800 16,043,025
Ralston Purina Group 170,800 5,700,450
Sara Lee Corp. 99,500 5,938,906
------------
65,064,831
------------
Healthcare (4.5%)
Baxter International, Inc. 177,200 10,620,925
Tenet Healthcare Corp. + 207,050 5,784,459
Trigon Healthcare, Inc. + 315,150 11,818,125
Wellpoint Health Networks, Inc. 104,400 7,686,450
------------
35,909,959
------------
Industrial Mfg. & Processing (1.7%)
UNOVA, Inc. 921,400 13,302,713
------------
Metals & Mining (1.1%)
Aluminum Company of America 107,554 8,523,655
------------
Office Equipment & Supplies (0.6%)
Pitney Bowes, Inc. 88,800 4,889,550
------------
Pharmaceuticals (1.2%)
Merck & Co., Inc. 70,050 9,474,263
------------
Publishing (0.5%)
Donnelley (R.R.) & Sons Co. 102,000 4,398,750
------------
Real Estate (0.2%)
Equity Residential Properties Trust 45,800 1,923,600
------------
Retail (6.4%)
CompUSA, Inc. + 255,800 3,549,225
Consolidated Stores Corp. 380,000 6,246,250
Federated Department Stores 415,700 15,978,469
May Department Stores Co. 148,400 9,052,400
Payless ShoeSource, Inc. + 74,512 3,497,407
Sak's Inc. 186,175 4,235,481
Sears, Roebuck and Co. 185,300 8,326,919
------------
50,886,151
------------
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Telecommunications & Equipment (7.8%)
ALLTEL Corp. 81,600 $ 3,819,900
Ameritech Corp. 193,600 10,442,300
AT&T Corp. 236,800 14,740,800
Bell Atlantic Corp. 305,240 16,215,875
BellSouth Corp. 103,400 8,252,613
SBC Communications, Inc. 186,500 8,637,281
------------
62,108,769
------------
Transportation (0.6%)
Burlington Northern Santa Fe Corp. 150,300 4,640,513
------------
Utilities-Electric (2.7%)
Allegheny Energy, Inc. 178,700 5,495,025
American Electric Power Co., Inc. 113,600 5,559,300
DQE, Inc. 48,400 1,908,775
Illinova Corp. 118,500 2,999,531
Wisconsin Energy Corp. 175,100 5,362,438
------------
21,325,069
------------
TOTAL COMMON STOCKS (Cost $599,446,220) 695,203,687
------------
CONVERTIBLE PREFERRED STOCK (2.8%)
Telecommunications & Equipment (0.8%)
AirTouch Communications, Inc. Series B 6.00% Convertible
(Callable 08/16/99 @ $35.96) 142,700 6,564,200
Real Estate (0.7%)
Equity Residential Properties Series G 7.25% Convertible
(Callable 09/15/02 @ $25.91) 238,500 5,470,594
Capital Equipment (0.9%)
Ingersoll-Rand Co. 0.78% (Convertible 5/15/01), PRIDES 344,300 7,316,375
Industrial Mfg. & Processing (0.4%)
Mediaone Group, Inc. 6.25% 59,100 3,184,013
------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $21,262,198) 22,535,182
------------
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS PAR
MOODY'S/S&P+ RATE% MATURITY DATE (000) VALUE
----------------- ----- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS (0.9%)
National Semiconductor
Corp. (Convertible) (Ba2,BB) 6.50 10/01/2002 $ 4,480 $ 3,634,400
Rite Aid Corp. Convertible
Notes (Callable 09/15/00
@ $102.10) (Baa2, BBB) 5.25 09/15/2002 2,999 3,823,725
------------
TOTAL CORPORATE BONDS
(Cost $7,397,838) 7,458,125
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (10.1%)
<S> <C> <C>
Repurchase Agreement with State Street Bank & Trust Co.
dated 10/30/98 at 5.400% to be repurchased at $80,557,234
on 11/02/98. (Collateralized by a pro rata amount of U.S.
Treasury Notes ranging in par values from
$21,390,000-$50,000,000, 3.375%-5.500%,
02/28/03-04/15/28. Pro rata market value of collateral is
$82,131,420.) (Cost $80,521,000) 80,521 80,521,000
------------
TOTAL INVESTMENTS AT VALUE (100.7%) (Cost $708,627,192*) 805,717,994
LIABILITIES IN EXCESS OF OTHER ASSETS (.7%) (5,512,358)
------------
NET ASSETS (100.0%) (applicable to 41,476,221 Common Shares
and 5,683,281 Advisor Shares) $800,205,636
============
NET ASSET VALUE, offering and redemption price per Common
Share (703,808,212 divided by 41,476,221) $ 16.97
============
NET ASSET VALUE, offering and redemption price per Advisor
Share (96,397,424 divided by 5,683,281) $ 16.96
============
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
PRIDES = Preferred Redeemable Increased Dividends
Equity Securities
- --------------------------------------------------------------------------------
+ Non-income producing security.
+ Credit ratings given by Moody's Investor Service Inc. and Standard & Poor's
Ratings Group are unaudited.
* Cost for federal income tax purposes is $709,464,997.
See Accompanying Notes to Financial Statements.
21
<PAGE>
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (94.5%)
Aerospace & Defense (0.8%)
General Dynamics Corp. 88,200 $ 5,220,337
------------
Agriculture (0.8%)
Monsanto Co. 128,700 5,228,437
------------
Banks & Savings & Loans (3.5%)
Bank of New York Co., Inc. 235,800 7,442,437
Citigroup, Inc. 177,000 8,330,063
Northern Trust Corp. 107,500 7,928,125
------------
23,700,625
------------
Building & Building Materials (0.4%)
USG Corp.+ 55,200 2,632,350
------------
Business Services (2.0%)
Computer Sciences Corp.+ 126,700 6,683,425
Omnicom Group, Inc. 131,700 6,510,919
------------
13,194,344
------------
Chemicals (1.7%)
Avery-Dennison Corp. 246,600 10,218,487
Ciba Specialty Chemicals Holdings, Inc. ADR+ 19,730 1,012,658
------------
11,231,145
------------
Communications & Media (9.6%)
CBS Corp. 484,400 13,532,925
Clear Channel Communications, Inc.+ 53,000 2,414,812
Cox Communications, Inc. Class A+ 53,500 2,935,812
Mediaone Group, Inc.+ 356,300 15,075,944
Tele-Communications Liberty Media, Inc. Series A+ 285,300 10,859,231
Time Warner, Inc. 70,800 6,571,125
Viacom, Inc. Class B+ 226,300 13,549,712
------------
64,939,561
------------
Computers (10.3%)
Automatic Data Processing, Inc. 100,600 7,827,937
BMC Software, Inc.+ 60,200 2,893,362
Dell Computer Corp.+ 100,900 6,621,562
EMC Corp.+ 321,100 20,670,812
International Business Machines Corp. 59,000 8,757,812
Microsoft Corp.+ 112,500 11,910,937
Sun Microsystems, Inc.+ 181,200 10,554,900
------------
69,237,322
------------
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Conglomerates (1.6%)
General Electric Co. 70,500 $ 6,168,750
Oglebay Norton Co. 184,000 4,761,000
------------
10,929,750
------------
Consumer Non-Durables (0.6%)
Colgate-Palmolive Co. 44,500 3,932,688
------------
Consumer Services (0.7%)
DeVRY, Inc.+ 209,800 4,615,600
------------
Electronics (1.8%)
Intel Corp. 136,700 12,191,931
------------
Energy (4.6%)
British Petroleum Co. PLC ADR 70,200 6,208,313
Exxon Corp. 171,900 12,247,875
Mobil Corp. 80,800 6,115,550
Royal Dutch Petroleum Co. ADR 127,600 6,284,300
------------
30,856,038
------------
Environmental Services (0.5%)
Waste Management, Inc. 75,900 3,424,988
------------
Financial Services (10.9%)
American Express Corp. 70,000 6,186,250
Associates First Capital Corp. Class A 41,000 2,890,500
Berkshire Hathaway, Inc. Class A+ 120 7,740,000
Berkshire Hathaway, Inc. Class B+ 1,440 3,093,120
Freddie Mac 476,300 27,387,250
Household International, Inc. 197,100 7,206,469
MBIA, Inc. 26,900 1,644,263
Nationwide Financial Services, Inc. 127,600 5,295,400
Provident Companies, Inc. 175,800 5,109,188
SunAmerica, Inc. 101,900 7,183,950
------------
73,736,390
------------
Food, Beverages & Tobacco (4.8%)
Heinz (H.J.) Co. 104,900 6,097,313
Hershey Foods Corp. 59,700 4,048,406
Keebler Foods Co.+ 335,300 9,639,875
Philip Morris Companies, Inc. 249,600 12,760,800
------------
32,546,394
------------
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Healthcare (7.1%)
Becton, Dickinson & Co. 447,800 $ 18,863,575
Covance, Inc.+ 250,000 6,968,750
Guidant Corp. 50,800 3,886,200
Johnson & Johnson 97,400 7,938,100
McKesson Corp. 83,100 6,398,700
Omnicare, Inc. 100,500 3,473,531
Trigon Healthcare, Inc.+ 9,000 337,500
------------
47,866,356
------------
Industrial Mfg. & Processing (1.8%)
Tyco International, Ltd. 194,000 12,015,875
------------
Leisure & Entertainment (0.5%)
Carnival Corp. 100,800 3,263,400
------------
Office Equipment & Supplies (1.4%)
Pitney Bowes, Inc. 117,600 6,475,350
Xerox Corp. 31,100 3,012,813
------------
9,488,163
------------
Pharmaceuticals (11.5%)
American Home Products Corp. 141,500 6,898,125
Bristol-Myers Squibb Co. 113,200 12,515,675
Lilly (Eli) & Co. 126,000 10,198,125
Merck & Co., Inc. 43,300 5,856,325
Pfizer, Inc. 86,000 9,228,875
Pharmacia & Upjohn, Inc. ADR 118,100 6,251,919
Schering-Plough Corp. 89,400 9,197,025
Warner Lambert Co. 218,300 17,109,263
------------
77,255,332
------------
Publishing (2.8%)
Harcourt General, Inc. 121,600 5,920,400
Wiley (John) & Sons, Inc. Class A 357,000 13,052,813
------------
18,973,213
------------
Retail (6.2%)
CVS Corp. 289,500 13,226,531
Dayton Hudson Corp. 55,500 2,351,813
Home Depot, Inc. 236,700 10,296,450
Rite Aid Corp. 190,000 7,540,625
Safeway, Inc.+ 172,400 8,242,875
------------
41,658,294
------------
</TABLE>
See Accompanying Notes to Financial Statements.
24
<PAGE>
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Telecommunications & Equipment (7.1%)
Bell Atlantic Corp. 214,300 $ 11,384,688
BellSouth Corp. 72,600 5,794,388
Cisco Systems, Inc.+ 225,300 14,193,900
GTE Corp. 55,600 3,263,025
MCI WorldCom, Inc.+ 256,600 14,177,150
------------
48,813,151
------------
Transportation (1.5%)
Kansas City Southern Industries, Inc. 253,400 9,787,575
------------
TOTAL COMMON STOCK (Cost $497,390,476) 636,739,259
------------
PREFERRED STOCK (0.0%)
Healthcare (0.0%)
Fresenius National Medical Care, Inc. Class D+ (Cost
$18,552) 90,000 2,025
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-------
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.1%)
Repurchase agreement with State Street Bank & Trust Co.,
dated 10/30/98 at 5.400% to be repurchased at $54,286,415
on 11/02/98. (Collateralized by a pro rata amount of
U.S. Treasury Notes ranging in par values from
$21,390,000-$50,000,000, 3.375%-5.500%, 02/28/03-04/15/28.
Pro rata market value of collateral is $55,347,240.)
(Cost $54,262,000) 54,262 $ 54,262,000
------------
TOTAL INVESTMENTS AT VALUE (102.6%) (Cost $551,671,028*) 691,003,284
LIABILITIES IN EXCESS OF OTHER ASSETS (2.6%) (17,509,604)
------------
NET ASSETS (100.0%)(applicable to 33,130,500 Common Shares
and 1,396,955 Advisor Shares) $673,493,680
============
NET ASSET VALUE, offering and redemption price per Common
Share ($646,657,237 divided by 33,130,500) $ 19.52
============
NET ASSET VALUE, offering and redemption price per Advisor
Share ($26,836,443 divided by 1,396,955) $ 19.21
============
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $554,806,008.
See Accompanying Notes to Financial Statements.
25
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
BALANCED GROWTH & INCOME
FUND FUND
-------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 278,294 $12,776,192
Interest 938,830 3,842,652
Foreign taxes withheld (6,599) (177,214)
---------- -----------
Total investment income 1,210,525 16,441,630
---------- -----------
EXPENSES:
Investment advisory 350,839 6,112,330
Administrative services 112,456 1,919,153
Audit 15,103 27,333
Custodian/Sub-custodian 10,362 135,132
Directors/Trustees 10,665 11,236
Insurance 784 24,369
Interest 45 1,500
Legal 75,010 95,974
Printing 16,429 86,448
Registration 31,144 123,874
Shareholder servicing/distribution 97,887 502,703
Transfer agent 46,898 1,033,163
Miscellaneous 1,695 18,597
---------- -----------
769,317 10,091,812
Less: fees waived, expenses reimbursed and transfer agent
fee offsets (242,628) (31,076)
---------- -----------
Total expenses 526,689 10,060,736
---------- -----------
Net investment income (loss) 683,836 6,380,894
---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 2,812,164 24,894,866
Net realized loss from foreign currency related items (135) (3,613)
Net change in unrealized appreciation (depreciation) from
investments and foreign currency related items (1,287,911) 24,414,986
---------- -----------
Net realized and unrealized gain (loss) from
investments and foreign currency related items 1,524,118 49,306,239
---------- -----------
Net increase in net assets resulting from operations $2,207,954 $55,687,133
========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
26
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS
CAPITAL APPRECIATION
FUND
--------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 5,886,859
Interest 1,486,406
Foreign taxes withheld (105,898)
-----------
Total investment income 7,267,367
-----------
EXPENSES:
Investment advisory 4,861,495
Administrative services 1,343,563
Audit 25,221
Custodian/Sub-custodian 120,524
Directors/Trustees 13,489
Insurance 12,108
Interest 2,000
Legal 54,579
Offering/Organizational costs 0
Printing 67,342
Registration 86,256
Shareholder servicing/distribution 166,239
Transfer agent 317,453
Miscellaneous 12,801
-----------
7,083,070
Less: fees waived, expenses reimbursed and transfer agent
fee offsets (26,515)
-----------
Total expenses 7,056,555
-----------
Net investment income (loss) 210,812
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 29,522,830
Net change in unrealized appreciation (depreciation) from
investments and foreign currency related items 48,854,862
-----------
Net realized and unrealized gain (loss) from investments
and foreign currency related items 78,377,692
-----------
Net increase in net assets resulting from operations $78,588,504
===========
</TABLE>
See Accompanying Notes to Financial Statements.
27
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS
BALANCED FUND
-----------------------------------------------------
FOR THE
FOR THE TWO MONTHS FOR THE
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997 AUGUST 31, 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 683,836 $ 92,017 $ 621,101
Net realized gain (loss) from security
transactions 2,812,164 1,219,920 2,259,328
Net realized gain (loss) from foreign currency
related items (135) 590 (1,211)
Net change in unrealized appreciation
(depreciation) from investments and foreign
currency related items (1,287,911) (755,058) 4,514,953
----------- ----------- -----------
Net increase in net assets resluting from
operations 2,207,954 557,469 7,394,171
----------- ----------- -----------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (719,467) (125,542) (655,603)
Advisor Shares (2,872) (385) (1,449)
Distributions from realized gains:
Common Shares (3,441,034) 0 (395,800)
Advisor Shares (14,992) 0 (809)
----------- ----------- -----------
Net decrease in net assets from distributions (4,178,365) (125,927) (1,053,661)
----------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 11,352,063 2,285,470 19,977,419
Reinvested dividends 4,064,531 122,038 1,014,239
Net asset value of shares redeemed (16,188,224) (3,462,909) (19,120,778)
----------- ----------- -----------
Net increase (decrease) in net assets from
capital share transactions (771,630) (1,055,401) 1,870,880
----------- ----------- -----------
Net increase (decrease) in net assets (2,742,041) (623,859) 8,211,390
NET ASSETS:
Beginning of period 38,451,754 39,075,613 30,864,223
----------- ----------- -----------
End of period $35,709,713 $38,451,754 $39,075,613
=========== =========== ===========
Undistributed net investment income $ 74,933 $ 38,284 $ 71,417
=========== =========== ===========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
GROWTH & INCOME FUND CAPITAL APPRECIATION FUND
------------------------------------------ ---------------------------
FOR THE FOR THE
FOR THE TWO MONTHS FOR THE YEAR ENDED
YEAR ENDED ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, OCTOBER 31, AUGUST 31, ---------------------------
1998 1997 1997 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 6,380,894 $ 839,400 $ 4,686,277 $ 210,812 $ 2,836,298
Net realized gain (loss) from security
transactions 24,894,866 24,005,015 88,134,951 29,522,830 111,900,128
Net realized gain (loss) from foreign currency
related items (3,613) 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and foreign
currency related items 24,414,986 (19,596,522) 41,534,862 48,854,862 25,907,351
------------ ------------ ------------ ------------ ------------
Net increase in net assets resluting from
operations 55,687,133 5,247,893 134,356,090 78,588,504 140,643,777
------------ ------------ ------------ ------------ ------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (5,674,968) (1,281,060) (4,434,607) (2,188,710) (2,397,108)
Advisor Shares (427,925) (90,595) (348,996) 0 (7,341)
Distributions from realized gains:
Common Shares (96,860,727) 0 0 (106,778,405) (44,111,908)
Advisor Shares (14,171,470) 0 0 (6,058,534) (2,454,855)
------------ ------------ ------------ ------------ ------------
Net decrease in net assets from distributions (117,135,090) (1,371,655) (4,783,603) (115,025,649) (48,971,212)
------------ ------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 386,958,954 45,408,918 276,013,445 232,010,450 230,321,097
Reinvested dividends 113,559,285 1,309,646 4,560,726 111,165,032 45,501,901
Net asset value of shares redeemed (334,997,984) (40,487,822) (531,312,507) (254,936,850) (176,950,390)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
capital share transactions 165,520,255 6,230,742 (250,738,336) 88,238,632 98,872,608
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets 104,072,298 10,106,980 (121,165,849) 51,801,488 190,545,173
NET ASSETS:
Beginning of period 696,133,338 686,026,358 807,192,207 621,692,192 431,147,019
------------ ------------ ------------ ------------ ------------
End of period $800,205,636 $696,133,338 $686,026,358 $673,493,680 $621,692,192
============ ============ ============ ============ ============
Undistributed net investment income $ 277,849 $ 0 $ 577,858 $ 99,693 $ 2,077,591
============ ============ ============ ============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
29
<PAGE>
WARBURG PINCUS BALANCED FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997** 1997# 1996# 1995##
PERIOD ENDED: -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 14.37 $ 14.22 $ 11.94 $ 11.13 $ 10.72
-------- ------- ------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.21 0.03 (0.02) 0.37 0.01
Net gains or losses on investments (both realized
and unrealized) 0.41 0.15 2.68 0.68 0.39
-------- ------- ------- ------- -------
Total from investment activities 0.62 0.18 2.65 1.05 0.41
-------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment income (0.23) (0.04) (0.22) (0.09) --
From realized capital gains (1.29) -- (0.15) (0.15) --
-------- ------- ------- ------- -------
Total distributions (1.52) (0.04) (0.37) (0.24) --
-------- ------- ------- ------- -------
Net asset value, end of period $ 13.47 $ 14.37 $ 14.22 $ 11.94 $ 11.13
======== ======= ======= ======= =======
Total return 4.93% 1.30%+ 22.66% 9.56% 3.82%+
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 168 $ 158 $ 149 $ 12 $ 1
Ratio of expenses to average net assets 1.60%@ 1.60%*@ 1.60%@ 1.71%@ 1.76%*
Ratio of net income to average net assets 1.52% 1.13%* 1.53% (4.11)% 2.00%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 1.19%* 1.35%* 1.21% 203.35% 626.71%*
Portfolio turnover rate 132.01% 15%+ 120% 108% 107%+
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to
offset portions of transfer agent expense. These
arrangements had no effect on the Fund's expense ratio.
+ Non-annualized.
* Annualized.
** For the two months ended October 31, 1997.
# For the years ended August 31.
## For the period July 31, 1995 (Commencement of Operations) to
August 31, 1995.
30
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997** 1997# 1996# 1995##
PERIOD ENDED: -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 18.55 $ 18.42 $ 14.88 $ 16.38 $ 14.87
-------- ------- ------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income 0.10 0.01 0.07 0.08 0.02
Net gains or losses on investments (both
realized and unrealized) 1.35 0.14 3.55 (0.69) 1.53
-------- ------- ------- ------- -------
Total from investment activities 1.45 0.15 3.62 (0.61) 1.56
-------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment income (0.09) (0.02) (0.08) (0.07) (0.05)
From realized capital gains (2.95) -- -- (0.81) --
-------- ------- ------- ------- -------
Total distributions (3.04) (0.02) (0.08) (0.89) (0.05)
-------- ------- ------- ------- -------
Net asset value, end of period $ 16.96 $ 18.55 $ 18.42 $ 14.88 $ 16.38
======== ======= ======= ======= =======
Total return 8.70% .81%+ 24.37% (3.92)% 10.49%+
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 96,397 $87,929 $84,867 $79,565 $56,902
Ratio of expenses to average net assets 1.55%@ 1.58%*@ 1.54%@ 1.59%@ 1.92%*
Ratio of net income to average net assets .47% .35%* .43% .28% .43%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .00% .00% .00% .00%
Portfolio turnover rate 78.33% 19%+ 148% 94% 109%*
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to
offset portions of transfer agent expense. These
arrangements had no effect on the Fund's expense ratio.
+ Non-annualized.
* Annualized.
** For the two months ended October 31, 1997.
# For the years ended August 31.
## For the period May 15, 1995 (Commencement of Operations) to
August 31, 1995.
31
<PAGE>
WARBURG PINCUS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
PERIOD ENDED: ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 20.82 $ 17.73 $ 16.26 $ 14.22 $ 15.28 $ 13.28
------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.09) 0.02 0.02 -- (0.08) --
Net gains or losses on investments
(both realized and unrealized) 2.29 4.88 3.49 3.02 .23 2.76
------- ------- ------- ------- ------- -------
Total from investment activities 2.20 4.90 3.51 3.02 0.15 2.76
------- ------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment income -- (0.01) -- -- (0.02) --
From realized capital gains (3.81) (1.80) (2.04) (0.98) (1.19) (0.76)
------- ------- ------- ------- ------- -------
Total distributions (3.81) (1.81) (2.04) (0.98) (1.21) (0.76)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 19.21 $ 20.82 $ 17.73 $ 16.26 $ 14.22 $ 15.28
======= ======= ======= ======= ======= =======
Total return 12.23% 30.37% 24.15% 23.41% 1.23% 21.64%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $26,836 $34,601 $23,440 $11,594 $ 8,169 $10,437
Ratio of expenses to average net
assets 1.43%@ 1.48%@ 1.54%@ 1.62% 1.55% 1.51%
Ratio of net income to average net
assets (.39)% .08% .09% (.18)% (.24)% (.25)%
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements -- -- -- -- .01% --
Portfolio turnover rate 168.67% 238.11% 170.69% 146.09% 51.87% 48.26%
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to
offset portions of transfer agent expense. These
arrangements resulted in a reduction to the Advisor Shares
net expense ratio by .00% for the year ended October 31,
1998 and by .00% and .01% for the year or period ended
October 31, 1997 and 1996, respectively. The Advisor Shares'
operating expense ratio after reflecting these arrangements
were 1.43% for the year ended October 31, 1998, 1.48% and
1.53% for the year or period ended October 31, 1997 and
1996, respectively.
See Accompanying Notes to Financial Statements.
32
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Balanced Fund (the "Balanced Fund"), Warburg Pincus
Growth & Income Fund (the "Growth & Income Fund"), and the Warburg Pincus
Capital Appreciation Fund (the "Capital Appreciation Fund") are registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as diversified,
open-end management investment companies.
Investment objectives for each Fund are as follows: the Balanced Fund seeks
maximum total return through a combination of long-term growth of capital and
current income consistent with preservation of capital; the Growth and Income
Fund seeks long-term growth of capital and income and a reasonable current
return; the Capital Appreciation Fund seeks long-term capital appreciation.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. Common and
Advisor Shares in each Fund represent an equal pro rata interest in such Fund,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Common Shares for the Balanced Fund bear
expenses paid pursant to a shareholder servicing and distribution plan adopted
at an annual rate not to exceed .25% of the average daily net asset value of
each Fund's outstanding Common Shares. Advisor Shares for each Fund bear
expenses paid pursuant to a distribution plan adopted by each Fund at an annual
rate not to exceed .75% of the average daily net asset value of each Fund's
outstanding Advisor Shares. Advisor Shares are currently bearing expenses of
.50% of average daily net assets.
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 investments are
valued at market value, which is generally determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
mean between the last reported bid and asked price. In the absence of market
quotations, investments are generally valued at fair value as determined by or
under the direction of the Fund's Board. Short-term investments that mature in
60 days or less are valued on the basis of amortized cost, which approximates
market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
33
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Funds do not isolate that portion of
realized gains and losses on investments in equity securities which are due to
changes in the foreign exchange rate from that which are due to changes in
market prices of equity securities. The Funds isolate that portion of realized
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on a trade date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date. Income, expenses (excluding class-specific expenses,
principally distribution, shareholder servicing fees and transfer agent fees)
and realized/unrealized gains/losses are allocated proportionately to each class
of shares based upon the relative net asset value of outstanding shares.
Effective November 1, 1998, class-specific expenses no longer include transfer
agent fees; accordingly these fees will be allocated proportionately based upon
the relative net asset value of outstanding shares. The cost of investments sold
is determined by use of the specific identification method for both financial
reporting and income tax purposes.
Dividends from net investment income, if any, are declared and paid
annually (except with respect to the Growth & Income Fund and the Balanced Fund
which dividends, if any, are paid quarterly). Distributions of net realized
capital gains, if any, are declared and paid annually for all Funds. However, to
the extent that a net realized capital gain can be reduced by a capital loss
carryover, such gain will not be distributed. Income and capital gain
distributions are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles.
No provision is made for federal taxes as it is each Fund's intention to
continue 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.
34
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
Costs incurred in connection with organization and offering of shares have
been deferred and are being amortized over a period of five years and one year,
respectively, from the date each Fund commenced its operations.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, each Fund, along with other Warburg Funds, transfers uninvested cash
balances to a pooled cash account, which is invested in repurchase agreements
secured by U.S. government securities. Securities, pledged as collateral for
repurchase agreements, are held by the Funds' custodian bank until the
agreements mature. Each agreement requires that the market value of the
collateral be sufficient to cover payments of interest and principal; however,
in the event of default or bankruptcy by the counterparty to the agreement,
retention of the collateral may be subject to legal proceedings.
The preparation of financial statements in conformity with generally
accepted accounting principles 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 these
estimates.
The Funds have an arrangement with their transfer agent whereby interest
earned on uninvested cash balances was used to offset a portion of the transfer
agent expense. For the year ended October 31, 1998, the Funds received credits
or reimbursements under this arrangement as follows:
FUND AMOUNT
- ---- -------
Balanced $ 1,505
Growth & Income 31,076
Capital Appreciation 26,515
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, which is indirectly controlled by Warburg, Pincus & Co., serves as
each Fund's investment adviser. For its advisory services, Warburg is entitled
to receive the following fees based on each Fund's average daily net assets:
FUND ANNUAL RATE
- ---- -----------
Balanced .90% of average daily net assets
Growth & Income .75% of average daily net assets
Capital Appreciation .70% of average daily net assets
35
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR -- (CONT'D)
For the year ended October 31, 1998, investment advisory fees, voluntary
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ---- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Balanced $ 350,839 $ (180,006) $ 170,833 $ (2,644)
Growth & Income 6,112,330 0 6,112,330 0
Capital Appreciation 4,861,495 0 4,861,495 0
</TABLE>
Counsellors Funds Service, Inc. ("CFSI"), a wholly-owned subsidiary of
Warburg, and PFPC Inc. ("PFPC"), an indirect, wholly-owned subsidiary of PNC
Bank Corp. ("PNC"), serve as each Fund's co-administrators. For administrative
services, CFSI currently receives a fee calculated at an annual rate of .10% of
each Fund's average daily net assets. For the year ended October 31, 1998,
administrative services fees earned by CFSI were as follows:
FUND CO-ADMINISTRATION FEE
- ---- ---------------------
Balanced $ 38,982
Growth & Income 849,366
Capital Appreciation 694,499
For administrative services, PFPC currently receives a fee calculated at an
annual rate of .10% on each Fund's first $500 million in average daily net
assets, .075% on the next $1 billion in average daily net assets and .05% of
average daily net assets in excess of $1.5 billion (for the Growth & Income Fund
and the Balanced Fund, .15% of each Fund's first $500 million of average daily
net assets, .10% of the next $1 billion and .05% of each Fund's average daily
net assets over $1.5 billion).
For the year ended October 31, 1998, administrative service fees earned and
voluntarily waived by PFPC (including out-of-pocket) were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- ---- --------------------- -------- ---------------------
<S> <C> <C> <C>
Balanced $ 73,474 $(58,473) $ 15,001
Growth & Income 1,069,787 0 1,069,787
Capital Appreciation 649,064 0 649,064
</TABLE>
Counsellors Securities Inc. ("CSI"), also a wholly-owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund or the Growth & Income Fund to CSI for distribution
services. For its distribution services, CSI receives a fee calculated at an
annual rate of .25% of the average daily net assets of the Common Shares of the
Balanced Fund pursuant to a shareholder servicing and distribution plan adopted
by each Fund pursuant to Rule 12b-1 under the 1940 Act. For its shareholder
servicing and distribution services, CSI receives a fee at an annual
36
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR -- (CONT'D)
rate of .50%, respectively, of the average daily net assets of each Funds'
Advisor Shares pursuant to distribution plan adopted by each Fund pursuant to
Rule 12b-1 under the 1940 Act. For the year ended October 31, 1998, shareholder
servicing and distribution fees earned by CSI were as follows:
SHAREHOLDER SERVICING/
FUND DISTRIBUTION FEE
- ---- ----------------------
Balanced
Common shares $ 97,024
Advisor shares 863
----------
$ 97,887
==========
Growth & Income
Advisor shares $ 502,703
==========
Capital Appreciation
Advisor shares $ 166,239
==========
3. LINE OF CREDIT
The Funds, together with other funds advised by Warburg Pincus Asset
Management, Inc., the Funds' investment adviser ("Warburg") (collectively, the
"Warburg Funds"), have established committed and uncommitted lines of credit
facilities with PNC Bank, National Association ("PNC") and an uncommitted line
of credit facility with Deutsche Bank, AG ("Deutsche Bank") for temporary or
emergency purposes primarily relating to unanticipated fund share redemptions.
Effective December 31, 1997, the terms of the committed line of credit with PNC
was amended. Under the terms of the committed line of credit, the Warburg Funds
with access to the facility pay a commitment fee at a rate of .07% per annum on
the average daily balance of the line of credit, which is undisbursed and
uncanceled during the preceding quarter. In addition, the Warburg Funds will pay
interest on borrowings at the bank's base rate plus .45%. Under the terms of the
Uncommitted lines of credit, the Warburg funds will pay interest on borrowings
at the banks base rate plus .55%. Aggregate borrowings for each fund under the
committed and uncommitted lines of credit with PNC may not exceed the lowest of
(a) thirty-three and one-third percent (33 1/3%) of the assets of such fund, for
any Fund that does not invest at least sixty-five percent (65%) of its assets in
international equity or fixed income securities (an "International Fund") and
twenty-five percent (25%) of the assets of any Fund that is an International
Fund or (b) the maximum amount permitted by such fund's investment policies and
restrictions. Aggregate borrowings for each fund under the uncommitted line of
credit facility with Deutsche Bank may not exceed thirty-three and one-third
percent (33 1/3%) of the net assets of such fund. At October
37
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
3. LINE OF CREDIT -- (CONT'D)
31, 1998, there were no outstanding balances under these line of credit
facilities for any of the Funds.
4. INVESTMENTS IN SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments) were as follows:
FUND PURCHASES SALES
- ---- ------------ ------------
Balance $ 48,765,302 $ 54,630,441
Growth & Income 613,143,068 585,282,325
Capital Appreciation 1,100,460,618 1,116,354,001
At October 31, 1998, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for federal income tax purposes) was as follows:
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ---- ------------ ------------ --------------
Balanced $ 3,825,138 $ (450,328) $ 3,374,810
Growth & Income 124,064,833 (27,786,014) 96,278,819
Capital Appreciation 138,172,443 (1,975,167) 136,197,276
For the year ended October 31, 1998, sales of the Growth & Income Fund
included $21,327,345 of investment securities delivered to shareholders for
1,337,976 Common Shares resulting in a gain of $811,970.
5. FORWARD FOREIGN CURRENCY CONTRACTS
Each Fund may enter into forward currency contracts for the purchase or
sale of a specific foreign currency at a fixed price on a future date. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. Each
Fund will enter into forward contracts primarily for hedging purposes. Forward
currency contracts are adjusted by the daily exchange rate of the underlying
currency and any gains or losses are recorded for financial statement purposes
as unrealized until the contract settlement date or an offsetting position is
entered into. At October 31, 1998, there were no open forward foreign currency
contracts.
38
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS
Each Fund may enter into futures contracts to the extent permitted by its
investment policies and objectives. Upon entering into a futures contract, a
Fund is required to make a deposit of an initial margin with its custodian in a
segregated account. Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying instrument, are made or received by
a Fund each day (daily variation margin) and are recorded as unrealized gains or
losses until the contracts are closed. When the contract is closed, a Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transactions and a Fund's basis in the contract.
Risks of enterings into futures contracts include the possibility that a change
in the value of the contract may not correlate with the changes in the value of
the underlying instruments. 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. At October 31, 1998,
there were no open futures contracts.
7. CAPITAL SHARE TRANSACTIONS
The Balanced Fund and the Growth & Income Fund are authorized to issue
three billion full and fractional shares of capital stock, $.001 par value per
share, of which one billion shares of each Fund (two billion shares for the
Balanced Fund and the Growth & Income) are designated as the Advisor Shares. The
Capital Appreciation Fund is authorized to issue three billion of full and
fractional shares of beneficial interest, $.001 par value per share, of which
one billion shares are classified as Advisor Shares.
39
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
7. CAPITAL SHARE TRANSACTIONS -- (CONT'D)
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
BALANCED FUND
----------------------------------------------------------------------------------
COMMON SHARES ADVISOR SHARES
---------------------------------------- ---------------------------------------
FOR THE FOR THE TWO FOR THE FOR THE FOR THE TWO FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, AUGUST 31, OCTOBER 31, OCTOBER 31, AUGUST 31,
1998 1997 1997 1998 1997 1997
----------- ------------ ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 827,546 152,757 1,550,047 7,713 1,762 10,558
Shares issued to shareholders
on reinvestment of
dividends 313,898 8,126 80,179 1,373 26 146
Shares redeemed (1,172,690) (231,496) (1,480,328) (7,587) (1,313) (1,184)
----------- ---------- ----------- -------- ------- --------
Net increase (decrease) in
shares outstanding (31,246) (70,613) 149,898 1,499 475 9,520
=========== ========== =========== ======== ======= ========
Proceeds from sale of shares $11,246,690 $2,259,503 $19,842,484 $105,373 25,967 134,935
Reinvested dividends 4,046,855 121,653 1,012,371 17,676 385 1,868
Net asset value of shares
redeemed (16,087,173) (3,443,737) (19,105,605) (101,051) (19,172) (15,173)
----------- ---------- ----------- -------- ------- --------
Net increase (decrease) from
capital share transactions $ (793,628) $1,062,581 $ 1,749,250 $ 21,998 7,180 $121,630
=========== ========== =========== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND
---------------------------------------------------------------------------------------
COMMON SHARES ADVISOR SHARES
------------------------------------------- -----------------------------------------
FOR THE FOR THE TWO FOR THE FOR THE FOR THE TWO FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, AUGUST 31, OCTOBER 31, OCTOBER 31, AUGUST 31,
1998 1997 1997 1998 1997 1997
------------ ------------ ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 20,772,224 2,174,608 16,219,671 1,286,304 197,822 739,244
Shares issued to
shareholders on
reinvestment of
dividends 6,140,028 62,949 261,793 907,279 4,665 20,096
Shares redeemed (18,200,979) (2,073,583) (32,720,263) (1,249,695) (70,415) (1,497,975)
------------ ----------- ------------- ----------- ---------- ------------
Net increase
(decrease) in shares
outstanding 8,711,274 163,974 (16,238,799) 943,888 132,072 (738,635)
============ =========== ============= =========== ========== ============
Proceeds from sale of
shares $364,404,734 $41,615,463 $ 263,366,857 $22,554,220 $3,793,455 $ 12,646,588
Reinvested dividends 98,961,339 1,219,324 4,211,791 14,597,946 90,322 348,935
Net asset value of
shares redeemed (313,659,176) (39,147,600) (508,011,387) (21,338,807) (1,340,222) (23,301,120)
------------ ----------- ------------- ----------- ---------- ------------
Net increase
(decrease) from
capital share
transactions $149,706,897 $ 3,687,187 $(240,432,739) $15,813,359 $2,543,555 $(10,305,597)
============ =========== ============= =========== ========== ============
</TABLE>
40
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
7. CAPITAL SHARE TRANSACTIONS -- (CONT'D)
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
-------------------------------------------------------------------------
COMMON SHARES ADVISOR SHARES
----------------------------------- -----------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 11,397,212 11,782,144 213,912 606,375
Shares issued to shareholders on
reinvestment of dividends 5,891,863 2,594,315 343,403 149,768
Shares redeemed (12,000,823) (9,249,789) (822,591) (416,279)
------------- ------------- ------------- -------------
Net increase (decrease) in shares
outstanding 5,288,252 5,126,670 (265,277) 339,864
============= ============= ============= =============
Proceeds from sale of shares $ 227,847,570 $ 219,247,482 $ 4,162,880 $ 11,073,615
Reinvested dividends 105,110,845 43,039,712 6,054,187 2,462,189
Net asset value of shares redeemed (238,511,569) (169,218,861) (16,425,281) (7,731,529)
------------- ------------- ------------- -------------
Net increase (decrease) from capital
share transactions $ 94,446,846 $ 93,068,333 $ (6,208,214) $ 5,804,275
============= ============= ============= =============
</TABLE>
8. LIABILITIES
At October 31, 1998, each Fund had the following liabilities:
<TABLE>
<CAPTION>
CAPITAL
BALANCED GROWTH & INCOME APPRECIATION
FUND FUND FUND
-------- --------------- ------------
<S> <C> <C> <C>
Payable for securities purchased (at value) $432,512 $4,332,788 $22,982,744
Investment advisory fee payable 19,148 478,858 379,048
Administrative services fees payable 2,936 63,848 54,150
Distribution fees payable 7,305 0 0
Fund shares redeemed payable 32,122 3,438,002 1,134,451
-------- ---------- -----------
$494,023 $8,313,496 $24,550,393
======== ========== ===========
</TABLE>
9. NET ASSETS
At October 31, 1998, capital contributions, undistributed net investment
income (loss) and accumulated net realized gain (loss) on security transactions
have been adjusted for current year permanent book/tax differences. The Balanced
Fund and the Growth & Income Fund reclassified ($135) and ($3,613),
respectively, from accumulated net realized gain/(loss) from foreign currency
related items to undistributed net investment income. The Balanced Fund
reclassified $128 in paydown gains and $65,468 from accumulated net realized
gain from security transactions to undistributed net investment income. The
Balanced Fund and the Growth & Income Fund reclassified distributions of
($9,691) and ($3,461), respectively, from undistributed net investment income to
accumulated net realized gain from security transactions. The Balanced Fund and
Capital Appreciation Fund reclassified
41
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
9. NET ASSETS -- (CONT'D)
($344) and ($3,937), respectively, from accumulated net realized gain to capital
contributions. The Growth & Income Fund reclassified $811,970 of gains from
redemption in kind from accumulated net realized gains from security
transactions to capital contributions.
Net Assets at October 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
CAPITAL
BALANCED GROWTH & INCOME APPRECIATION
FUND FUND FUND
----------- --------------- ------------
<S> <C> <C> <C>
Capital contributed, net $29,460,439 $679,084,877 $506,295,638
Undistributed net investment income 74,933 277,849 99,693
Accumulated net realized gain (loss) from security
transactions 2,764,583 23,752,304 27,766,093
Net unrealized appreciation (depreciation) from
investments and foreign currency related items 3,409,758 97,090,606 139,332,256
----------- ------------ ------------
Net assets $35,709,713 $800,205,636 $673,493,680
=========== ============ ============
</TABLE>
10. CAPITAL LOSS CARRYOVER
At October 31, 1998, there were no capital loss carryovers available to
offset possible future capital gains of any Fund.
42
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
43
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
11. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Common Shares,
representing equal pro rata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for a Common Share of each Fund are as
follows:
<TABLE>
<CAPTION>
WARBURG PINCUS BALANCED FUND
----------------------------
COMMON SHARES
----------------------------
1998 1997**
PERIOD ENDED: ------- -------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 14.38 $ 14.24
------- -------
INVESTMENT ACTIVITIES:
Net investment income 0.25 0.03
Net gains or losses on investments (both realized and
unrealized) 0.42 0.15
------- -------
Total from investment activities 0.67 0.19
------- -------
DISTRIBUTIONS:
From net investment income (0.26) (0.05)
From realized capital gains (1.29) --
------- -------
Total distributions (1.55) (0.05)
------- -------
Net asset value, end of period $ 13.50 $ 14.38
======= =======
Total return 5.33% 1.30%+
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $35,542 $38,294
Ratio of expenses to average net assets 1.35%@ 1.35%@*
Ratio of net income to average net assets 1.76% 1.38%*
Decrease reflected in above operating expense ratios due
to waivers/reimbursements .62% .68%*
Portfolio turnover rate 132.01% 15%+
</TABLE>
44
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
11. OTHER FINANCIAL HIGHLIGHTS -- (CONT'D)
<TABLE>
<CAPTION>
1997+ 1996+ 1995+ 1994+
PERIOD ENDED: ------- ----------- ------ ------
<S> <S> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 11.94 $ 11.12 $11.01 $11.71
------- ------- ------ ------
INVESTMENT ACTIVITIES:
Net investment income 0.23 0.16 0.21 0.41
Net gains or losses on investments (both realized and
unrealized) 2.46 0.94 1.72 0.32
------- ------- ------ ------
Total from investment activities 2.69 1.10 1.93 0.74
------- ------- ------ ------
DISTRIBUTIONS:
From net investment income (0.24) (0.13) (0.31) (0.46)
From realized capital gains (0.15) (0.15) (1.51) (0.98)
------- ------- ------ ------
Total distributions (0.39) (0.28) (1.82) (1.44)
------- ------- ------ ------
Net asset value, end of period $ 14.24 $ 11.94 $11.12 $11.01
======= ======= ====== ======
Total return 23.03% 9.99% 21.56% 6.86%(a)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $38,926 $30,853 $5,342 $ 808
Ratio of expenses to average net assets 1.35%@ 1.53%@ 1.53% 0%
Ratio of net income to average net assets 1.76% 1.66% 2.30% 3.76%
Decrease reflected in above operating expense ratios due
to waivers/reimbursements .55% .90% 4.51% 5.46%
Portfolio turnover rate 120% 108% 107% 32%
</TABLE>
- --------------------------------------------------------------------------------
** For the the two months ended October 31, 1997.
@ Interest earned on uninvested cash balances is used to
offset portions of transfer agent expense. These
arrangements had no effect on the Fund's expense ratio.
+ For the period ended August 31.
+ Non-annualized.
* Annualized.
(a) Sales load not reflected in total return. The sales load was
eliminated effective August 31, 1994.
See Accompanying Notes to Financial Statements.
45
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
11. OTHER FINANCIAL HIGHLIGHTS -- (CONT'D)
<TABLE>
<CAPTION>
WARBURG PINCUS
GROWTH & INCOME FUND
-----------------------
COMMON SHARES
-----------------------
1998 1997**
PERIOD ENDED: -------- --------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 18.56 $ 18.44
-------- --------
INVESTMENT ACTIVITIES:
Net investment income 0.14 0.02
Net gains or losses on investments (both realized and
unrealized) 1.36 0.14
-------- --------
Total from investment activities 1.50 0.16
-------- --------
DISTRIBUTIONS:
From net investment income (0.14) (0.04)
From realized capital gains (2.95) --
-------- --------
Total distributions (3.09) (0.04)
-------- --------
Net asset value, end of period $ 16.97 $ 18.56
======== ========
Total return 9.11% .85%+
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $703,808 $608,205
Ratio of expenses to average net assets 1.19%@ 1.18%@*
Ratio of net income to average net assets .83% .75%*
Decrease reflected in above operating expense ratios due
to waivers/reimbursements .00% .00%
Portfolio Turnover Rate 78.33% 19%+
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
46
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
11. OTHER FINANCIAL HIGHLIGHTS -- (CONT'D)
<TABLE>
<CAPTION>
1997+ 1996+ 1995+ 1994+
PERIOD ENDED: -------- -------- ---------- --------
<S> <S> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 14.90 $ 16.40 $ 14.56 $ 16.72
-------- -------- ---------- --------
INVESTMENT ACTIVITIES:
Net investment income 0.14 0.11 0.22 0.08
Net gains or losses on investments (both realized and
unrealized) 3.54 (0.66) 1.98 1.81
-------- -------- ---------- --------
Total from investment activities 3.67 (0.55) 2.21 1.89
-------- -------- ---------- --------
DISTRIBUTIONS:
From net investment income (0.13) (0.14) (0.18) (0.08)
From realized capital gains -- (0.81) (0.18) (3.98)
-------- -------- ---------- --------
Total distributions (0.13) (0.95) (0.37) (4.05)
-------- -------- ---------- --------
Net asset value, end of period $ 18.44 $ 14.90 $ 16.40 $ 14.56
======== ======== ========== ========
Total return 24.78% (3.54)% 15.62% 14.41%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $601,159 $727,627 $1,038,193 $410,658
Ratio of expenses to average net assets 1.15%@ 1.21%@ 1.22% 1.28%
Ratio of net income to average net assets .80% .69% 1.64% .41%
Decrease reflected in above operating expense ratios due
to waivers/reimbursements .00% .00% .00% .00%
Portfolio Turnover Rate 148% 94% 109% 150%
</TABLE>
- --------------------------------------------------------------------------------
** For the two months ended October 31, 1997.
@ Interest earned on uninvested cash balances is used to
offset portions of transfer agent expense. These
arrangements had no effect on the Fund's expense ratio.
+ For the period ended August 31.
+ Non-annualized.
* Annualized.
(a) Sales load not reflected in total return. The sales load was
eliminated effective July 29, 1993.
See Accompanying Notes to Financial Statements.
47
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
11. OTHER FINANCIAL HIGHLIGHTS -- (CONT'D)
<TABLE>
<CAPTION>
WARBURG PINCUS
CAPITAL APPRECIATION FUND
----------------------------------------------------
COMMON SHARES
----------------------------------------------------
1998 1997 1996 1995 1994
PERIOD ENDED: -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 21.09 $ 17.95 $ 16.39 $ 14.29 $ 15.32
-------- -------- -------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income 0.01 0.11 0.08 0.04 0.04
Net gains or losses on investments (both
realized and unrealized) 2.31 4.93 3.53 3.08 0.17
-------- -------- -------- -------- --------
Total from investment activities 2.32 5.04 3.61 3.12 0.21
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income (0.08) (0.10) (0.01) (0.04) (0.05)
From realized capital gains (3.81) (1.80) (2.04) (0.98) (1.19)
-------- -------- -------- -------- --------
Total distributions (3.89) (1.90) (2.05) (1.02) (1.24)
-------- -------- -------- -------- --------
Net asset value, end of period $ 19.52 $ 21.09 $ 17.95 $ 16.39 $ 14.29
======== ======== ======== ======== ========
Total return 12.75% 30.98% 24.67% 24.05% 1.65%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $646,657 $587,091 $407,707 $235,712 $159,346
Ratio of expenses to average net assets
Ratio of net income to average net assets 1.00%@ 1.01%@ 1.04%@ 1.12% 1.05%
Net investment income .05% .54% .59% .31% .26%
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .00% .00% .00% .00% .01%
Portfolio turnover rate 168.67% 238.11% 170.69% 146.09% 51.87%
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to
offset portions of transfer agent expense. These
arrangements resulted in a reduction to the Common Shares
net expense ratio by .00% for the year ended October 31,
1998 and by .01% and .01% for the year or period ended
October 31, 1997 and 1996, respectively. The Common Shares'
operating expense ratio after reflecting these arrangements
were 1.00% for the year ended October 31, 1998, 1.00% and
1.03% for the year or period ended October 31, 1997 and 1996
respectively.
See Accompanying Notes to Financial Statements.
48
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
SHAREHOLDER TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Each Fund is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of each Fund's fiscal year
end as to the U.S. federal tax status distributions received by the Fund's
shareholders in respect of such fiscal year. During the fiscal year ended
October 31, 1998, the following dividends and distributions per share were paid
by each of the Funds:
<TABLE>
<CAPTION>
ORDINARY MID-TERM LONG-TERM % OF ORDINARY INCOME
INCOME CAPITAL GAINS CAPITAL GAINS DIVIDENDS QUALIFYING FOR
FUND PER SHARE PER SHARE PER SHARE DIVIDENDS RECEIVED DEDUCTION*
- ---- --------- ------------- ------------- -----------------------------
<S> <C> <C> <C> <C>
PAYMENT DATE 12/19/97 12/19/97 12/19/97 1997
Balanced 2.22
Common Shares $ 0.9343 $ 0.2298 $ 0.2036
Advisor Shares 0.9259 0.2298 0.2036
Growth & Income 6.13
Common Shares 1.3424 1.5806 0.0728
Advisor Shares 1.3241 1.5806 0.0728
Capital Appreciation 11.91
Common Shares 2.0719 1.2330 0.5882
Advisor Shares 1.9937 1.2330 0.5882
</TABLE>
The above information was provided to calendar year taxpayers via Form
1099-DIV mailed in January of 1998.
<TABLE>
<CAPTION>
% OF ORDINARY INCOME
DIVIDENDS QUALIFYING FOR
FUND ORDINARY INCOME DIVIDENDS RECEIVED DEDUCTION*
- ---- --------------- -----------------------------
<S> <C> <C>
PAYMENT DATES 03/31/98, 06/30/98, 09/30/98 1998
Balanced 31.10
Common Shares $0.1846
Advisor Shares 0.1602
Growth & Income 100.00
Common Shares 0.1003
Advisor Shares 0.0521
</TABLE>
Because the fiscal year of the Funds is not a calendar year, another
notification will be sent with respect to calendar year 1998. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns, will be made in conjunction
with Form 1099-DIV and will be mailed in January 1999.
- ------------------
* Available to Corporate Shareholders only.
49
<PAGE>
WARBURG PINCUS FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
WARBURG, PINCUS BALANCED FUND, INC.;
WARBURG, PINCUS GROWTH & INCOME FUND, INC.; AND
WARBURG, PINCUS CAPITAL APPRECIATION FUND, INC.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Warburg, Pincus Balanced Fund, Inc., Warburg, Pincus Growth & Income Fund, Inc.
and Warburg, Pincus Capital Appreciation Fund, Inc. (all funds collectively
referred to as the "Funds") at October 31, 1998, the results of their operations
for the year then ended, changes in their net assets for each of the two years
(or periods) presented and their financial highlights for each of the years (or
periods) presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
October 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 11, 1998
50
<PAGE>
WARBURG PINCHUS
ADVISOR FUNDS
COUNSELLORS
SECURITIES INC.,
DISTRIBUTOR
800-369-2728
[LOGO]
ADUSL-2-1098
