ANNUAL
REPORT
October 31, 1998
WARBURG PINCUS
EMERGING GROWTH FUND
WARBURG PINCUS
SMALL COMPANY VALUE FUND
WARBURG PINCUS
SMALL COMPANY GROWTH FUND
WARBURG PINCUS
POST-VENTURE CAPITAL FUND
<PAGE>
More complete information about the funds, including charges and expenses, is
provided in the Prospectus, which must precede or accompany this document and
which should be read carefully before investing. You may obtain additional
copies by calling 800-WARBURG (800-927-2874) or by writing to Warburg Pincus
Funds, P.O. Box 9030, Boston, MA 02205-9030.
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 EMERGING GROWTH FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Emerging Growth Fund (the "Fund") is
maximum capital appreciation. The Fund pursues its objective by investing
primarily in stocks of emerging-growth companies (defined as small- or
medium-sized companies that have passed their start-up phase, show positive
earnings and are deemed to have prospects of achieving significant profit and
gains in share price in a relatively short period of time) that represent
attractive opportunities for maximum capital appreciation.
For the 12 months ended October 31, 1998, the Fund had a loss of 9.40%, vs.
losses of 15.86% and 13.85%, respectively, for the Russell 2000 Growth Index and
the Russell 2500 Growth Index.
The period was a difficult one for smaller-company and emerging-growth
stocks. Weighing on the group was investors' strong aversion to risk in all
forms, reflecting deteriorating financial conditions in emerging markets and
other negative developments (e.g., a highly visible hedge fund crisis in the
U.S.). On a positive note, this risk-avoidance sentiment abated somewhat in
October, thanks in part to an unexpected Federal Reserve interest-rate cut.
Smaller-cap stocks recouped some of their earlier losses as a result (and
sentiment toward the group has remained favorable since the end of the period).
Against this backdrop, the Fund had a significant loss, hampered by
investors' general aversion to smaller-cap stocks during the 12 months. The Fund
performed well vs. its benchmarks, however, supported by relatively good
showings from its business-services and financial-services holdings in
particular.
We made several noteworthy sector-weighting changes to the Fund during the
period. In general, we increased our position in domestically oriented sectors,
reflecting our positive view of the U.S. economy as well as our concerns
regarding emerging markets. One weighting we raised was the business-services
sector. Companies here typically have strong domestic customer bases, and,
importantly, have few competitors in emerging markets (which limits their
exposure to aggressive price competition). Names we added included companies
serving the financial and health-care industries. We believe these and our other
business-services holdings will benefit, over the longer term, from an ongoing
and strong trend of "outsourcing" by large, cost-conscious organizations.
1
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WARBURG PINCUS EMERGING GROWTH FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
We also raised our exposure to the consumer area, broadly defined,
reflecting our favorable view of domestic employment and consumer confidence.
The bulk of this increase was via the leisure & entertainment sector. Specific
stocks here stand to benefit from baby boomers' growing levels of discretionary
income, as well as from ongoing consolidation activity in the sector.
Other noteworthy areas of concentration for the Fund during the 12 months
included technology. Our focus here was on domestically oriented companies,
primarily software companies, though we also maintained some exposure to
electronics (e.g., semiconductor) stocks we deemed to be attractively priced.
Areas we de-emphasized included the telecommunications & equipment sector,
a weighting we significantly reduced late in the period. This reflected turmoil
in the corporate bond market, which clouded, in our view, smaller-cap
telecommunications companies' ability to raise capital inexpensively (these
companies tend to rely heavily on debt financing). We also lowered our exposure
to energy stocks, largely based on our concerns over commodity prices during
much of the period.
Looking ahead, our outlook on the prospects for emerging-growth stocks
remains positive, their difficulties for the period notwithstanding.
Emerging-growth companies continue to generate rapid earnings growth, both in
absolute terms and relative to large-cap companies. In addition, their stock
valuations remain very attractive compared to those of large caps, despite the
rally in smaller-cap stocks over the past two months. Set against this backdrop,
we will continue our efforts to identify those companies with the best potential
for long-term growth.
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
Investing in small companies entails special risk considerations. These are
detailed in the Prospectus, which should be read carefully before investing.
2
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS
EMERGING GROWTH FUND SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in
Common Shares of Warburg Pincus Emerging Growth Fund (the "Fund") from January
21, 1988 (inception) to October 31, 1998, compared to the Russell 2000 Growth
Index ("R2000G")* and the Russell 2500 Growth Index ("R2500G")** for the same
time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Emerging
Growth R2000G R2500G
--------- ------ ------
10000.00 10000.00 10000.00
Feb-88 10480.00 10901.40 10926.20
Mar-88 10760.00 11411.15 11279.23
Apr-88 10860.00 11670.64 11393.94
May-88 10690.00 11357.05 11104.19
Jun-88 11696.60 12166.92 11925.12
Jul-88 11546.13 12051.46 11617.45
Aug-88 11104.75 11744.38 11192.25
Sep-88 11506.00 12055.85 11578.50
Oct-88 11245.19 11922.27 11443.96
Nov-88 11084.69 11527.28 11088.51
Dec-88 11696.20 11979.84 11557.77
Jan-89 12546.27 12514.86 12151.61
Feb-89 12720.38 12606.10 12194.26
Mar-89 12853.53 12903.47 12440.22
Apr-89 13601.18 13466.58 13116.35
May-89 14246.42 14046.59 13787.90
Jun-89 14183.13 13725.48 13442.65
Jul-89 14882.51 14255.84 14214.40
Aug-89 15067.64 14603.39 14632.30
Sep-89 14892.80 14649.83 14724.78
Oct-89 13967.14 13782.85 14074.38
Nov-89 14069.99 13875.34 14242.15
Dec-89 14238.36 13928.20 14390.27
Jan-90 13108.67 12711.43 12953.11
Feb-90 13502.99 13106.12 13342.87
Mar-90 13854.69 13615.82 13976.39
Apr-90 13396.42 13171.40 13620.69
May-90 14728.60 14103.67 14905.12
Jun-90 14821.53 14132.73 15016.02
Jul-90 14371.42 13510.75 14507.88
Aug-90 12903.20 11711.52 12514.20
Sep-90 11981.54 10675.28 11399.31
Oct-90 11606.45 10023.67 10887.48
Nov-90 12313.77 10787.97 11967.09
Dec-90 12834.83 11216.04 12635.09
Jan-91 14008.48 12230.30 13810.66
Feb-91 15149.83 13594.10 15303.59
Mar-91 16226.58 14550.99 16282.56
Apr-91 15645.14 14514.47 15917.18
May-91 16485.00 15206.37 16728.48
Jun-91 15249.54 14320.30 15810.59
Jul-91 15993.16 14822.80 16700.88
Aug-91 16919.98 15371.39 17423.36
Sep-91 17113.97 15491.75 17623.21
Oct-91 18288.67 15901.50 18219.93
Nov-91 17555.83 15166.22 17452.14
Dec-91 20039.30 16380.58 19587.41
Jan-92 21193.51 17707.90 20415.96
Feb-92 21215.49 18224.44 20617.26
Mar-92 20193.19 17607.72 19441.87
Apr-92 18808.14 16991.10 18428.56
May-92 19027.99 17217.08 18460.99
Jun-92 18401.42 16403.06 17457.08
Jul-92 18907.07 16973.88 18135.64
Aug-92 18709.20 16495.05 17600.64
Sep-92 19346.77 16875.43 17869.58
Oct-92 20094.26 17411.90 18629.04
Nov-92 22160.84 18744.25 20128.67
Dec-92 22472.15 19397.30 20721.86
Jan-93 22920.03 20053.90 20866.71
Feb-93 21755.55 19590.86 19818.99
Mar-93 22808.06 20226.58 20461.33
Apr-93 22427.36 19671.56 19698.12
May-93 23547.05 20542.03 20911.13
Jun-93 23871.76 20670.21 20961.73
Jul-93 24442.80 20955.67 20978.92
Aug-93 25909.60 21860.95 22084.51
Sep-93 26984.50 22477.87 22651.64
Oct-93 26581.41 23056.45 23097.20
Nov-93 25472.92 22297.89 22259.93
Dec-93 26541.12 23060.26 23238.70
Jan-94 27326.29 23783.20 23908.67
Feb-94 26874.22 23697.34 23949.31
Mar-94 25173.02 22446.36 22556.18
Apr-94 24744.74 22579.69 22530.69
May-94 24173.71 22326.34 22078.73
Jun-94 23804.92 21558.32 21098.65
Jul-94 24126.12 21922.65 21557.12
Aug-94 25553.71 23144.18 23142.00
Sep-94 26005.77 23066.88 23130.90
Oct-94 26624.39 22976.00 23528.52
Nov-94 25327.67 22048.23 22486.44
Dec-94 26160.43 22640.66 22942.69
Jan-95 25767.84 22355.16 22718.54
Feb-95 27088.36 23285.14 23953.97
Mar-95 27825.94 23686.11 24883.15
Apr-95 28611.11 24212.89 25164.82
May-95 28944.21 24629.11 25550.85
Jun-95 31430.58 25906.62 27101.79
Jul-95 33750.40 27399.10 29238.22
Aug-95 34975.74 27965.44 29481.78
Sep-95 36807.81 28465.18 30113.28
Oct-95 35653.84 27192.50 29049.38
Nov-95 36569.88 28334.86 30238.08
Dec-95 38251.42 29082.62 30639.34
Jan-96 37721.20 29051.79 30734.01
Feb-96 39160.37 29957.04 32086.31
Mar-96 39829.45 30566.67 32783.22
Apr-96 43163.18 32201.07 35027.56
May-96 43732.93 33470.11 36276.99
Jun-96 42106.07 32096.16 34458.79
Jul-96 37560.88 29292.89 31034.62
Aug-96 39770.35 30993.92 33171.67
Sep-96 42005.06 32205.17 34932.09
Oct-96 41412.79 31709.21 33845.35
Nov-96 41677.91 33015.63 35086.12
Dec-96 42032.18 33880.97 35258.04
Jan-97 43563.15 34558.25 36312.61
Feb-97 41627.29 33720.55 34721.75
Mar-97 39223.28 32129.62 32437.41
Apr-97 39311.85 32219.26 32583.38
May-97 43752.94 35803.65 36488.82
Jun-97 45574.92 37338.20 37709.37
Jul-97 48231.99 39075.54 40102.79
Aug-97 49244.20 39969.59 41081.29
Sep-97 52927.67 42894.97 43982.87
Oct-97 50180.72 41011.02 41238.78
Nov-97 49874.62 40744.45 40606.58
Dec-97 50966.87 41457.48 40462.43
Jan-98 49682.51 40803.69 39933.99
Feb-98 54645.79 43821.12 43362.33
Mar-98 57236.00 45628.31 44972.37
Apr-98 57762.57 45881.09 45381.17
May-98 54267.94 43409.93 42468.15
Jun-98 56536.33 43501.53 42779.44
Jul-98 52166.08 39980.08 39594.08
Aug-98 41925.88 32216.75 30596.72
Sep-98 43519.06 34738.03 33279.45
Oct-98 45464.36 36154.99 35526.47
FUND
------
1 Year Total Return (9/30/97-9/30/98)............................... -17.77%
5 Year Average Annual Total Return (9/30/93-9/30/98)................ 10.03%
Average Annual Total Return Since Inception (1/21/88-9/30/98)....... 14.73%
3
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
In past annual reports, we have compared the Fund's performance to that of
the S&P 500 Index ("S&P").*** We believe that the R2000G, which measures the
performance of 2,000 small-cap stocks, and the R2500G, which measures the
performance of companies with higher price-to-book values and higher forecasted
growth rates, are more descriptive benchmarks for the Fund. The following
compares S&P, R2000G, R2500G and the Fund's annual value for the fiscal years
ended October 31.
S&P R2000G R2500G FUND
------- ------- ------- -------
1988.................. $11,146 $11,922 $11,444 $11,245
1989.................. 14,074 13,703 14,074 13,967
1990.................. 13,027 10,024 10,887 11,606
1991.................. 17,377 15,902 18,220 18,289
1992.................. 19,102 17,412 18,629 20,094
1993.................. 21,949 23,056 23,097 26,581
1994.................. 22,789 22,976 23,529 26,624
1995.................. 28,798 27,193 29,049 36,654
1996.................. 35,712 31,709 33,845 41,413
1997.................. 47,168 41,011 41,239 50,181
1998.................. 57,238 36,155 35,526 45,464
- ------------------
* The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of approximately 2,000 small-cap stocks, includes
reinvestment of dividends, and is compiled by Frank Russell Company.
** The Russell 2500 Growth Index measures the performance of those companies in
the Russell 2500 Index with higher price-to-book values and higher
forecasted growth rates. The Russell 2500 Index is composed of the 2500
smallest companies in the Russell 3000 Index, which measures the performance
of the 3000 largest US companies based on total market capitalization. The
Russell 2500 Index represents approximately 22% of the total market
capitalization of the Russell 3000 Index.
*** 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.
4
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Small Company Value Fund (the "Fund") is
long-term capital appreciation. The Fund invests primarily in a portfolio of
equity securities of small-capitalization companies that are believed to be
undervalued. The Fund considers a "small" company to be one that has a market
capitalization, measured at the time the Fund purchases a security of that
company, within the range of capitalizations of companies represented in the
Russell 2000 Index. As of November 30, 1998, the Russell 2000 Index included
companies with market capitalizations between $10.3 million and $2.6 billion.
For the 12 months ended October 31, 1998, the Fund had a loss of 19.97%,
vs. a loss of 11.84% for the Russell 2000 Index. The Fund's average annual
return since its inception (on December 29, 1995) through October 31 was 15.85%,
vs. a same-period return of 7.89% for the Russell 2000 Index.
The reporting period was extremely difficult for small-cap stocks, both in
absolute terms and relative to their large-cap counterparts. Weighing on the
group was a series of negative developments, most notably widening economic and
financial turmoil in emerging markets. This resulted in diminished investor
appetite for risk in all forms, including small-cap stocks, despite the group's
strong domestic bias and good earnings prospects relative to large caps. The
group did, though, end the period on a bright note, spurred by two Federal
Reserve interest-rate cuts and by growing recognition of small caps' extremely
compelling valuations relative to large-cap stocks.
Against this backdrop, the Fund had a sizable loss, hurt by investors'
general bearishness toward small caps. Relative to its benchmark, the Fund was
hampered, primarily, by its focus on stocks comprising the smaller end of the
small-cap area (the Fund's average market cap was roughly half that of its
benchmark through much of the period). These bore the brunt of small caps'
November-through-October decline.
We made a few noteworthy changes to the Fund in terms of sector weightings
during the period. We increased our exposure to the financial area, specifically
the banks and savings & loan sector. We added to our position here late in the
period, when concern over turmoil in emerging markets weighed on bank stocks
broadly. In our view, certain small-cap banks were unduly punished by this
concern, given their limited exposure to emerging markets. Elsewhere in the
financial area, we maintained a sizable presence in the financial-services
sector, with a continued emphasis on insurance companies.
5
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
We also increased our exposure to utilities. We had no exposure here
through much of the period, reflecting our general concerns regarding small-cap
utilities' cash flows. We established a position here in September, however,
adding companies we believed stood to benefit from asset restructurings and
favorable regulatory developments.
Areas we de-emphasized during the 12 months included energy stocks. We had
no exposure here at the end of the period, viewing the prospects for a near-term
recovery in energy prices to be underwhelming. We also lowered our exposure to
consumer-discretionary-type companies late in the period, reflecting both
profit-taking in specific issues and our general concerns over diminished
consumer confidence. That said, we continued to find what we believed were
attractive buying opportunities within certain consumer-related areas. One stock
we added, in the auto-parts area, was Superior Industries, a manufacturer of
cast aluminum wheels. We established the position during the summer, after the
stock declined on pessimism regarding the General Motors strike and the
automotive industry broadly-despite continued strong auto sales. Our purchase
was based on several positive factors, notably the company's solid return on
equity and after-tax net margins (significantly above that of similar
companies), as well as its debt-free balance sheet. In addition, the company has
significant cash reserves and continues to generate good cash flows. All told,
we deemed the stock, purchased at a P/E of about eight times estimated 1999
earnings (and about six times 1999 earnings with cash reserves netted out) to
represent good value.
Going forward, we are optimistic regarding the prospects for small-cap
stocks, the group's difficulties during the period notwithstanding. For one,
these issues continue to display historically compelling valuations relative to
those of large caps. In addition, small caps are not heavily reliant on export
sales, which account for almost half of large caps' revenues and which are
projected to slow significantly. These factors stand to continue to support the
rally in small caps witnessed since early October, particularly if the Federal
Reserve remains in an accommodative-to-neutral mode. That said, careful stock
selection remains critical. In this regard, we will continue to adhere to our
strict value disciplines, focusing on underfollowed, beaten down stocks of
companies with strong balance sheets and cash flows. As ever, we will strive to
identify undervalued stocks whose true worth will receive wider market
recognition over time.
Kyle F. Frey
Portfolio Manager
Investing in small companies entails special risk considerations. These are
detailed in the Prospectus, which should be read carefully before investing.
6
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS
SMALL COMPANY VALUE FUND SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in
Common Shares of Warburg Pincus Small Company Value Fund (the "Fund") from
December 29, 1995 (inception) to October 31, 1998, compared to the Russell 2000
Index ("R2000")* for the same time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Small Co. Value R2000
--------------- -----
10000.00 10000.00
Jan-96 10000.00 9989.40
Feb-96 10650.00 10300.67
Mar-96 11550.00 10510.29
Apr-96 12619.53 11072.27
May-96 13449.90 11508.63
Jun-96 13339.61 11036.20
Jul-96 12849.62 10072.30
Aug-96 13539.60 10657.20
Sep-96 14109.58 11073.68
Oct-96 14379.08 10903.15
Nov-96 14989.04 11352.36
Dec-96 15618.58 11649.90
Jan-97 15881.58 11882.78
Feb-97 15598.34 11594.75
Mar-97 15052.10 11047.71
Apr-97 15112.79 11078.53
May-97 16053.55 12311.01
Jun-97 17156.16 12838.66
Jul-97 18056.45 13436.05
Aug-97 18663.15 13743.46
Sep-97 20100.21 14749.35
Oct-97 18986.66 14101.56
Nov-97 18530.98 14009.90
Dec-97 18608.81 14255.07
Jan-98 18087.76 14030.27
Feb-98 19154.94 15067.81
Mar-98 19972.85 15689.20
Apr-98 20098.68 15776.12
May-98 19572.10 14926.42
Jun-98 19742.38 14957.91
Jul-98 18301.18 13747.07
Aug-98 15396.78 11077.66
Sep-98 15544.59 11944.60
Oct-98 15193.29 12431.82
FUND
------
1 Year Total Return (9/30/97-9/30/98).............................. -22.65%
Average Annual Total Return Since Inception
(12/29/95-9/30/98)............................................... 17.35%
- ------------------
* The Russell 2000 Index is an unmanaged index (with no defined investment
objective) of approximately 2,000 small-cap stocks, includes reinvestment
of dividends, and is a compiled by Frank Russell Company.
7
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The object of Warburg Pincus Small Company Growth Fund (the "Fund") is
capital growth. The Fund pursues its objective by investing in equity securities
of small-sized domestic companies. The Fund considers a "small" company to be
one that has a market capitalization, measured at the time the Fund purchases a
security of that company, within the range of capitalizations of companies
represented in the Russell 2000 Index. As of November 30, 1998, the Russell 2000
Index included companies with market capitalizations between $10.3 million and
$2.6 billion. Note: The Fund reopened to new investors on November 10, 1998.
For the 12 months ended October 31, 1998, the Fund had a loss of 17.00%,
versus a loss of 15.86% for the Russell 2000 Growth Index.
The reporting period was extremely difficult for small-cap stocks, both in
absolute terms and relative to their large-cap counterparts. Hampering the group
was investors' aversion to risk in all forms, given an increasingly uncertain
earnings environment and a high level of stock-market volatility. This
risk-avoidance mindset was most visible between mid July and early October, when
a confluence of negative events -- e.g., Russia's bond default -- resulted in a
market slump, one that took a disproportionate toll on small caps. The group,
though, ended the period on a bright note, buoyed by growing recognition of
small caps' historically very compelling valuations and by an unexpected Federal
Reserve interest-rate cut.
Against this backdrop, the Fund had a significant loss for the 12 months.
Hampering the Fund was investors' general bearishness toward small-cap stocks
and weakness in certain areas, most specifically the technology area.
We made a few noteworthy changes to the Fund during the 12 months in terms
of sector exposure. Foremost, we raised our weighting in the business-services
sector. We continued to find stocks here we deemed attractive, selling at
significant discounts to these companies' underlying growth rates. Our increased
weighting also reflected our heightened emphasis on domestically oriented
stocks, given a relatively strong U.S. economy and ongoing financial turmoil in
emerging markets. Along the same lines, we added to our position in the leisure
& entertainment and communications & media sectors, and, in the technology area,
shifted our focus toward domestically oriented software companies.
8
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
Areas we de-emphasized during the period included commodity-sensitive
sectors such as energy, reflecting our general concerns regarding commodity
prices. Another sector weighting we lowered was telecommunications & equipment.
We eliminated most of our exposure here in the latter part of the period, due to
turmoil in the corporate bond market. This clouded, in our view, the near-term
prospects for most smaller-cap telecommunications companies, which tend to rely
heavily on debt financing.
Looking ahead, our outlook on the prospects for stocks of small-cap
companies remains positive, notwithstanding their poor performance for the
period. Small-cap companies continue to enjoy rapid earnings growth, both in
absolute terms and relative to larger companies. In addition, their stock
valuations remain very attractive compared to those of large caps, despite the
rally in small-cap stocks over the past two months. These factors stand to draw
ever-more attention to small caps, provided investors' aversion to risk
continues to fade. Set against this backdrop, we will continue our efforts to
identify those companies with the best potential for long-term growth.
Stephen J. Lurito
Portfolio Manager
Investing in small companies entails special risk considerations. These are
detailed in the Prospectus, which should be read carefully before investing.
9
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS
SMALL COMPANY GROWTH FUND SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in
Common Shares of Warburg Pincus Small Company Growth Fund (the "Fund") from
December 31, 1996 (inception) to October 31, 1998, compared to the Russell 2000
Growth Index ("R2000G")* for the same time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
SMALL CO GROWTH R2000G
--------------- ------
10000.00 10000.00
Jan-97 10350.00 10249.80
Feb-97 10020.00 9630.92
Mar-97 9250.00 8951.36
Apr-97 8940.00 8847.88
May-97 10280.00 10177.81
Jun-97 10840.00 10522.94
Jul-97 11370.00 11062.13
Aug-97 11650.00 11394.11
Sep-97 12930.00 12303.36
Oct-97 12250.00 11564.42
Nov-97 12069.93 11289.18
Dec-97 12229.25 11295.96
Jan-98 11927.19 11145.38
Feb-98 12802.64 12129.30
Mar-98 13637.37 12638.12
Apr-98 13496.91 12715.59
May-98 12360.47 11791.80
Jun-98 12591.61 11912.43
Jul-98 11414.29 10917.63
Aug-98 8949.95 8397.40
Sep-98 9844.94 9248.81
Oct-98 10166.87 9731.23
FUND
------
1 Year Total Return (9/30/97-9/30/98)................................. -23.85%
Average Annual Total Return Since Inception (12/31/96-9/30/98)........ - 0.88%
- ------------------
* The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Index with
greater-than-average growth orientation. It includes reinvestment of
dividends, and is compiled by Frank Russell Company.
10
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Post-Venture Capital Fund (the "Fund") is
long-term growth of capital. The Fund pursues its objective by investing
primarily in equity securities of companies considered to be in their post-
venture-capital stage of development.
For the 12 months ended October 31, 1998, the Fund had a loss of 8.63%, vs.
losses of 15.86% for the Russell 2000 Growth Index, 13.85% for the Russell 2500
Growth Index and 11.42% for the NASDAQ Industrial Index.
The period was a highly volatile one for the types of small-cap and
aggressive-growth stocks targeted by the Fund. These stocks saw good performance
through mid July, but sold off heavily as investors retreated from risk in
general. This risk-avoidance mindset reflected a series of negative
developments, notably Russia's financial meltdown and widening turmoil elsewhere
in emerging markets. Small-cap and aggressive-growth stocks recovered some of
their losses at the end of the period, however. Valuations on these issues,
which were historically compelling before the group's steep decline, became much
more so by early October. This prompted investors to increasingly revisit the
group, a trend that accelerated after the Federal Reserve unexpectedly reduced
interest rates in the middle of the month.
Against this backdrop, the Fund suffered a loss, hampered by the decline in
smaller-cap and aggressive-growth stocks generally. The Fund fared well vs. its
benchmarks, however, due in part to relatively good showings from its
business-services holdings.
We made a few noteworthy changes to the Fund during the period in terms of
broad strategies. Most notably, we increased our emphasis on the Internet as an
investment theme. The Internet, in our view, has evolved from being a purely
technological phenomenon to become a viable mass-market medium, one with
enormous implications for consumers, businesses and government. Specific stocks
that stand to benefit from the Internet's growth over the longer term include
Internet-service-provider and business- and consumer-services stocks.
In terms of sector exposure, we made several changes to the Fund worthy of
mention during the 12 months. One move we made, and one reflective of our
heightened Internet focus, was to increase our exposure to the communications &
media area. Stocks we added here included Yahoo! and America Online. We believe
these companies will continue to take advantage of their strong brand names to
expand their customer bases.
We also increased our weighting in the business-services sector, a change
partly based on our more-favorable view of the Internet. We believe many service
providers, in particular those providing distribution and fulfillment
11
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
services, will benefit from higher volumes of Internet commerce. Our higher
weighting here also reflected our increased focus on domestically oriented
companies during the period.
One weighting we reduced was the electronics area, reflecting our general
concerns over high capacity in the industry. That said, we continued to find
stocks we believe have good long-term growth prospects. Our holdings here
included Vitesse Semiconductor, a company that went public in 1991 after
receiving venture backing from, among other groups, Mohr, Davidow Ventures, a
partnership focusing exclusively on entrepreneurial companies in the western
U.S. Vitesse manufactures integrated circuits using gallium arsenide-based (as
opposed to silicon-based) technology. As such, these circuits are relatively
high-speed, low-heat products that could see significant long-term demand growth
within, for example, the data-communications area.
Elsewhere, notable sector weightings for the Fund included computers, where
we had a bias toward domestically oriented software companies; financial
services, where we emphasized insurance and asset-management stocks; and retail.
One noteworthy move we made in the last area was to add to our position in
Barnes & Noble. The bookseller has continued to exhibit significant same-store
sales growth while expanding its Internet presence as well.
Going forward, our outlook on the collective prospects for stocks of post-
venture companies remains positive, the Fund's loss for the period
notwithstanding. (We define a post-venture capital company as one that has
received venture-capital financing either during the early stages of the
company's existence or the development of a new product or service, or as part
of a restructuring or recapitalization. The investment of venture-capital
financing, distribution of securities to venture-capital investors or initial
public offering, whichever is later, will have been made within 10 years of the
Fund's investment.) These companies continue to have rapid earnings growth, both
in absolute terms and relative to blue-chip-type companies, and their stock
valuations range from reasonable to very attractive. Set against this backdrop,
we will continue to devote our efforts to identifying innovative, well-financed
companies with the best long-term prospects.
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
Because of the nature of the Fund's holdings and certain strategies it may
use, an investment in the Fund involves certain risks and may not be appropriate
for all investors. The Prospectus contains more complete information on the
special risk considerations associated with post-venture-capital investments. It
should be read carefully before investing.
12
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS
POST-VENTURE CAPITAL FUND SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in
Common Shares of Warburg Pincus Post-Venture Capital Fund (the "Fund") from
September 29, 1995 (inception) to October 31, 1998, compared to the Russell 2000
Growth Index ("R2000G")*, Russell 2500 Growth Index ("R2500G")** and the NASDAQ
Industrials Index ("NASDAQ")*** for the same time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Post Russell NASDAQ
Venture 2000G Industrials R2500G
------- ----- ----------- ------
10000.00 10000.00 10000.00 10000.00
Oct-95 10679.32 9508.20 9583.80 9646.70
Nov-95 12907.09 9927.99 9893.36 10041.44
Dec-95 13836.16 10147.89 9827.17 10174.69
Jan-96 14145.85 10063.97 9876.80 10206.13
Feb-96 15274.73 10522.89 10250.44 10655.20
Mar-96 15684.32 10730.92 10439.66 10886.63
Apr-96 17452.55 11554.74 11397.50 11631.93
May-96 17872.13 12147.26 12059.01 12046.84
Jun-96 16753.25 11358.06 11311.83 11443.06
Jul-96 14365.63 9971.58 10055.31 10305.96
Aug-96 15254.75 10709.77 10705.89 11015.63
Sep-96 16533.47 11261.33 11283.90 11600.23
Oct-96 16014.32 10775.63 10968.07 11239.34
Nov-96 16194.12 11075.30 11368.07 11651.38
Dec-96 16224.89 11291.26 11304.19 11708.47
Jan-97 16734.42 11573.32 11807.22 12058.67
Feb-97 15615.46 10874.52 11171.17 11530.38
Mar-97 14436.56 10107.22 10370.86 10771.80
Apr-97 14366.62 9990.38 10156.29 10820.27
May-97 15995.11 11492.03 11554.61 12117.19
Jun-97 16364.76 11881.73 12048.68 12522.51
Jul-97 17853.38 12490.55 12842.09 13317.31
Aug-97 17633.78 12865.39 13079.80 13642.25
Sep-97 18873.44 13892.04 14010.29 14605.80
Oct-97 17593.82 13057.69 12925.06 13694.55
Nov-97 17583.26 12746.92 12739.58 13484.61
Dec-97 17792.50 12754.56 12439.82 13436.74
Jan-98 17353.03 12584.54 12355.48 13261.26
Feb-98 19131.71 13695.51 13353.43 14399.74
Mar-98 20421.19 14270.04 13873.68 14934.40
Apr-98 20511.04 14357.51 14154.34 15070.15
May-98 19101.93 13314.44 13558.73 14102.80
Jun-98 19911.86 13450.64 13590.59 14206.17
Jul-98 18322.89 12327.38 12826.12 13148.38
Aug-98 14636.32 9481.73 9871.50 10160.54
Sep-98 15655.01 10443.08 10511.27 11051.42
Oct-98 16074.57 10987.79 11361.63 11797.61
1 Year Total Return (9/30/97-9/30/98)............................... -17.05%
Average Annual Total Return Since Inception
(9/29/95-9/30/98)................................................. 16.10%
13
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
In past annual reports, we have compared the Fund's performance to that of
the Warburg Pincus/Venture Economics Post-Venture Capital Index ("PVCI")****, in
addition to the R2000G. We believe that the R2500G, which measures the
performance of companies with higher price-to-book values and higher forecasted
growth rates, and the NASDAQ which measures the performance of more than 3000
industrial issues included in the NASDAQ OTC Composite Index, are more
descriptive benchmarks for the Fund. The following compares PVCI, R2500G, NASDAQ
and the Fund's annual value for the fiscal years ended October 31.
PVCI R2500G NASDAQ FUND
------- ------- ------- -------
1995............... $10,143 $9,647 $9,584 $10,679
1996............... 11,538 11,239 10,968 16,014
1997............... 12,286 13,695 12,925 17,594
1998............... 13,435 11,798 11,362 16,075
- ------------------
* The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Growth Index
with a greater-than-average growth orientation. It includes reinvestment of
dividends, and is compiled by Frank Russell Company.
** The Russell 2500 Growth Index measures the performance of those companies
in the Russell 2500 Index with higher price-to-book values and higher
forecasted growth rates. The Russell 2500 Index is composed of the 2500
smallest companies in the Russell 3000 Index, which measures the
performance of the 3000 largest US companies based on total market
capitalization. The Russell 2500 Index represents approximately 22% of the
total market capitalization of the Russell 3000 Index.
*** The NASDAQ Industrial Index measures the stock price performance of more
than 3000 industrial issues included in the NASDAQ OTC Composite Index. The
NASDAQ OTC Composite Index represents 4500 stocks traded over the counter.
**** The Warburg Pincus/Venture Economics Post-Venture Capital Index is a
market-valued index that measures the performance of public stocks of
companies that received financing from a U.S. venture capital or buyouts
limited partnership prior to or during public trading status, without
dividends. Companies remain in the index for ten years from the date of
first inclusion or until the price data is no longer available, for
example, due to a merger or acquisition. The index is calculated monthly
and has a first index period of January 1986 with the index value
initialized at 100. The index is a joint project of Venture Economics and
Warburg, Pincus Asset Management, Inc.
14
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
--------- --------------
<S> <C> <C>
COMMON STOCKS (91.7%)
Aerospace & Defense (0.9%)
Gulfstream Aerospace Corp. + 370,300 $ 16,385,775
--------------
Banks & Savings & Loans (4.2%)
Bank United Corp. Class A 323,900 12,905,391
City National Corp. 461,000 15,760,437
Cullen/Frost Bankers, Inc. 374,900 19,963,425
Peoples Heritage Financial Group, Inc. 692,700 12,468,600
Sovereign Bancorp, Inc. 1,188,140 15,594,337
--------------
76,692,190
--------------
Business Services (13.8%)
BISYS Group, Inc. + 345,500 15,115,625
Career Blazers, Inc. + 91,000 284,375
Century Business Services, Inc. + 400,000 5,575,000
Concord EFS, Inc. + 678,100 19,325,850
CSG Systems International, Inc. + 394,900 21,522,050
Fiserv, Inc. + 316,500 14,717,250
Harte-Hanks Communications, Inc. 995,000 24,190,937
New York Restaurant Group, Inc. + # 336,786 3,249,985
On Assignment, Inc. + 733,400 24,935,600
QRS Corp. + 696,967 26,484,746
Robert Half International, Inc. + 749,700 30,081,712
Sterling Commerce, Inc. + 536,400 18,908,100
SunGard Data Systems, Inc. + 1,023,600 34,546,500
Young & Rubicam, Inc. + 567,800 14,833,775
--------------
253,771,505
--------------
Communications & Media (7.7%)
Adelphia Communications Corp. + 425,100 15,994,387
Central European Media Enterprises, Ltd. Class A + 1,058,753 6,749,550
Excite, Inc. + 617,900 23,827,769
Infoseek Corp. + 483,300 14,287,556
Lycos, Inc. + 618,600 25,130,625
Network Event Theater, Inc. + # 761,905 3,285,715
Network Event Theater, Inc. + # 888,889 4,000,000
Outdoor Systems, Inc. + 1,470,788 32,449,249
TCA Cable TV, Inc. 603,600 16,712,175
--------------
142,437,026
--------------
Computers (7.8%)
BMC Software, Inc. + 978,700 47,038,769
Citrix Systems, Inc. + 583,150 41,330,756
National Instruments Corp. + 560,317 15,338,678
Transaction Systems Architects, Inc. Class A + 1,124,100 40,572,984
--------------
144,281,187
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
--------- --------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Consumer Non-Durables (1.3%)
Blyth Industries, Inc. + 96,700 $ 2,671,337
Central Garden & Pet Co. + 1,114,700 22,015,325
--------------
24,686,662
--------------
Consumer Services (4.7%)
Apollo Group, Inc. + 544,000 17,476,000
DeVry, Inc. + 1,257,896 27,673,712
ITT Educational Services, Inc. + 690,450 20,497,734
Stewart Enterprises, Inc. 939,000 21,655,687
--------------
87,303,133
--------------
Electronics (6.7%)
Burr-Brown Corp. + 873,397 16,212,432
Maxim Integrated Products, Inc. + 863,600 30,819,725
Uniphase Corp. + 798,300 39,515,850
Vitesse Semiconductor Corp. + 1,172,200 37,803,450
--------------
124,351,457
--------------
Energy (1.0%)
Anadarko Petroleum Corp. 478,000 16,192,250
Brown (Tom), Inc. + 15,000 215,624
Chaparral Resources, Inc. + # 833,333 1,250,000
--------------
17,657,874
--------------
Environmental Services (2.3%)
Allied Waste Industries, Inc. + 927,803 20,063,740
Republic Services Inc. Class A + 994,200 21,748,125
--------------
41,811,865
--------------
Financial Services (8.8%)
Allmerica Financial Corp. 624,090 31,204,500
Ambac Financial Group, Inc. 381,300 22,186,894
Nationwide Financial Services, Inc. 667,100 27,684,650
Protective Life Corp. 567,000 21,014,437
Reinsurance Group of America, Inc. 601,000 28,547,500
SunAmerica, Inc. 439,800 31,005,900
--------------
161,643,881
--------------
Food, Beverages & Tobacco (2.5%)
Aurora Foods, Inc. + 1,248,600 21,850,500
Consolidated Cigar Holdings, Inc. + 620,500 7,135,750
Suiza Foods Corp. + 540,000 17,617,500
--------------
46,603,750
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
--------- --------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Healthcare (3.2%)
Alternative Living Services, Inc. + 377,100 $ 9,851,738
Centocor, Inc. + 331,700 14,760,650
Focal, Inc. + 338,669 3,259,691
NovaCare, Inc. + 1,342,600 5,538,225
Sunrise Assisted Living, Inc. + 131,300 5,654,106
Total Renal Care Holdings, Inc. + 793,500 19,440,750
--------------
58,505,160
--------------
Leisure & Entertainment (5.9%)
Coach USA, Inc. + 699,000 18,741,938
Fairfield Communities, Inc. + 1,279,900 12,559,019
Family Golf Centers, Inc. + 1,024,300 21,574,319
Premier Parks, Inc. + 1,136,500 25,216,094
Radical Entertainment Holdings, Inc. + # 500,000 1,250,000
Sunterra Corp. + 1,543,800 14,666,100
Vistana, Inc. + 1,291,500 14,367,938
--------------
108,375,408
--------------
Lodging & Restaurants (0.8%)
Extended Stay America, Inc. + 1,585,600 15,261,400
--------------
Office Equipment & Supplies (1.2%)
United Stationers, Inc. + 853,100 22,607,150
--------------
Oil Services (1.8%)
Global Industries, Ltd. + 899,400 8,656,725
Petroleum Geo - Services ADR + 1,140,138 24,370,450
--------------
33,027,175
--------------
Pharmaceuticals (3.7%)
Forest Laboratories, Inc. + 379,000 15,846,938
MedImmune, Inc. + 258,700 17,397,575
PharMerica, Inc. + 1,326,500 4,476,938
Watson Pharmaceuticals, Inc. + 551,800 30,693,875
--------------
68,415,326
--------------
Publishing (3.4%)
Scholastic Corp. + 474,100 18,697,319
The Petersen Cos., Inc. + 913,600 24,267,500
Wiley (John) & Sons, Inc. Class A 536,600 19,619,438
--------------
62,584,257
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
--------- --------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Real Estate (1.2%)
Apartment Investment & Management Co. Class A (REIT) 616,328 $ 21,532,960
--------------
Retail (6.9%)
Barnes & Noble, Inc. + 710,300 23,173,538
Borders Group, Inc. + 687,600 17,447,850
PETsMART, Inc. + 2,119,500 15,233,906
Stage Stores, Inc. + 1,206,900 15,991,425
Staples, Inc. + 1,095,800 35,750,475
Williams-Sonoma, Inc. + 746,800 20,350,300
--------------
127,947,494
--------------
Telecommunications & Equipment (0.9%)
McLeodUSA, Inc. Class A + 427,000 15,612,188
Nexus Telecommunication Systems, Ltd. + 224,700 877,734
--------------
16,489,922
--------------
Transportation (1.0%)
Mark VII, Inc. + 1,109,138 18,300,777
--------------
TOTAL COMMON STOCK (Cost $1,358,819,683) 1,690,673,334
--------------
PREFERRED STOCK (0.4%)
Consumer Services (0.1%)
Opal Concepts, Inc. Series B +# 792,603 1,999,999
--------------
Healthcare (0.1%)
Women First Healthcare, Inc. + # 112,500 1,125,000
--------------
Transportation (0.2%)
Dealer Solutions Holdings, Inc. Series A + # 2,222,222 5,000,000
--------------
TOTAL PREFERRED STOCK (Cost $8,125,000) 8,124,999
--------------
WARRANTS (0.0%)
Dealer Solutions Holdings, Inc. Warrants +# 431,111 0
Stratasys, Inc. Exp. 11/03/98 +# 21,428 0
--------------
TOTAL WARRANTS (Cost $0) 0
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
--------- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.8%)
Repurchase agreement with State Street Bank & Trust Co. dated
10/30/98 at 5.40% to be repurchased at $162,120,914 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%-5.5%, 02/28/03-04/15/28.
Pro-rata market value of collateral is $165,288,960.) (Cost
is $162,048,000) 162,048 $ 162,048,000
--------------
TOTAL INVESTMENTS (100.9%) (Cost $1,528,992,683*) 1,860,846,333
LIABILITIES IN EXCESS OF OTHER ASSETS (0.9%) (17,302,246)
--------------
NET ASSETS (100.0%) (applicable to 45,490,679 Common Shares and
9,566,983 Advisor Shares) $1,843,544,087
==============
NET ASSET VALUE, offering and redemption price per Common Share
($1,532,521,118 divided by 45,490,679) $ 33.69
==============
NET ASSET VALUE, offering and redemption price per Advisor Share
($311,022,969 divided by 9,566,983) $ 32.51
==============
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<C> <S>
ADR = American Depository Receipt
REIT = Real Estate Investment Trust
</TABLE>
- --------------------------------------------------------------------------------
+ Non-income producing security.
# Restricted security.
* Cost for federal income tax purposes is $1,531,625,385.
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK (87.3%)
Banks & Savings & Loans (8.6%)
Century Bancorp, Inc. Class A 59,500 $ 1,152,812
Quaker City Bancorp, Inc. + 142,121 2,131,815
Riggs National Corp. 81,200 1,958,950
Texas Regional Bancshares, Inc. 73,100 1,663,025
-----------
6,906,602
-----------
Building & Building Materials (3.9%)
Cavalier Homes, Inc. 323,700 3,135,844
-----------
Capital Equipment (3.6%)
Allied Products Corp. 50 419
Avondale Industries, Inc. + 96,400 2,512,425
Gardner Denver Machinery, Inc. + 25,900 372,312
-----------
2,885,156
-----------
Conglomerates (2.1%)
Justin Industries, Inc. 14,000 203,000
Watts Industries, Inc. Class A 82,300 1,512,262
-----------
1,715,262
-----------
Consumer Durables (7.9%)
La-Z-Boy, Inc. 175,000 3,215,625
Superior Industries International, Inc. 121,100 3,171,306
-----------
6,386,931
-----------
Consumer Non-Durables (3.2%)
Home Products International, Inc. + 211,500 2,115,000
St. John Knits, Inc. 20,700 417,881
-----------
2,532,881
-----------
Electronics (2.0%)
Avant! Corp. + 47,000 801,938
Burr-Brown Corp. + 42,400 787,050
-----------
1,588,988
-----------
Engineering & Construction (1.4%)
Gradall Industries, Inc. + 77,800 1,137,825
-----------
Financial Services (19.1%)
Chartwell Re Corp. 37,800 940,275
Commerce Group, Inc. 65,500 2,267,938
Delphi Financial Group, Inc. Class A + 46,868 2,185,221
HCC Insurance Holdings, Inc. 98,400 1,765,050
NAC Re Corp. 32,300 1,564,531
National Western Life Insurance Co. Class A + 29,600 3,463,200
Terra Nova (Bermuda) Holdings, Ltd. 114,085 3,165,859
-----------
15,352,074
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Food, Beverages & Tobacco (2.4%)
Vlasic Foods International Inc. + 104,700 $ 1,956,581
-----------
Leisure & Entertainment (2.3%)
SCP Pool Corp. + 133,950 1,858,556
-----------
Lodging & Restaurants (3.1%)
Ryan's Family Steak Houses, Inc. + 230,800 2,481,100
-----------
Metals & Mining (3.3%)
Inland Steel Industries, Inc. 108,293 1,976,347
Universal Stainless & Alloy Products, Inc. + 95,500 653,578
-----------
2,629,925
-----------
Paper & Forest Products (2.5%)
Caraustar Industries, Inc. 32,600 774,250
Wausau-Mosinee Paper Corp. 72,300 1,260,731
-----------
2,034,981
-----------
Real Estate (7.3%)
U.S. Restaurant Properties, Inc. (REIT) 57,700 1,410,044
Weeks Corp. (REIT) 106,100 3,083,531
Western Water Co. + 239,300 1,346,063
-----------
5,839,638
-----------
Retail (1.0%)
Filene's Basement Corp. + 2,300 4,384
Fingerhut Companies, Inc. 91,512 772,133
-----------
776,517
-----------
Transportation (5.8%)
Landstar Systems, Inc. + 101,737 3,611,664
M.S. Carriers, Inc. + 49,500 1,064,250
-----------
4,675,914
-----------
Utilities-Electric (7.8%)
Commonwealth Energy System 44,800 1,671,600
Idacorp, Inc. 49,400 1,543,750
Public Service Co. of New Mexico 76,000 1,676,750
UniSource Energy Corp. + 89,700 1,390,350
-----------
6,282,450
-----------
TOTAL COMMON STOCK (Cost $62,795,139) 70,177,225
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
21
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
---------- -----------
<S> <C> <C>
CONVERTIBLE BONDS (1.4%)
Electronics (1.4%)
EA Industries, Inc. Series A Convertible Notes 6.00%, 04/30/99
(NR, NR)1* (Cost $1,500,000) $1,500,000 $ 1,125,000
-----------
SHORT-TERM INVESTMENTS (9.7%)
Repurchase Agreement with State Street Bank & Trust Co. dated
10/30/98 at 5.40% to be repurchased at $7,768,494 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 $7,920,344.) (Cost $7,765,000) 7,765,000 7,765,000
-----------
WARRANTS (0.0%)
EA Industries, Inc. Six Month Warrants (Exercisable for
purchase of 75,000 Common Shares.) # (Cost $110,437) 1 $ 0
-----------
TOTAL INVESTMENTS AT VALUE (98.4%) (Cost $72,170,576**) 79,067,225
OTHER ASSETS IN EXCESS OF LIABILITIES (1.6%) 1,303,670
-----------
NET ASSETS (100.0%) (Applicable to 5,999,492 Common Shares and
3,953 Advisor Shares) $80,370,895
===========
NET ASSET VALUE, offering and redemption price per Common Share
($80,318,325 divided by 5,999,492) $ 13.39
===========
NET ASSET VALUE, offering and redemption price per Advisor Share
($52,570 divided by 3,953) $ 13.30
===========
</TABLE>
INVESTMENT ABBREVIATIONS
REIT = Real Estate Investment Trust
NR = Not Rated
- --------------------------------------------------------------------------------
+ Non-income producing security.
# Restricted security.
1 Illiquid security.
* Credit ratings given by Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group are unaudited.
** Cost for federal income tax purposes is $72,609,216.
See Accompanying Notes to Financial Statements.
22
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS (93.9%)
Aerospace & Defense (1.2%)
TriStar Aerospace Co. + 5,500 $ 56,375
------------
Building & Building Materials (0.9%)
American Woodmark Corp. 1,600 41,600
------------
Business Services (15.2%)
BISYS Group, Inc. + 1,800 78,750
CB Richard Ellis Services, Inc. + 2,100 40,950
Getty Images, Inc. + 3,800 46,787
INSpire Insurance Solutions, Inc. + 1,200 30,000
Kroll-O'Gara Co. + 4,000 98,500
LaSalle Partners, Inc. + 1,500 43,875
On Assignment, Inc. + 2,400 81,600
Protection One, Inc. + 5,100 57,375
QRS Corp. + 1,700 64,600
Romac International, Inc. + 2,600 45,500
Technology Solutions Co. + 4,650 55,800
Trammell Crow Co. + 2,100 45,413
------------
689,150
------------
Communications & Media (6.6%)
Central European Media Enterprises, Ltd. Class A + 3,800 24,225
Granite Broadcasting Corp. + 7,600 38,950
Heftel Broadcasting Corp. + 1,900 78,137
Infoseek Corp. + 1,200 35,475
Lycos, Inc. + 1,500 60,937
Metro Networks, Inc. + 1,700 62,262
------------
299,986
------------
Computers (7.8%)
Advent Software, Inc. + 1,100 38,225
Boole & Babbage, Inc. + 2,200 58,575
Documentum, Inc. + 600 20,400
JDA Software Group, Inc. + 3,400 32,300
Mercury Interactive Corp. + 1,200 49,800
Micrografx, Inc. + 4,800 43,200
Radiant Systems, Inc. + 4,900 33,075
Transactions Systems Architects, Inc. Class A + 2,200 79,406
------------
354,981
------------
Consumer Non-Durables (1.3%)
Central Garden & Pet Co. + 2,900 57,275
------------
Consumer Services (5.2%)
DeVry, Inc. + 3,600 79,200
ITT Educational Services, Inc. + 2,000 59,375
Service Experts, Inc. + 1,500 45,281
Strayer Education, Inc. + 1,500 51,000
------------
234,856
------------
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- ------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Electronics (6.5%)
Avant! Corp. + 3,599 $ 61,408
Burr-Brown Corp. + 2,600 48,262
Flexotronics International, Ltd. + 1,000 51,937
Maxim Integrated Products, Inc. + 1,400 49,962
Uniphase Corp. + 800 39,600
Vitesse Semiconductor Corp. + 1,400 45,150
------------
296,319
------------
Energy (2.7%)
Chieftain International, Inc. + 2,500 49,062
Stone Energy Corp. + 2,300 73,887
------------
122,949
------------
Environmental Services (3.6%)
Allied Waste Industries, Inc. + 4,600 99,475
Casella Waste Systems, Inc. + 2,200 64,900
------------
164,375
------------
Financial Services (5.1%)
Amerin Corp. + 1,800 38,475
Enhance Financial Services Group, Inc. 1,300 31,931
Protective Life Corp. 1,200 44,475
Reinsurance Group of America, Inc. + 800 38,000
Terra Nova (Bermuda) Holdings, Ltd. Class A 2,900 80,475
------------
233,356
------------
Food, Beverages & Tobacco (2.4%)
Ben & Jerry's Homemade, Inc. Class A + 3,200 61,600
Suiza Foods Corp. + 1,400 45,675
------------
107,275
------------
Healthcare (9.6%)
Advance Paradigm, Inc. + 2,200 72,600
Alternative Living Services, Inc. + 2,700 70,537
Hanger Orthopedic Group, Inc. + 2,800 55,300
Minimed, Inc. + 1,100 61,050
Renal Care Group, Inc. + 2,300 66,988
Sunrise Assisted Living, Inc. + 1,500 64,594
VWR Scientific Products Corp. + 1,800 43,763
------------
434,832
------------
</TABLE>
See Accompanying Notes to Financial Statements.
24
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- ------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Leisure & Entertainment (8.5%)
Championship Auto Racing Teams, Inc. + 2,100 $ 52,238
Coach USA, Inc. + 1,900 50,944
Fairfield Communities, Inc. + 3,900 38,269
Family Golf Centers, Inc. + 3,450 72,666
Premier Parks, Inc. + 5,300 117,594
Vistana, Inc. + 4,700 52,288
------------
383,999
------------
Metals & Mining (1.0%)
Metals USA, Inc. + 4,600 45,713
------------
Oil Services (1.9%)
Global Industries, Ltd. + 3,800 36,575
Petroleum Geo - Services ADR + 2,400 51,300
------------
87,875
------------
Pharmaceuticals (5.8%)
GelTex Pharmaceuticals, Inc. + 2,300 57,500
Jones Pharma, Inc. + 1,400 45,238
Sepracor, Inc. + 1,200 82,350
Serologicals Corp. + 3,450 78,056
------------
263,144
------------
Real Estate (2.0%)
U.S. Restaurant Properties, Inc. (REIT) + 3,700 90,419
------------
Retail (4.5%)
99 Cents Only Stores + 900 41,625
Borders Group, Inc. + 2,100 53,288
Stage Stores, Inc. + 3,500 46,375
Whole Foods Market, Inc. + 1,600 64,100
------------
205,388
------------
Telecommunications & Equipment (2.1%)
Intermedia Communications, Inc. + 1,700 31,450
McLeodUSA, Inc. Class A + 1,800 65,813
------------
97,263
------------
TOTAL COMMON STOCK (Cost $4,055,635) 4,267,130
------------
</TABLE>
See Accompanying Notes to Financial Statements.
25
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
---------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (7.3%)
Repurchase agreement with State Street Bank & Trust Co. dated
10/30/98 at 5.400% to be repurchased at $330,148 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%, 02/28/03-04/15/08. Pro-rata market value of
collateral is $336,600.) (Cost $330,000) $ 330 $ 330,000
------------
TOTAL INVESTMENTS AT VALUE (101.2%) (Cost $4,385,635*) 4,597,130
LIABILITIES IN EXCESS OF OTHER ASSETS (1.2%) (53,447)
------------
NET ASSETS (100.0%) (applicable to 449,478 Common Share) $ 4,543,683
============
NET ASSET VALUE, offering and redemption price per Common Share
($4,543,683 divided by 449,478) $ 10.11
============
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
REIT = Real Estate Investment Trust
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $4,449,723.
See Accompanying Notes to Financial Statements.
26
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCKS (92.7%)
Aerospace & Defense (1.6%)
Gulfstream Aerospace Corp. + 24,700 $ 1,092,975
------------
Business Services (17.7%)
BISYS Group, Inc. + 17,200 752,500
Career Blazers, Inc. + 4,000 12,500
CSG Systems International, Inc. + 10,900 594,050
IMS Health, Inc. 9,300 618,450
Lason, Inc. + 25,400 1,390,650
New York Restaurant Group, Inc. +# 77,720 749,998
On Assignment, Inc. + 20,100 683,400
Pharmaceutical Product Development, Inc. + 30,600 826,200
Protection One, Inc. + 137,500 1,546,875
QRS Corp. + 28,900 1,098,200
Realty Information Group, Inc. + 81,200 680,050
Robert Half International, Inc. + 31,000 1,243,875
SunGard Data Systems, Inc. + 42,500 1,434,375
Young & Rubicam, Inc. + 22,600 590,425
------------
12,221,548
------------
Communications & Media (8.7%)
America Online, Inc. + 9,500 1,207,094
Central European Media Enterprises, Ltd. Class A + 60,600 386,325
Heftel Broadcasting Corp. + 14,800 608,650
Infoseek Corp. + 27,700 818,881
Outdoor Systems, Inc. + 35,075 773,842
USA Networks, Inc. + 53,900 1,212,750
Yahoo! Inc. + 7,900 1,033,666
------------
6,041,208
------------
Computers (15.4%)
BMC Software, Inc. + 26,500 1,273,656
Citrix Systems, Inc. + 23,050 1,633,669
Compuware Corp. + 12,100 655,669
Documentum, Inc. + 26,500 901,000
Legato Systems, Inc. + 16,900 661,212
Micrografx, Inc. + 75,500 679,500
New Era of Networks, Inc. + 38,400 1,891,200
PeopleSoft, Inc. + 26,400 559,350
Transactions Systems Architects, Inc. Class A + 44,700 1,613,391
Women.com Networks +# 227,964 750,002
------------
10,618,649
------------
Consumer Durables (0.4%)
Furniture Brands International, Inc. + 14,000 301,000
------------
</TABLE>
See Accompanying Notes to Financial Statements.
27
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Consumer Services (3.7%)
DeVry, Inc. + 36,400 $ 800,800
Service Experts, Inc. + 31,500 950,906
Stewart Enterprises, Inc. Class A 33,500 772,594
------------
2,524,300
------------
Electronics (6.1%)
Maxim Integrated Products, Inc. + 50,900 1,816,494
Uniphase Corp. + 30,900 1,529,550
Vitesse Semiconductor Corp. + 27,400 883,650
------------
4,229,694
------------
Energy (1.9%)
Chaparral Resources, Inc. +# 333,333 500,000
Stone Energy Corp. + 25,700 825,611
------------
1,325,611
------------
Environmental Services (4.3%)
Allied Waste Industries, Inc. + 39,600 856,350
Republic Services Inc. Class A + 54,200 1,185,625
Waste Management, Inc. 20,200 911,525
------------
2,953,500
------------
Financial Services (8.4%)
Amvescap PLC ADR 18,560 679,760
EXEL Ltd. 18,387 1,405,456
Life Re Corp. 18,600 1,735,612
Nationwide Financial Services, Inc. 23,800 987,700
Reinsurance Group of America, Inc. 20,000 950,000
------------
5,758,528
------------
Food, Beverages & Tobacco (0.9%)
Suiza Foods Corp. + 18,100 590,512
------------
Healthcare (2.5%)
HCR Manor Care, Inc. + 18,600 604,500
Total Renal Care Holdings, Inc. + 45,900 1,124,550
------------
1,729,050
------------
Leisure & Entertainment (2.9%)
Coach USA, Inc. + 26,900 721,256
Premier Parks, Inc. 57,800 1,282,438
------------
2,003,694
------------
Lodging and Restaurants (0.1%)
II Fornaio (America) Corp. + 11,400 91,200
------------
</TABLE>
See Accompanying Notes to Financial Statements.
28
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Metals & Mining (1.2%)
Metals USA, Inc. + 87,300 $ 867,544
------------
Oil Services (1.6%)
Petroleum Geo - Services ADR + 51,000 1,090,125
------------
Pharmaceuticals (2.8%)
CV Therapeutics, Inc. + 75,000 496,875
Watson Pharmaceuticals, Inc. + 25,600 1,424,000
------------
1,920,875
------------
Publishing (2.6%)
Petersen Companies, Inc. Class A + 39,900 1,059,844
Scholastic Corp. + 17,700 698,044
------------
1,757,888
------------
Retail (5.7%)
Barnes & Noble, Inc. + 39,000 1,272,375
PETsMART, Inc. + 7,400 53,188
Staples, Inc. + 46,800 1,526,850
Whole Foods Market, Inc. + 26,100 1,045,631
------------
3,898,044
------------
Telecommunications & Equipment (4.2%)
Cisco Systems, Inc. + 18,950 1,193,850
Gilat Satellite Networks, Ltd. + 13,300 618,450
Intermedia Communications, Inc. + 23,800 440,300
Shaw Communications, Inc. Class B + 30,700 614,000
------------
2,866,600
------------
TOTAL COMMON STOCK (Cost $52,100,022) 63,882,545
------------
FOREIGN COMMON STOCKS (0.8%)
United Kingdom (0.8%)
Hays PLC 38,000 560,341
------------
TOTAL FOREIGN COMMON STOCKS (Cost $576,990) 560,341
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY DATE (000)
------------- -------
<S> <C> <C> <C>
UNITED STATES TREASURY OBLIGATIONS (1.4%)
U.S. Treasury Bills (0.5%) **
U.S. Treasury Bills 5.100% 12/03/98 $ 375 $ 373,807
------------
U.S. Treasury Notes (0.9%) **
U.S. Treasury Notes 5.625% 11/30/98 90 90,127
U.S. Treasury Notes 5.875% 11/15/99 250 253,738
U.S. Treasury Notes 5.875% 11/30/01 260 271,368
------------
615,233
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS (Cost $972,333) 989,040
------------
</TABLE>
See Accompanying Notes to Financial Statements.
29
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL
SHARE VALUE
------- ------------
<S> <C> <C>
PRIVATE FUND INVESTMENTS (1.9%)
Boston Ventures V, LP 390,022 $ 385,122
New Enterprise Associates VII, LP 722,023 885,641
------------
TOTAL PRIVATE FUND INVESTMENTS (Cost $1,112,045) 1,270,763
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.4%)
Repurchase agreement with State Street Bank & Trust Co. dated
10/30/98 at 5.400% to be repurchased at $3,710,669 on 11/02/98.
(Collaterized at 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
$3,783,180.) (Cost $3,709,000.) $3,709 $ 3,709,000
------------
TOTAL INVESTMENTS AT VALUE (102.2%) (Cost $58,470,390*) 70,411,689
LIABILITIES IN EXCESS OF OTHER ASSETS (2.2%) (1,496,992)
------------
NET ASSETS (100.0%) (applicable to 4,261,652 Common Shares and
21,550 Advisor Shares) $ 68,914,697
============
NET ASSET VALUE, offering and redemption price per Common Share
($68,572,081 divided by 4,261,652) $ 16.09
============
NET ASSET VALUE, offering and redemption price per Advisor Share
($342,616 divided by 21,550) $ 15.90
============
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
# Restricted Security
* Cost for income tax purposes is $58,558,037.
** These securities have been segregated with the Fund's custodian to cover open
capital commitments of $840,000 in private fund investments.
See Accompanying Notes to Financial Statements.
30
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
31
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS
EMERGING GROWTH
FUND
---------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 7,937,355
Interest 6,986,115
-------------
Total investment income 14,923,470
-------------
EXPENSES:
Investment advisory 18,191,066
Administrative services 3,536,144
Audit 43,454
Custodian/Sub-custodian 341,855
Directors/Trustees 14,264
Interest 3,800
Legal 145,123
Offering/Organizational costs 0
Printing 132,591
Registration 140,832
Shareholder servicing/Distribution 1,957,786
Transfer agent 1,658,514
Miscellaneous 64,915
-------------
26,230,344
Less: fees waived, expenses reimbursed and transfer agent fee offsets (80,003)
-------------
Total expenses 26,150,341
-------------
Net investment loss (11,226,871)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN
CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions (47,452,269)
Net change in unrealized appreciation (depreciation) from investments
and foreign currency related items (136,862,010)
-------------
Net realized and unrealized gain (loss) from investments and foreign
currency related items (184,314,279)
-------------
Net decrease in net assets resulting from operations $(195,541,150)
=============
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS WARBURG PINCUS
SMALL COMPANY SMALL COMPANY POST-VENTURE
VALUE GROWTH FUND CAPITAL FUND
-------------- --------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,152,093 $ 15,973 $ 195,524
Interest 732,897 31,526 133,410
------------ ------------ ------------
Total investment income 1,884,990 47,499 328,934
------------ ------------ ------------
EXPENSES:
Investment advisory 1,530,064 105,741 1,172,367
Administrative services 308,390 24,514 192,046
Audit 13,238 12,001 13,236
Custodian/Sub-custodian 46,893 27,402 29,038
Directors/Trustees 11,711 11,606 10,708
Interest 0 512 2,902
Legal 25,480 20,000 2,988
Offering/Organizational costs 14,903 22,470 30,270
Printing 30,646 8,842 17,285
Registration 59,007 31,738 42,857
Shareholder servicing/Distribution 382,903 0 234,763
Transfer agent 184,159 0 176,901
Miscellaneous 9,500 162 6,098
------------ ------------ ------------
2,616,894 264,988 1,931,459
Less: fees waived, expenses reimbursed and transfer agent fee offsets (22,472) (116,951) (383,646)
------------ ------------ ------------
Total expenses 2,594,422 148,037 1,547,813
------------ ------------ ------------
Net investment loss (709,432) (100,538) (1,218,879)
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN
CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 3,618,297 (627,473) 2,591,623
Net change in unrealized appreciation (depreciation) from investments
and foreign currency related items (23,857,296) (1,065,613) (7,014,438)
------------ ------------ ------------
Net realized and unrealized gain (loss) from investments and foreign
currency related items (20,238,999) (1,693,086) (4,422,815)
------------ ------------ ------------
Net decrease in net assets resulting from operations $(20,948,431) $ (1,793,624) $ (5,641,694)
============ ============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
33
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
EMERGING GROWTH SMALL COMPANY VALUE
FUND FUND
--------------------------------- ----------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, OCTOBER 31,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment loss $ (11,226,871) $ (11,348,164) $ (709,432) $ (1,097,451)
Net realized gain (loss) from security transactions (47,452,269) 121,625,395 3,618,297 21,703,083
Net realized loss from foreign currency related items 0 0 0 0
Net change in unrealized appreciation (depreciation) from
investments and foreign currency related items (136,862,010) 204,574,943 (23,857,296) 22,597,554
--------------- -------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations (195,541,150) 314,852,174 (20,948,431) 43,203,186
--------------- -------------- ------------- -------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares 0 0 0 0
Advisor Shares 0 0 0 0
Distributions from realized gains:
Common Shares (92,762,400) (2,393,545) (20,763,827) (1,184,453)
Advisor Shares (25,707,966) (797,896) (35,216) (56)
Distributions in excess of capital gains:
Common Shares 0 0 0 0
Advisor Shares 0 0 0 0
--------------- -------------- ------------- -------------
Net decrease in net assets from distributions (118,470,366) (3,191,441) (20,799,043) (1,184,509)
--------------- -------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 883,019,817 781,530,558 63,737,618 258,418,030
Reinvested dividends 114,956,027 3,051,789 19,972,777 1,093,316
Net asset value of shares redeemed (813,237,032) (590,806,401) (185,521,859) (161,650,157)
--------------- -------------- ------------- -------------
Net increase (decrease) in net assets from capital share
transactions 184,738,812 193,775,946 (101,811,464) 97,861,189
--------------- -------------- ------------- -------------
Net increase (decrease) in net assets (129,272,704) 505,436,679 (143,558,938) 139,879,866
NET ASSETS:
Beginning of period 1,972,816,791 1,467,380,112 223,929,833 84,049,967
--------------- -------------- ------------- -------------
End of period $ 1,843,544,087 $1,972,816,791 $ 80,370,895 $ 223,929,833
=============== ============== ============= =============
Undistributed net investment income $ 0 $ 0 $ 0 $ 0
=============== ============== ============= =============
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
SMALL COMPANY GROWTH POST-VENTURE CAPITAL
FUND FUND
---------------------------------- -----------------------------
FOR THE PERIOD
DECEMBER 31, 1996
(COMMENCEMENT
FOR THE OF OPERATIONS)
YEAR ENDED THROUGH FOR THE YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
----------- ----------------- -----------------------------
1998 1997 1998 1997
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment loss $ (100,538) $ (36,455) $(1,218,879) $ (1,728,895)
Net realized gain (loss) from security transactions (627,473) (354,471) 2,591,623 7,402,996
Net realized loss from foreign currency related items 0 0 0 (3,944)
Net change in unrealized appreciation (depreciation) from
investments and foreign currency related items (1,065,613) 1,277,108 (7,014,438) 4,279,725
----------- ------------ ----------- ------------
Net increase (decrease) in net assets resulting from
operations (1,793,624) 886,182 (5,641,694) 9,949,882
----------- ------------ ----------- ------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (62,775) 0 0 0
Advisor Shares 0 0 0 0
Distributions from realized gains:
Common Shares 0 0 0 0
Advisor Shares 0 0 0 0
Distributions in excess of capital gains:
Common Shares 0 0 0 0
Advisor Shares 0 0 0 0
----------- ------------ ----------- ------------
Net decrease in net assets from distributions (62,775) 0 0 0
----------- ------------ ----------- ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 7,623,711 21,283,561 33,368,512 67,881,239
Reinvested dividends 53,996 0 0 0
Net asset value of shares redeemed (13,254,497) (10,292,871) (68,656,533) (133,272,027)
----------- ------------ ----------- ------------
Net increase (decrease) in net assets from capital share
transactions (5,576,790) 10,990,690 (35,288,021) (65,390,788)
----------- ------------ ----------- ------------
Net increase (decrease) in net assets (7,433,189) 11,876,872 (40,929,715) (55,440,906)
NET ASSETS:
Beginning of period 11,976,872 100,000 109,844,412 165,285,318
----------- ------------ ----------- ------------
End of period $ 4,543,683 $ 11,976,872 $68,914,697 $109,844,412
=========== ============ =========== ============
Undistributed net investment income $ 0 $ 61,322 $ 0 $ 0
=========== ============ =========== ============
</TABLE>
See Accompanying Notes to Financial Statements.
35
<PAGE>
WARBURG PINCUS EMERGING GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
PERIOD ENDED: ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 39.66 $ 32.80 $ 29.97 $ 22.38 $ 23.74
---------- ---------- ---------- -------- --------
INVESTMENT ACTIVITIES:
Net investment loss (0.12) (0.19) (0.02) (0.05) (0.06)
Net gains or losses on investments
(both realized and unrealized) (3.46) 7.12 4.60 7.64 0.06
---------- ---------- ---------- -------- --------
Total from investment
activities (3.58) 6.93 4.58 7.59 0.00
---------- ---------- ---------- -------- --------
DISTRIBUTIONS:
From net investment income 0.00 0.00 0.00 0.00 0.00
From realized capital gains (2.39) (0.07) (1.75) 0.00 (1.36)
---------- ---------- ---------- -------- --------
Total distributions (2.39) (0.07) (1.75) 0.00 (1.36)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 33.69 $ 39.66 $ 32.80 $ 29.97 $ 22.38
========== ========== ========== ======== ========
Total return (9.40)% 21.18% 16.14% 33.91% 0.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s
omitted) $1,532,521 $1,515,385 $1,104,684 $487,537 $240,664
Ratio of expenses to average net
assets 1.22 %@ 1.22 %@ 1.28 %@ 1.26 % 1.22 %
Ratio of net loss to average net
assets (0.48)% (0.59)% (0.63)% (0.58)% (0.58)%
Decrease reflected in above
operating expense ratios due to
waivers/reimbursements 0.00 % 0.00 % 0.00 % 0.00 % 0.04 %
Portfolio turnover rate 91.60 % 87.03 % 65.77 % 84.82 % 60.38 %
</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 ended October 31,
1997 and 1996, respectively. The Common Shares' operating
expense ratio after reflecting these arrangements were 1.22%
for the year ended October 31, 1998, 1.21% and 1.27% for the
year ended October 31, 1997 and 1996, respectively.
See Accompanying Notes to Financial Statements.
36
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996**
PERIOD ENDED: ------- -------- -------
<S> <C> <C> <C>
PER-SHARE DATA:
Net asset value, beginning of period $ 18.77 $ 14.38 $ 10.00
------- -------- -------
INVESTMENT ACTIVITIES:
Net investment loss (0.12) (0.08) (0.02)
Net gains or losses on investments (both realized and
unrealized) (3.33) 4.64 4.40
------- -------- -------
Total from investment activities (3.45) 4.56 4.38
------- -------- -------
DISTRIBUTIONS:
From net investment income 0.00 0.00 0.00
From realized capital gains (1.93) (0.17) 0.00
------- -------- -------
Total distributions (1.93) (0.17) 0.00
------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 13.39 $ 18.77 $ 14.38
======= ======== =======
Total return (19.97)% 32.05% 43.80%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $80,318 $223,675 $84,045
Ratio of expenses to average net assets 1.70%@ 1.70%@ 1.75%@*
Ratio of net loss to average net assets (0.46)% (0.63)% (0.43)%*
Decrease reflected in above operating expense ratios due
to waivers/reimbursements 0.01% 0.03% 0.44%*
Portfolio turnover rate 77.92% 105.87% 43.14%+
</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 .00% for the year or period ended October 31, 1997 and 1996,
respectively. The Common Shares' operating expense ratio after reflecting
these arrangements were 1.70% for the year ended October 31, 1998, 1.69% and
1.75% for the year or period ended October 31, 1997 and 1996, respectively.
+ Non-Annualized
* Annualized
** For the Period December 29, 1995 (Commencement of Operations) through October
31, 1996.
See Accompanying Notes to Financial Statements.
37
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997**
PERIOD ENDED: ------ -------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $12.25 $ 10.00
------ -------
INVESTMENT ACTIVITIES:
Net investment loss (0.34) (0.04)
Net gains or losses on Investments (both realized and
unrealized) (1.74) 2.29
------ -------
Total from investment activities (2.08) 2.25
------ -------
DISTRIBUTIONS:
From net investment income (0.06) 0.00
From realized capital gains 0.00 0.00
------ -------
Total distributions (0.06) 0.00
------ -------
NET ASSET VALUE, END OF PERIOD $10.11 $ 12.25
====== =======
Total return (17.00)% 22.50%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $4,544 $11,977
Ratios of expenses to average net assets 1.40%@ 1.41%@*
Ratio of net loss to average net assets (0.95)% (0.53)%*
Decrease reflected in above operating expense ratio due
to waivers/reimbursements 1.10% 3.66%*
Portfolio turnover rate 114.97% 123.24%+
</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% for the year or period ended October 31,
1997. The Common Shares' operating expense ratio after
reflecting these arrangements were 1.40% for the year ended
October 31,1998, and 1.40% for the year or period ended
October 31, 1997.
+ Non-annualized.
* Annualized.
** For the Period December 31, 1996 (Commencement of
Operations) through October 31, 1997.
See Accompanying Notes to Financial Statements.
38
<PAGE>
WARBURG PINCUS POST-VENTURE CAPITAL FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995**
PERIOD ENDED: ------- -------- -------- ------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 17.61 $ 16.03 $ 10.69 $10.00
------- -------- -------- ------
INVESTMENT ACTIVITIES:
Net investment income or loss (0.50) (0.35) (0.11) 0.00
Net gains or losses on investments and foreign
currency related items (both realized and
unrealized) (1.02) 1.93 5.45 0.69
------- -------- -------- ------
Total from investment activities (1.52) 1.58 5.34 0.69
------- -------- -------- ------
DISTRIBUTIONS:
From net investment income 0.00 0.00 0.00 0.00
From realized capital gains 0.00 0.00 0.00 0.00
------- -------- -------- ------
Total distributions 0.00 0.00 0.00 0.00
------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 16.09 $ 17.61 $ 16.03 $10.69
======= ======== ======== ======
Total return (8.63)% 9.86% 49.95% 6.90%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $68,572 $109.575 $165,081 $3,024
Ratio of expenses to average net assets 1.65%@ 1.66%@ 1.66%@ 1.65%*
Ratio of net income or loss to average net assets (1.30)% (1.27)% (1.13)% 0.25%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.41% 0.41% 0.66% 23.76%*
Portfolio turnover rate 111.51% 197.56% 168.46% 16.90%+
</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 1.65% for the year ended October 31, 1998, 1.65% and
1.65% for the year or period ended October 31, 1997 and
1996, respectively.
+ Non-annualized.
* Annualized.
** For the Period September 29, 1995 (Commencement of
Operations) through October 31, 1995.
See Accompanying Notes to Financial Statements.
39
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Small Company Value Fund (the "Small Company Value
Fund"), Warburg Pincus Small Company Growth Fund (the "Small Company Growth
Fund"), and Warburg Pincus Post-Venture Capital Fund (the "Post-Venture Capital
Fund") are registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as diversified, open-end management investment companies, and
Warburg Pincus Emerging Growth Fund (the "Emerging Growth Fund"), which is
registered under the 1940 Act as a non-diversified, open-end management
investment company.
Investment objectives for each Fund are as follows: the Emerging Growth
Fund seeks maximum capital appreciation; the Small Company Value Fund seeks
long-term capital appreciation; the Small Company Growth Fund seeks capital
growth; the Post-Venture Capital Fund seeks long-term growth of capital.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. (Effective
November 7, 1997, the Small Company Growth Fund closed generally to new
investors; the Fund re-opened to all investors on November 10, 1998.) 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 Small Company Value
Fund, the Small Company Growth Fund and the Post-Venture Capital Fund bear
expenses paid pursuant to a shareholder servicing and distribution plan adopted
by each Fund 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. At October 31, 1998, there were no
outstanding Advisor Shares for the Small Company Growth Fund.
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.
40
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
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
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 an 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. 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.
41
<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
- ---- -------
Emerging Growth $80,003
Small Company Value 6,548
Small Company Growth 427
Post-Venture Capital 3,765
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
- ---- -----------
Emerging Growth .90% of average daily net assets
Small Company Value 1.00% of average daily net assets
Small Company Growth 1.00% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
For the year ended October 31, 1998, investment advisory fees, voluntary
waivers and reimbursements were as follows:
42
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR -- (CONT'D)
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ---- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Emerging Growth $18,191,066 $ 0 $18,191,066 $ 0
Small Company Value 1,530,064 (11,933) 1,518,131 (3,991)
Small Company Growth 105,741 (43,714) 62,027 (62,236)
Post-Venture Capital 1,172,367 (340,613) 831,753 (39,268)
</TABLE>
Abbott Capital Management, LLC ("Abbott") serves as sub-investment adviser
for the Post-Venture Capital Fund's assets invested in U.S. or foreign private
limited partnerships or other investment funds ("Private Fund Investments").
From its investment advisory fee, Warburg pays Abbott a quarterly fee at the
annual rate of 1.00% of the Fund's value of Private Fund Investments as of the
end of each calendar quarter. No compensation is paid by the Post-Venture
Capital Fund to Abbott for its sub-investment advisory services.
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
- ---- ---------------------
Emerging Growth $2,021,230
Small Company Value 153,007
Small Company Growth 10,574
Post-Venture Capital 93,788
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 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>
Emerging Growth $1,514,914 $ 0 $1,514,914
Small Company Value 155,383 0 155,383
Small Company Growth 13,940 (10,574) 3,366
Post-Venture Capital 98,258 0 98,258
</TABLE>
Counsellors Securities Inc. ("CSI"), also a wholly-owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Emerging Growth 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 Post-Venture Capital Fund, the
43
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR -- (CONT'D)
Small Company Value Fund and the Small Company Growth 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 rate of .50%, respectively, of the
average daily net assets of each Fund's 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
- ---- ----------------------
Emerging Growth
Advisor shares $1,957,786
==========
Small Company Value
Common shares $ 382,127
Advisor shares 776
----------
$ 382,903
==========
Small Company Growth
Common shares $ 0
==========
Post-Venture Capital
Common shares $ 234,184
Advisor shares 579
----------
$ 234,763
==========
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
44
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
3. LINE OF CREDIT -- (CONT'D)
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 31, 1998 and during
the year ended October 31, 1998, the following funds had borrowings under the
line of credit agreement:
<TABLE>
<CAPTION>
AVERAGE MAXIMUM LOAN
AVERAGE DAILY INTEREST DAILY LOAN OUTSTANDING
FUND LOAN BALANCE RATE % OUTSTANDING AT 10/31/98
- ---- -------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Small Company Growth $ 7,896 6.05 $ 577,000 $ 0
Post-Venture
Capital 41,616 6.23 2,659,000 0
</TABLE>
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
- ---- -------------- --------------
Emerging Growth $1,804,336,466 $1,715,497,853
Small Company Value 111,642,274 216,614,153
Small Company Growth 11,504,409 16,586,214
Post-Venture Capital 101,474,650 136,685,996
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)
- ---- ------------ ------------- --------------
Emerging Growth $447,821,235 $(118,600,287) $329,220,948
Small Company Value 10,469,359 (4,011,350) 6,458,009
Small Company Growth 618,809 (471,402) 147,407
Post-Venture Capital 13,263,463 (1,409,811) 11,853,652
For the year ended October 31, 1998, sales of the Small Company Value Fund
included $11,231,694 of investment securities delivered to shareholders in
exchange for 596,626 Common Shares resulting in a gain of $1,627,952.
45
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
5. RESTRICTED SECURITIES
Certain Fund's investments are restricted as to resale and are valued as
determined by or under the direction of each Fund's Board in good faith, at fair
value. The table below shows the number of shares held, the acquisition dates,
aggregate cost, fair value as of October 31, 1998, share value of the securities
and percent of net assets which the securities comprise.
<TABLE>
<CAPTION>
PERCENTAGE
SECURITY ACQUISITION MARKET OF NET
FUND SECURITY DESCRIPTION TYPE DATE(S) COST VALUE ASSETS
- ---- -------------------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Emerging
Growth Fund
Chaparral Resources, Inc. Common 07/28/98 $ 1,250,000 $ 1,250,000 0.07%
Dealer Solutions Holdings,
Inc. Series A Preferred 04/29/98 5,000,000 5,000,000 0.27
Dealer Solutions Holdings, Warrants 04/29/98 0 0 0.00
Inc. Network Event Theater, Inc. Common 06/24/97 3,000,001 3,285,715 0.18
Network Event Theater, Inc. Common 02/06/98 4,000,000 4,000,000 0.22
New York Restaurant Group, Common 10/30/97 3,249,985 3,249,985 0.18
Inc. Opal Concepts Inc. Series B Preferred 08/31/95 2,000,000 1,999,999 0.11
Radical Entertainment Holdings, Inc. Common 10/06/97 2,500,000 1,250,000 0.07
Stratasys, Inc. Warrants 10/31/95 0 0 0.00
Women First Healthcare, Inc. Preferred 01/08/98 1,125,000 1,125,000 0.06
----------- ----------- ----
$22,124,986 $21,160,699 1.16%
=========== =========== ====
Post-Venture
Capital Fund
Chaparral Resources, Inc. Common 07/28/98 $ 500,000 $ 500,000 0.73%
New York Restaurant Group, Inc. Common 10/30/97 749,998 $ 749,998 1.09
Women.com Networks Common 06/04/98 750,002 750,002 1.09
----------- ----------- ----
$ 2,000,000 $ 2,000,000 2.91%
=========== =========== ====
Small Company
Value Fund
EA Industries, Inc. Warrants 03/31/98 $ 110,438 $ 0 0.00%
=========== =========== ====
</TABLE>
6. 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.
46
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
7. 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.
8. CAPITAL SHARE TRANSACTIONS
The Emerging Growth Fund, the Small Company Value Fund, the Small Company
Growth Fund, and the Post-Venture Capital Fund are each 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 are designated as the Advisor
Shares.
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
EMERGING GROWTH FUND
--------------------------------------------------------
COMMON SHARES ADVISOR SHARES
--------------------------- --------------------------
FOR THE YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shares sold 21,883,507 19,332,805 1,347,745 2,777,965
Shares issued to shareholders on
reinvestment of dividends 2,487,833 69,725 739,355 25,320
Shares redeemed (45,490,679) (14,870,553) (4,400,677) (2,261,139)
------------ ------------ ------------ -----------
Net increase (decrease) in shares
outstanding (21,119,339) 4,531,977 (2,313,577) 542,146
============ ============ ============ ===========
Proceeds from sale of shares $832,153,742 $685,993,625 $ 50,866,075 $95,536,933
Reinvested dividends 89,263,454 2,254,198 25,692,574 797,591
Net asset value of shares redeemed (649,384,554) (518,210,531) (163,852,478) (72,595,870)
------------ ------------ ------------ -----------
Net increase (decrease) from capital share
transactions $272,032,642 $170,037,292 $(87,293,829) $23,738,654
============ ============ ============ ===========
</TABLE>
47
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
8. CAPITAL SHARE TRANSACTIONS -- (CONT'D)
<TABLE>
<CAPTION>
SMALL COMPANY VALUE FUND
------------------------------------------------------
COMMON SHARES ADVISOR SHARES
---------------------------- -----------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------
1998 1997 1998 1997
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Shares sold 3,790,193 15,162,610 124,701 502,401
Shares issued to shareholders on reinvestment
of dividends 1,261,331 73,225 1,980 4
Shares redeemed (10,971,376) (9,160,818) (136,386) (489,074)
------------- ------------ ---------- ----------
Net increase (decrease) in shares outstanding (5,919,852) 6,075,017 (9,705) 13,331
============= ============ ========== ==========
Proceeds from sale of shares $ 61,572,814 $250,655,885 $2,164,804 $7,762,145
Reinvested dividends 19,941,713 1,093,260 31,064 56
Net asset value of shares redeemed (183,185,391) (153,324,594) (2,336,468) (8,325,563)
------------- ------------ ---------- ----------
Net increase (decrease) from capital share
transactions $(101,670,864) $ 98,424,551 $ (140,600) $ (563,362)
============= ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
-------------------------------------
COMMON SHARES
-------------------------------------
FOR THE PERIOD
DECEMBER 31,
1996
(COMMENCEMENT OF
FOR THE OPERATIONS)
YEAR ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ------------------
<S> <C> <C>
Shares sold 619,229 1,961,439
Shares issued to shareholders on reinvestment of dividends 4,732 0
Shares redeemed (1,151,947) (993,975)
----------- -----------
Net increase (decrease) in shares outstanding (527,986) 967,464
=========== ===========
Proceeds from sale of shares $ 7,623,711 $21,283,561
Reinvested dividends 53,996 0
Net asset value of shares redeemed (13,254,497) (10,292,871)
----------- -----------
Net increase (decrease) from capital share transactions ($5,576,790) $10,990,690
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
POST-VENTURE CAPITAL FUND
------------------------------------------------
COMMON SHARES ADVISOR SHARES
--------------------------- ------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------
1998 1997 1998 1997
------------ ------------ -------- -------
<S> <C> <C> <C> <C>
Shares sold 1,777,588 4,136,567 21,227 3,331
Shares issued to shareholders on reinvestment of
dividends 0 0 0 0
Shares redeemed (3,738,272) (8,215,079) (15,152) (675)
------------ ------------ -------- -------
Net increase (decrease) in shares outstanding (1,960,684) (4,078,512) 6,075 2,656
============ ============ ======== =======
Proceeds from sale of shares $ 33,045,233 $ 67,826,803 $323,280 $54,436
Reinvested dividends 0 0 0 0
Net asset value of shares redeemed (68,403,457) (133,261,256) (253,076) (10,771)
------------ ------------ -------- -------
Net increase (decrease) from capital share
transactions $(35,358,224) $(65,434,453) $ 70,204 $43,665
============ ============ ======== =======
</TABLE>
48
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
9. LIABILITIES
At October 31, 1998, each Fund had the following liabilities:
<TABLE>
<CAPTION>
EMERGING SMALL COMPANY SMALL COMPANY POST-VENTURE
GROWTH VALUE GROWTH CAPITAL
FUND FUND FUND FUND
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Payable for securities purchased (at value) $15,625,858 $576,308 $44,844 $2,819,743
Investment advisory fee payable 1,253,184 53,849 0 52,232
Administrative services fees payable 139,243 6,578 358 5,420
Distribution fees payable 0 16,434 0 13,494
Fund shares redeemed payable 9,229,338 92,209 41,230 151,565
----------- -------- ------- ----------
$26,247,623 $745,378 $86,432 $3,042,454
=========== ======== ======= ==========
</TABLE>
10. 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 period permanent book/tax differences. The
Emerging Growth Fund, Small Company Value Fund, Small Company Growth Fund and
the Post-Venture Capital Fund reclassified ($11,226,871), ($709,432), ($80,614),
and ($1,218,879), respectively, from accumulated net investment loss to capital
contributions. The Emerging Growth Fund and the Small Company Value Fund
reclassified ($163,028) and $69,022, respectively, from accumulated net realized
gain from security transactions to capital contributions. The Small Company
Value Fund reclassified $1,627,952 of gains from redemption in kind from
accumulated net realized gains from security transactions to capital
contributions. The Small Company Growth Fund reclassified offering costs of
($19,620) and ($1,757) of distributions from undistributed net investment loss
to capital contributions.
49
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
10. NET ASSETS -- (CONT'D)
Net Assets at October 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
EMERGING SMALL COMPANY
GROWTH VALUE
FUND FUND
-------------- -------------
<S> <C> <C>
Capital contributed, net $1,559,851,623 $71,695,255
Undistributed net investment income 0 0
Accumulated net realized gain (loss) from security
transactions (48,161,186) 1,778,991
Net unrealized appreciation (depreciation) from investments
and foreign currency related items 331,853,650 6,896,649
-------------- -----------
Net assets $1,843,544,087 $80,370,895
============== ===========
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY POST-VENTURE
GROWTH CAPITAL
FUND FUND
------------- ------------
<S> <C> <C>
Capital contributed, net $5,314,132 $56,972,877
Undistributed net investment income 0 0
Accumulated net realized gain (loss) from security
transactions (981,944) 588
Net unrealized appreciation (depreciation) from investments
and foreign currency
related items 211,495 11,941,232
---------- -----------
Net assets $4,543,683 $68,914,697
========== ===========
</TABLE>
11. CAPITAL LOSS CARRYOVER
At October 31, 1998, capital loss carryovers available to offset possible
future capital gains of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL LOSS CARRYOVER
EXPIRING IN
------------------------------- TOTAL CAPITAL
FUND 2004 2005 2006 LOSS CARRYOVER
- ---- ------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Emerging Growth $ 0 $ 0 $45,528,485 $45,528,485
Small Company Growth 0 314,372 603,484 917,856
</TABLE>
50
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
12. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Advisor Shares,
representing equal pro rata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for an Advisor Share of each Fund are as
follows:
<TABLE>
<CAPTION>
EMERGING GROWTH FUND
---------------------------------------------------
ADVISOR SHARES
---------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
PERIOD ENDED: -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 38.50 $ 31.99 $ 29.38 $ 22.05 $ 23.51
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES:
Net investment loss (0.49) (0.33) (0.09) (0.09) (0.08)
Net gains or losses on investments (both
realized and unrealized) (3.11) 6.91 4.45 7.42 (0.02)
-------- -------- -------- -------- -------
Total from investment activities (3.60) 6.58 4.36 7.33 (0.10)
-------- -------- -------- -------- -------
DISTRIBUTIONS:
From net investment income: 0.00 0.00 0.00 0.00 0.00
From realized capital gains (2.39) (0.07) (1.75) 0.00 (1.36)
-------- -------- -------- -------- -------
Total distributions (2.39) (0.07) (1.75) 0.00 (1.36)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 32.51 $ 38.50 $ 31.99 $ 29.38 $ 22.05
======== ======== ======== ======== =======
Total return (9.75)% 20.62% 15.69% 33.24% (0.29)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $311,023 $457,432 $362,696 $167,225 $64,009
Ratio of expenses to average net assets 1.62%@ 1.63%@ 1.70%@ 1.76% 1.72%
Ratio of net loss to average net assets (0.87)% (1.01)% (1.05)% (1.08)% (1.08)%
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements 0.00% 0.00% 0.00% 0.00% 0.04%
Portfolio turnover rate 91.60% 87.03% 65.77% 84.82% 60.38%
</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 ended October 31, 1997 and 1996,
respectively. The Advisor Shares' operating expense ratio after reflecting
these arrangements were 1.62% for the year ended October 31, 1998, 1.63% and
1.69% for the year ended October 31, 1997 and 1996, respectively.
51
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
12. OTHER FINANCIAL HIGHLIGHTS -- (CONT'D)
<TABLE>
<CAPTION>
SMALL COMPANY VALUE FUND
---------------------------------------------
ADVISOR SHARES
---------------------------------------------
FOR THE YEAR ENDED DECEMBER 29, 1995
OCTOBER 31, (COMMENCEMENT OF
----------------------- OPERATIONS THROUGH
PERIOD ENDED: 1998 1997 OCTOBER 31, 1996
------ ------ -------------------
PER-SHARE DATA:
<S> <C> <C> <C>
Net asset value, beginning of period $18.65 $14.46 $10.00
------ ------ ------
INVESTMENT ACTIVITIES:
Net investment loss (0.40) (0.08) (0.02)
Net gains or losses on investments
(both realized and unrealized) (3.02) 4.44 4.48
------ ------ ------
Total from investment activities (3.42) 4.36 4.46
------ ------ ------
DISTRIBUTIONS:
From net investment income 0.00 0.00 0.00
From realized capital gains (1.93) (0.17) 0.00
------ ------ ------
Total distributions (1.93) (0.17) 0.00
------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.30 $18.65 $14.46
====== ====== ======
Total return (19.93)% 30.47% 44.60+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 53 $ 255 $ 5
Ratios of expenses to average net assets: 1.97%@ 1.89%@ 1.97%@*
Ratio of net loss to average net assets (0.92)% (0.78)% (0.52)%*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements 0.27% 0.00% 1.46%*
Portfolio turnover rate 77.92% 105.87% 43.14%+
</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 .01% and .00% for the year or period ended
October 31, 1997 and 1996, respectively. The Advisor Shares'
operating expense ratio after reflecting these arrangements
were 1.97% for the year ended October 31, 1998, 1.88% and
1.97% for the year or period ended October 31, 1997 and
1996, respectively.
+ Non-annualized.
* Annualized.
52
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
12. OTHER FINANCIAL HIGHLIGHTS -- (CONT'D)
<TABLE>
<CAPTION>
POST-VENTURE CAPITAL FUND
----------------------------------------------------
ADVISOR SHARES
----------------------------------------------------
FOR THE PERIOD
SEPTEMBER 29, 1995
FOR THE YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
------------------------------ OPERATIONS) THROUGH
1998 1997 1996 OCTOBER 31, 1995
PERIOD ENDED: -------- -------- -------- -------------------
<S> <C> <C> <C> <C>
PER-SHARE DATA:
Net asset value, beginning of period $17.44 $15.93 $10.68 $10.00
------ ------ ------ ------
INVESTMENT ACTIVITIES:
Net investment gain or loss (0.01) (0.22) (0.05) 0.00
Net gains or losses on investments
(realized and unrealized) (1.53) 1.73 5.30 0.68
------ ------ ------ ------
Total from investment activities (1.54) 1.51 5.25 0.68
------ ------ ------ ------
DISTRIBUTIONS:
From net investment income 0.00 0.00 0.00 0.00
From realized capital gains 0.00 0.00 0.00 0.00
------ ------ ------ ------
Total Distribution 0.00 0.00 0.00 0.00
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $15.90 $17.44 $15.93 $10.68
====== ====== ====== ======
Total return (8.83)% 9.48% 49.16% 6.80%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $ 343 $ 270 $ 204 $ 1
Ratios of expenses to average net assets: 1.90%@ 1.91%@ 1.90%@ 2.15%*
Ratio of net gain or loss to average net assets (1.65)% (1.52)% (1.41)% 0.09%*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements 0.66% 0.70% 0.75% 9.25%*
Portfolio turnover rate 111.51% 197.56% 168.46% 16.90%+
</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 .01% and .00% for the year or period ended
October 31, 1997 and 1996, respectively. The Advisor Shares'
operating expense ratio after reflecting these arrangements
were 1.90% for the year ended October 31, 1998, 1.90% and
1.90% for the year or period ended October 31, 1997 and
1996, respectively.
+ Non-annualized.
* Annualized.
53
<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 of 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 DIVIDEND QUALIFYING FOR
FUND PER SHARE PER SHARE PER SHARE DIVIDENDS RECEIVED DEDUCTION*
- ---- --------- ------------- ------------- -----------------------------
<S> <C> <C> <C> <C>
1997
PAYMENT DATE 12/19/97 12/19/97 12/19/97
Emerging Growth 0.00
Common Shares $ 0.0000 $ 1.2961 $1.0923
Advisor Shares 0.0000 1.2961 1.0923
Small Company Value 8.37
Common Shares 1.2200 0.3405 0.3654
Advisor Shares 1.2200 0.3405 0.3654
Small Company Growth 14.82
Common Shares 0.0648 0.0000 0.0000
</TABLE>
The Post-Venture Capital Fund did not pay any ordinary income dividends or
capital gain distributions during the current fiscal year. Further, the above
information was provided to calendar year taxpayers via Form 1099-DIV mailed in
January of 1998.
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.
54
<PAGE>
WARBURG PINCUS DOMESTIC EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
WARBURG, PINCUS EMERGING GROWTH FUND, INC.;
WARBURG, PINCUS SMALL COMPANY VALUE FUND, INC.;
WARBURG, PINCUS SMALL COMPANY GROWTH FUND, INC. AND
WARBURG, PINCUS POST-VENTURE CAPITAL 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 Emerging Growth Fund, Inc., Warburg, Pincus Small Company Value
Fund, Inc., Warburg, Pincus Small Company Growth Fund, Inc. and Warburg, Pincus
Post-Venture Capital 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 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
55
<PAGE>
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) o www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPUSS-2-1098
