Annual
Report
October 31, 1998
Warburg Pincus Institutional Fund, Inc.
o International Equity Portfolio
o Emerging Markets Portfolio
o Japan Growth Portfolio
More complete information about the fund, including charges and expenses, is
provided in the Prospectus, which must precede or accompany this document and
which should be read carefully before investing. You may obtain additional
copies by calling 800-369-2728 or by writing to Warburg Pincus, P.O. Box 4906,
Grand Central Station, New York, NY 10163.
[LOGO]
<PAGE>
From time to time, the portfolios' 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.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic and political risks, and differences in
accounting methods.
The views of the portfolios' management are as of the date of the letters and
holdings described in this document are as of October 31, 1998; these views and
holdings may have changed subsequent to these dates. Nothing in this document is
a recommendation to purchase or sell securities.
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WARBURG PINCUS INSTITUTIONAL FUND -- INTERNATIONAL EQUITY PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Institutional Fund -- International Equity
Portfolio (the "Portfolio") is long-term capital appreciation. The Portfolio
pursues its objective by investing primarily in a broadly diversified portfolio
of equity securities of companies that have their principal business activities
and interests outside the U.S.
For the 12 months ended October 31, 1998, the Portfolio had a loss of
4.11%, vs. a gain of 4.51% for the Morgan Stanley All Country World Excluding
the U.S. ("MSCI") Index.
The period saw a marked divergence in performance among foreign stock
markets. European markets enjoyed impressive gains, benefiting from a host of
factors, including low inflation, falling interest rates and optimism regarding
the approach of European Monetary Union. Markets elsewhere saw far less
favorable results. Among developed markets, Japan was a noteworthy casualty,
weighed down by mounting concerns over its economy and in particular its
troubled banking sector. Emerging markets suffered sharp losses across the
board, as the economic and financial contagion that began following the Thai
baht devaluation in mid-1997 continued to spread, dragging down markets from
Asia to Eastern Europe to Latin America.
Set against this backdrop, Warburg Pincus Institutional Fund --
International Equity Portfolio suffered a disappointing performance, falling
4.11% over the 12 months and underperforming its benchmark by a considerable
margin. This reflected both untimely regional allocations and weakness in
specific stocks. Regional allocations that hurt the Portfolio included its Latin
American exposure, which, while a relatively small portion of the Portfolio's
assets through the period (approximately 3% to 5%), proved a considerable
liability, given the substantial declines suffered by that region's stock
markets. Also exerting a sizable drag on the Portfolio's performance was its
relatively high level of exposure to the Asia-Pacific region heading into the
period (we subsequently reduced that exposure significantly), as these markets
were then in the throes of a substantial sell-off triggered by Thailand's
currency devaluation. The Portfolio was also hurt significantly on an
opportunity-cost basis by its underweighting in Europe in the first few months
of 1998, a period that saw those markets rally strongly.
Poor showings in individual stocks also took a toll on the Portfolio's
returns. In Europe, the Portfolio maintained a fairly large weighting in
economically sensitive stocks through the period, based on our view that there
was considerable value to be found in the group. This served the Portfolio well
for a time but ultimately proved costly, as these stocks sold off heavily (and,
we would argue, indiscriminately) in August and September amid the global
1
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WARBURG PINCUS INSTITUTIONAL FUND -- INTERNATIONAL EQUITY PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
market sell-off and widening fears of global recession. The Portfolio also had a
fair weighting in European financial stocks heading into that period, and these
too fell sharply, largely due to worries over these companies' exposure to
Russia and other emerging markets.
All told, it was a disappointing and frustrating year for the Portfolio
and, obviously, our shareholders. We believe, though, that with the recent
return of a degree of stability to global financial markets, our investment
discipline -- which is fundamentally driven and seeks to identify undervalued
stocks that have the potential for strong gains over an 18- to 24-month period
- -- stands to generate far better results going forward. Much of the extreme
volatility in the markets during the reporting period was emotionally, rather
than rationally, driven, with investors abandoning companies, countries and
whole regions based on knee-jerk, fear-based reactions. This worked to the
advantage of certain investment styles (e.g., "momentum" investing), but weighed
heavily on those of us who employ a more-patient, longer-term, stock-by-stock
approach to the markets. Thankfully, however, a calmer, more-rational mindset
seems to have returned to the markets during the past several months, one in
which investors appear to be valuing companies based primarily on fundamentals,
rather than emotion, and this is an environment in which we believe our
methodology and research efforts can add a considerable amount of value. (As
evidence of how our approach has served shareholders over time, we would point
to the Portfolio's since-inception performance vs. its benchmark. The Portfolio
has achieved a 10.25% average annual return since commencing operations in 1992,
vs. a same-period return of 9.01% for the MSCI Index.)
We would therefore encourage our investors to stay the course, and continue
to view the Portfolio's performance, and in fact that of all international
investments, from a longer-term perspective, since that is the view we take in
structuring the Portfolio. In turn, know that we will continue to strive to
identify the most attractive companies and the best candidates for long-term
appreciation within the international arena, as we have always done. We are
hopeful that those efforts will allow us to report vastly improved performance
numbers to you at this time next year.
Richard H. King Harold W. Ehrlich
Portfolio Manager Associate Portfolio Manager
P. Nicholas Edwards Vincent J. McBride
Associate Portfolio Manager Associate Portfolio Manager
International investing entails special risk considerations, including
currency fluctuations, lower liquidity, economic and political risks, and
differences in accounting methods.
2
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WARBURG PINCUS INSTITUTIONAL FUND -- INTERNATIONAL EQUITY PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS INSTITUTIONAL FUND, INC. --
INTERNATIONAL EQUITY PORTFOLIO SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates a hypothetical investment of $10,000 in Warburg
Pincus Institutional Fund, Inc. -- International Equity Portfolio (the
"Portfolio") from September 1, 1992 (inception) to October 31, 1998, compared to
the Morgan Stanley All Country World Excluding the U.S. Index ("MSCI")* for the
same time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Portfolio MSCI
--------- ----
Sep-92 10000.00 10000.00
Sep-92 9860.00 9776.60
Oct-92 9620.00 9378.30
Nov-92 9840.00 9445.26
Dec-92 10038.20 9509.68
Jan-93 10240.18 9507.30
Feb-93 10432.05 9821.99
Mar-93 11149.07 10633.09
Apr-93 11815.59 11545.52
May-93 12027.66 11786.59
Jun-93 11765.09 11638.55
Jul-93 12189.24 12007.72
Aug-93 13007.25 12621.32
Sep-93 12956.75 12373.69
Oct-93 13623.27 12815.68
Nov-93 13401.10 11899.23
Dec-93 15294.40 12892.81
Jan-94 16776.81 13949.25
Feb-94 16418.99 13820.50
Mar-94 15069.48 13182.82
Apr-94 15417.08 13642.38
May-94 15938.48 13657.38
Jun-94 15744.23 13751.07
Jul-94 16296.30 14004.78
Aug-94 17022.17 14484.44
Sep-94 16623.46 14180.70
Oct-94 16705.24 14516.36
Nov-94 15999.82 13825.82
Dec-94 15425.87 13809.23
Jan-95 14114.40 13143.07
Feb-95 13867.16 13070.39
Mar-95 14748.63 13798.67
Apr-95 15221.62 14289.21
May-95 15221.62 14212.34
Jun-95 15081.88 14014.93
Jul-95 16017.10 14778.46
Aug-95 16232.10 14252.94
Sep-95 16597.59 14516.62
Oct-95 16232.10 14130.77
Nov-95 16457.84 14426.24
Dec-95 16954.68 14988.00
Jan-96 17465.76 15155.41
Feb-96 17487.98 15157.99
Mar-96 17632.42 15452.66
Apr-96 18699.03 16001.85
May-96 18321.27 15734.94
Jun-96 18576.81 15827.93
Jul-96 17676.86 15284.72
Aug-96 17810.19 15372.61
Sep-96 18110.17 15750.16
Oct-96 17932.40 15587.93
Nov-96 18721.27 16179.80
Dec-96 18859.80 15984.84
Jan-97 18802.13 15703.66
Feb-97 19044.36 15998.42
Mar-97 18929.01 15971.86
Apr-97 19298.14 16117.53
May-97 20636.20 17091.19
Jun-97 21535.94 18044.02
Jul-97 22228.04 18414.10
Aug-97 20440.90 17005.98
Sep-97 21397.54 17865.80
Oct-97 19043.81 16295.40
Nov-97 18548.67 16087.14
Dec-97 18374.31 16259.59
Jan-98 18563.57 16741.85
Feb-98 19868.59 17881.30
Mar-98 20997.12 18485.87
Apr-98 21490.55 18599.74
May-98 21477.66 18239.10
Jun-98 20831.18 18157.93
Jul-98 21210.31 18332.97
Aug-98 18156.03 15739.77
Sep-98 17319.03 15416.64
Oct-98 18255.99 17030.91
Average Annual Total Returns for periods ended 10/31/98
1 year
-4.11%
5 year
6.03%
Since Inception
(9/01/92)
10.25%
Fund
----
1 Year Total Return (9/30/97 to 9/30/98).................... -19.04%
5 Year Average Annual Total Return (9/30/93 to 9/30/98)..... 5.98%
Average Annual Total Return Since Inception
(9/01/92 to 9/30/98)...................................... 9.45%
3
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WARBURG PINCUS INSTITUTIONAL FUND -- INTERNATIONAL EQUITY PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
In past annual reports, we have compared the Portfolio's performance to
that of the Morgan Stanley Europe, Australasia and Far East Index ("EAFE").** We
believe that the MSCI Index, which measures the performance of many issuers from
emerging markets in addition to issuers from countries included in the EAFE
Index, is a more descriptive benchmark for the Portfolio. The following compares
EAFE, MSCI and the Portfolio's annual value for the fiscal years ended October
31.
EAFE MSCI PORTFOLIO
------- ------- ---------
1992.......................... $ 9,288 $ 9,378 $ 9,620
1993.......................... 12,768 12,816 13,623
1994.......................... 14,058 14,516 16,705
1995.......................... 14,006 14,131 16,232
1996.......................... 15,473 15,588 17,932
1997.......................... 16,190 16,295 19,044
1998.......................... 17,751 17,031 18,256
- ------------------
* The Morgan Stanley All Country World Excluding the U.S. Index is a
market-capitalization weighted index of companies listed on stock exchanges
outside of the United States.
** The Morgan Stanley Europe, Australasia and Far East Index is an unmanaged
index of international equities (with no defined investment objective) that
includes reinvestment of dividends and is the exclusive property of Morgan
Stanley & Co., Incorporated.
4
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WARBURG PINCUS INSTITUTIONAL FUND -- EMERGING MARKETS PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Institutional Fund -- Emerging Markets
Portfolio (the "Portfolio") is long-term growth of capital. The Portfolio
pursues its objective by investing primarily in equity securities of non-U.S.
issuers consisting of companies in emerging securities markets.
For the 12 months ended October 31, 1998, the Portfolio had a loss of
32.90%, vs. a loss of 30.98% for the Morgan Stanley Emerging Markets Free Index.
To say that the period was a difficult one for emerging markets would be an
understatement. The markets were battered by one negative development after
another: a sharp economic and financial contraction across the Asian-Pacific
region following Thailand's currency devaluation in mid-1997, which persisted
through the period; an economic and political meltdown in Russia in August,
which triggered a full-scale investor retreat from any and all forms of risk,
particularly emerging markets; and finally a settling of market contagion on
Latin America, most notably Brazil, the region's economic giant. Not
surprisingly, investor sentiment toward the asset class was decidedly poor
through most if not all of the period, with many markets suffering outsized
losses and only a handful managing gains.
Warburg Pincus Institutional Fund -- Emerging Markets Portfolio suffered
proportionately, performing roughly in line with its benchmark. In terms of
general strategy through the period, we attempted to strike a balance between
avoiding the worst of the markets' volatility and positioning the Portfolio for
the longer term (i.e., buying battered stocks whose longer-term prospects we
viewed favorably, near-term weakness notwithstanding). In practice, this
translated into a relatively small presence in Southeast Asia through most of
the 12 months, and highly focused exposure to the rest of the Asia-Pacific
region; relatively large weightings in some of the smaller Middle Eastern,
Eastern European and European markets (e.g., Poland), several of which enjoyed
somewhat of a safe-haven status through much of the period; and a fairly large
stake in Latin America, concentrated most heavily in Brazil. While these
allocations met with mixed results -- the Portfolio's Latin American exposure,
in particular, proved quite costly at the end of the period, given the sharp
sell-off in the region's markets -- we believe we did succeed in assembling a
portfolio of attractively valued securities, one that has the potential to show
far more favorable results over a more extended time horizon.
5
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WARBURG PINCUS INSTITUTIONAL FUND -- EMERGING MARKETS PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
Though emerging markets obviously proved a less-than-timely investment
through the period, and in fact have given little cause for cheer over most of
the past several years, we see grounds for optimism heading into 1999. Several
hoped-for developments, including an international financial-support package for
Brazil and an economic-stimulus package for Japan (whose economy has a
significant impact on the rest of the Asia-Pacific region), have materialized in
recent weeks, and the effects thus far on investor psychology have been fairly
dramatic, witnessed by the explosive rallies in a number of markets. Several
emerging-market economies, including some of the previously hardest-hit in the
Asia-Pacific region, have also begun to show signs of improvement, far earlier
than most economists and analysts had anticipated. The combination of improved
sentiment and a strengthening macroeconomic backdrop, coupled with the
considerable amount of value now present in these markets -- emerging-market
equities currently trade at extremely attractive valuations vs. their
developed-market counterparts -- suggests a better environment for emerging
markets in 1999 than they experienced in 1998.
Accordingly, we remain optimistic, and believe the Portfolio is well-
positioned in terms of its regional allocations and specific holdings to benefit
from a recovery. (Here though, shareholders should note that, as of this
writing, a major shareholder in the Portfolio has redeemed or is in the process
of redeeming its position. This could negatively impact remaining shareholders,
especially those with taxable accounts.) As ever, though, we would encourage
investors to approach the asset class with realistic expectations. These markets
can be extremely volatile over the short term, as evidenced by the past 12
months, and investors with a relatively low tolerance for risk should probably
think twice before committing assets. For those with a longer-term investment
horizon and a sufficiently high threshold for risk, however, we believe emerging
markets offer the potential for very attractive returns going forward, and that
they are well worthy of consideration.
Richard H. King Vincent J. McBride
Co-Portfolio Manager Co-Portfolio Manager
International investing entails special risk considerations, including
currency fluctuations, lower liquidity, economic and political risks, and
differences in accounting methods; these risks are generally heightened for
emerging-market investments.
6
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WARBURG PINCUS INSTITUTIONAL FUND -- EMERGING MARKETS PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS
INSTITUTIONAL FUND, INC. -- EMERGING MARKETS PORTFOLIO
SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates a hypothetical investment of $10,000 in Warburg
Pincus Institutional Fund, Inc. -- Emerging Markets Portfolio (the "Portfolio")
from September 30, 1996 (inception) to October 31, 1998, compared to the Morgan
Stanley Emerging Markets Free Index ("MSCI")* for the same time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Portfolio MSCI
--------- ----
Sep-96 10000.00 10000.00
Oct-96 9860.00 9733.50
Nov-96 10320.00 9897.02
Dec-96 10380.01 9941.56
Jan-97 10984.09 10619.57
Feb-97 11215.65 11074.52
Mar-97 10913.61 10783.59
Apr-97 11125.04 10802.78
May-97 11960.67 11111.85
Jun-97 12484.21 11706.67
Jul-97 12594.95 11881.33
Aug-97 11125.04 10369.55
Sep-97 11376.74 10657.00
Oct-97 9423.56 8908.40
Nov-97 8960.86 8583.24
Dec-97 8876.63 8790.10
Jan-98 8224.20 8100.78
Feb-98 9439.74 8946.25
Mar-98 9627.59 9334.34
Apr-98 9528.42 9232.69
May-98 8212.55 7967.54
Jun-98 7692.69 7131.74
Jul-98 7825.01 7357.82
Aug-98 5547.93 5230.67
Sep-98 5835.31 5562.51
Oct-98 6321.40 6148.29
Average Annual Total Returns for periods ended 10/31/98
1 year
-32.90%
Since Inception
(9/30/96)
-19.71%
Fund
----
1 Year Total Return (9/30/97 to 9/30/98).................... -48.70%
Average Annual Total Return Since Inception
(9/30/96 to 9/30/98)...................................... -23.57%
- ------------------
* The Morgan Stanley Emerging Markets Free Index is a market-
capitalization-weighted index of emerging-market countries determined by
Morgan Stanley. It includes only those countries open to non-local investors.
7
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WARBURG PINCUS INSTITUTIONAL FUND -- JAPAN GROWTH PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998
- --------------------------------------------------------------------------------
December 11, 1998
Dear Shareholder:
The objective of Warburg Pincus Institutional Fund -- Japan Growth
Portfolio (the "Portfolio") is long-term growth of capital. The Portfolio
pursues its objective by investing primarily in equity securities of Japanese
issuers that present attractive opportunities for growth.
For the 12 months ended October 31, 1998, the Portfolio had a loss of
7.84%, vs. a loss of 15.51% for the U.S.-dollar-denominated Tokyo Stock Exchange
Index ("Topix").
The period was obviously a disappointing one for investors in Japanese
equities. Stocks were weighed down heavily by concerns over Japan's struggling
economy and specific worries over the country's bad-debt-burdened banking
sector. The market was further hurt by doubts over the Japanese government's
ability and/or willingness to take sufficient remedial action to address these
issues. As a result, virtually all broad-market measures posted losses for the
12 months, and individual sectors and companies suffered substantial declines.
Set against this backdrop, Warburg Pincus Institutional Fund -- Japan
Growth Portfolio fell 7.84% over the 12 months, a disappointing showing in
absolute terms though a positive one vs. the Portfolio's benchmarks. In terms of
general investment strategy, the Portfolio maintained fairly significant
exposure to the so-called "Nifties" (large-cap, blue-chip exporters such as
Sony, TDK and Canon) throughout the period, reflecting our view that these
companies had relatively attractive earnings-growth prospects as well as equity
valuations. As a rule, this emphasis served the Portfolio well, as a fair number
of these stocks enjoyed solid performance vs. the broader market. The Portfolio
maintained limited, highly specific exposure to companies reliant on the
domestic Japanese economy for their revenues (e.g., retailers), in deference to
the weak economic backdrop and the downward trend in consumer spending. This,
too, generally worked to the Portfolio's advantage, as investors took a
collectively dim view of these companies and sold shares heavily, translating
into sharp losses for many of these stocks.
One strategy that had a less-positive impact on the Portfolio's return was
our hedging of most of its yen exposure. The hedge, which we kept in place as a
defensive measure, served the Portfolio well through much of the period (i.e.,
through mid-August), as the yen fell more or less steadily in value against the
dollar. (The yen traded at approximately 120 per U.S. dollar at the beginning of
November 1997, and fell to a low of 147.25 on August 11, 1998.) From mid-August
onward, however, the yen reversed course and strengthened considerably,
finishing October at approximately 116 per dollar. This strong move in the
currency (which we viewed, and continue to view, as unsustainable) worked
decidedly to the Portfolio's disadvantage, given our hedging, and took a sizable
toll on its relative performance. Particularly damaging was the month of
October, when the Portfolio suffered a 5.81% decline, vs. a gain of over 16% for
the dollar-denominated (i.e., unhedged) Topix index.
As we head into 1999, we believe there are grounds for optimism regarding
Japanese equities, the country's current economic and financial malaise
8
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND -- JAPAN GROWTH PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
notwithstanding. Japan's authorities have recently enacted substantive measures
to address the banking sector's ailments (including a $500 billion bank-
stabilization package) and revitalize the economy (including the creation of a
$195 billion stimulus package). Though these measures are admittedly less than
perfect and have been subject to criticism, they do at a minimum suggest a
fundamental shift in attitude on the part of the Japanese government and a
willingness to begin to take the steps necessary to right the situation. Japan,
it should be noted, remains the world's second-largest economy and has
sufficient resources to solve its economic problems, unlike many of its troubled
Asian neighbors. What has long been missing is the political will. Assuming this
has changed, or is changing, however, Japan's economy and financial sector
should begin to see a gradual return to health in the coming months, which would
undoubtedly create a far more favorable climate for equities.
Concurrently, there are signs of improvement in foreign-investor sentiment
toward the Japanese market (local-investor sentiment remains largely cautious),
witnessed by the growing number of global analysts and strategists who have
increased their recommended allocation to the country. The potential for a
large-scale return of overseas buyers to the market -- many global investors
have been underweighted in Japan for the past several years -- can only have
positive implications for share prices.
Perhaps the most compelling reason for investing in Japan currently,
though, is the sea change occurring in corporate governance. Japanese companies,
which historically had been largely unconcerned with their shareholders, have
begun to take tangible steps to increase shareholder value -- restructuring,
focusing on returns on equity, buying back shares, etc. -- and the trend is
accelerating. This is creating, and will no doubt continue to create, very
attractive investment opportunities for those who can pick the right companies
and are willing to set their sights beyond the immediate term.
Given this combination of factors, and the considerable amount of value to
be found currently in the market, we remain positive in our outlook on Japan,
and particularly positive on the Portfolio's prospects. As the Portfolio's
since-inception performance vs. its benchmarks and its competitive universe
suggests, it is possible to generate relatively strong performance in Japan via
good stock selection, and we are encouraged by the results of our efforts toward
that end thus far. We will continue to strive to identify the best opportunities
in Japan going forward, in what we believe has promise to be a far more
favorable investment environment.
P. Nicholas Edwards
Portfolio Manager
International investing entails special risk considerations, including
currency fluctuations, lower liquidity, economic and political risks, and
differences in accounting methods. There are also risks associated with
investing in Japan, including the risk of investing in a single-country fund.
9
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND -- JAPAN GROWTH PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- OCTOBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS
INSTITUTIONAL FUND, INC. -- JAPAN GROWTH PORTFOLIO
SINCE INCEPTION AS OF OCTOBER 31, 1998
The graph below illustrates a hypothetical investment of $10,000 in Warburg
Pincus Institutional Fund, Inc. -- Japan Growth Portfolio (the "Portfolio") from
October 31, 1997 (inception) to October 31, 1998, compared to the U.S.-dollar-
denominated Tokyo Stock Exchange Index ("Topix")* for the same time period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Portfolio Topix
--------- -----
Oct-97 10000.00 10000.00
Nov-97 9850.00 9247.00
Dec-97 9488.51 8523.88
Jan-98 10457.28 9435.77
Feb-98 10426.96 9514.28
Mar-98 10346.67 8873.20
Apr-98 10599.13 8756.52
May-98 10356.41 8345.84
Jun-98 10154.46 8399.84
Jul-98 10982.04 8288.79
Aug-98 10114.46 7436.70
Sep-98 9569.29 7281.28
Oct-98 9216.19 8448.47
Average Annual Total Returns for periods ended 10/31/98
Since Inception
(10/31/91)
-7.84%
Fund
----
Aggregate Annual Total Return Since Inception
(10/31/97 to 9/30/98)..................................... -4.31%+
- ------------------
* The Topix is an unmanaged capitalization-weighted index (with no defined
investment objective) designed to reflect the general movement of the Japanese
stock market. The index consists of all shares listed on the First Section of
the Tokyo Stock Exchange, which is generally reserved for Japan's larger
companies.
+ Not annualized.
10
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (90.4%)
Argentina (1.8%)
Telefonica de Argentina SA ADR 152,000 $ 5,025,500
YPF SA ADR 442,500 12,804,844
--------------
17,830,344
--------------
Australia (0.1%)
Burns, Philp & Company, Ltd. 10,626,301 562,056
--------------
Austria (1.5%)
Erste Bank Der Oesterreichischen Sparkassen AG 56,000 3,277,687
Maculan Holding AG Vorzuege 409 2,668
V.A. Technologie AG 44,131 4,090,370
Wienerberger Baustoffindustrie AG 34,858 7,275,321
--------------
14,646,046
--------------
Denmark (3.7%)
International Service System AS Class B 232,750 15,711,539
Tele Danmark AS Class B 78,300 8,531,512
Unidanmark AS Class A + 178,100 13,578,296
--------------
37,821,347
--------------
Finland (0.2%)
Huhtamaki OY Class I + 35,950 1,205,851
Rauma OY 80,255 947,758
--------------
2,153,609
--------------
France (13.2%)
Banque Nationale de Paris 83,000 5,256,133
Compagnie de Saint Gobain 33,759 4,993,791
Elf Aquitaine SA 106,700 12,346,515
Etablissements Economiques du Casino Guichard-Perrachon
SA 152,800 15,206,087
Lagardere Groupe SCA 364,964 14,685,570
PSA Peugeot Citroen 92,740 15,470,908
Rhone-Poulenc SA Class A 223,792 10,229,332
Societe Generale d'Enterprises SA 472,800 22,717,352
Suez Lyonnaise des Eaux SA 115,200 20,627,402
Total SA Class B 109,956 12,683,699
--------------
134,216,789
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
11
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- --------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Germany (12.3%)
BHF Bank AG 486,100 $ 18,755,081
Degussa AG 226,700 10,950,501
Fresenius Medical Care AG 218,000 9,872,115
Hannover Rueckversicherungs AG 103,400 11,987,103
Hoechst AG 333,400 13,910,287
Mannesmann AG 94,830 9,184,226
Muenchener Rueckversicherungs-Gesellschaft AG 23,400 10,653,190
Preussag AG 6,500 2,413,687
Schering AG 158,100 18,471,633
Schmalbach Lubeca AG 4,450 658,292
Viag AG 26,996 18,321,381
--------------
125,177,496
--------------
Hong Kong (1.0%)
HSBC Holdings PLC (UK) 829 19,437
New World Development Co., Ltd. 846,000 1,965,966
Smartone Telecommunications 2,866,000 8,140,143
--------------
10,125,546
--------------
India (0.8%)
Bharat Petroleum Corp., Ltd. 100 602
Hindalco Industries, Ltd. 5,746 69,385
Mahanagar Telephone Nigam, Ltd. 1,717,500 7,420,014
Reliance Industries, Ltd. 174,938 453,052
State Bank of India, Ltd. 3,350 12,306
Tata Engineering & Locomotive Co., Ltd. 450 1,199
--------------
7,956,558
--------------
Ireland (1.5%)
Bank of Ireland 697,700 12,894,191
Greencore Group PLC 697,555 2,725,035
--------------
15,619,226
--------------
Israel (2.4%)
ECI Telecommunications Limited Designs 544,050 18,021,656
Orbotech, Ltd. + 196,800 6,888,000
--------------
24,909,656
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- --------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Italy (5.8%)
Alleanza Assicurazioni 691,700 $ 8,529,075
Istituto Bancario San Paolo de Torino SpA 1,062,630 15,632,624
SEAT Pagine Gialle SpA 14,302,000 8,948,565
Telecom Italia SpA 3,643,200 26,353,247
--------------
59,463,511
--------------
Japan (12.6%)
Advantest Corp. 98,300 6,200,347
Hankyu Realty Co., Ltd. 561,000 2,310,890
Matsushita Communication Industrial Co., Ltd. 259,000 11,980,189
Minebea Co., Ltd. 1,245,000 11,699,266
Nichiei Co., Ltd. 102,900 8,318,431
NTT Mobile Communications Network, Inc. 182 6,575,498
Orix Corp. 286,900 20,558,535
Rohm Co., Ltd. 190,000 16,794,457
Shohkoh Fund & Co., Ltd. 50,600 15,393,661
Sony Corp. 172,500 10,954,586
Takefuji Corp. 147,100 7,839,339
TDK Corp. 141,000 9,292,990
--------------
127,918,189
--------------
Mexico (1.2%)
Fomento Economico Mexicano SA de CV ADR 386,900 10,083,581
Gruma SA de CV Class B + 866,102 2,053,447
--------------
12,137,028
--------------
Netherlands (5.7%)
CSM NV 192,200 9,467,575
ING Groep NV 211,507 10,237,424
Koninklijke Pakhoed NV 292,300 7,199,199
Laurus NV 324,800 8,173,563
Philips Electronics NV 146,460 7,794,764
Vedior NV 153,900 3,922,321
Vendex Non-Foods NV 464,000 11,800,737
--------------
58,595,583
--------------
Norway (0.0%)
Smedvig ASA Class B ADR 30,625 260,312
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- --------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Singapore (0.1%)
Oversea-Chinese Banking Corp., Ltd. 201,000 $ 876,473
--------------
South Africa (0.4%)
Sappi, Ltd. + 816,600 4,075,838
--------------
Spain (3.7%)
Argentaria Caja Postal y Banco Hipotecario de Espana SA 627,252 13,623,759
Endesa SA 966,100 24,303,838
--------------
37,927,597
--------------
Sweden (3.1%)
Biora AB ADR + 66,500 1,217,781
Electrolux AB Series B 748,043 11,244,291
Telefonaktiebolaget LM Ericsson Series B 588,200 13,243,579
Kinnevik AB Series B 226,300 5,847,949
--------------
31,553,600
--------------
Switzerland (5.2%)
Novartis AG 7,993 14,402,972
Roche Holding AG 1,177 13,733,651
Sulzer AG 16,920 9,746,472
Swisscom AG + 33,000 11,186,110
TAG Heuer International SA 67,304 4,398,824
--------------
53,468,029
--------------
United Kingdom (14.1%)
Barclays PLC 622,800 13,423,531
Bass PLC 942,900 11,448,359
British Aerospace PLC 36,100 268,731
British Airport Authority PLC 1,037,712 11,687,153
British Energy PLC 2,379,000 23,267,349
Glaxo Wellcome PLC 367,400 11,419,754
Lloyds TSB Group PLC 261,400 3,228,548
Orange PLC 2,172,800 20,213,589
Reed International PLC 1,384,500 11,720,705
Royal & Sun Alliance Insurance Group PLC 1,158,700 10,614,461
Standard Chartered Bank PLC 652,900 7,025,212
Williams PLC 3,151,523 19,673,324
--------------
143,990,716
--------------
TOTAL COMMON STOCKS (Cost $866,293,485) 921,285,549
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
PREFERRED STOCK (1.0%)
Brazil (0.1%)
Companhia Energetica de Minas Gerais 41,763,000 $ 812,244
Telecomunicacoes de Sao Paulo SA 2,857,000 479,013
--------------
1,291,257
--------------
Germany (0.8%)
GEA AG 199,200 4,750,933
KSB AG 23,366 3,781,043
--------------
8,531,976
--------------
United Kingdom (0.1%)
Singer & Friedlander Group PLC 8.50% (Convertible) 324,947 617,658
--------------
TOTAL PREFERRED STOCK (Cost $15,287,903) 10,440,891
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-----
<S> <C> <C>
SHORT-TERM INVESTMENT (11.6%)
Repurchase agreement with State Street Bank & Trust Co.
dated 10/30/98 at 5.400% to be repurchased at
$118,429,269 on 11/02/98. (Collateralized by a pro rata
amount of U.S. Treasury Notes ranging in par values
from $21,390,000 to $50,000,000, 3.375%-5.500%,
02/28/03-04/15/28. Pro rata market value of collateral
is $120,744,184) (Cost $118,376,000) $ 118,376 118,376,000
--------------
TOTAL INVESTMENTS (103.0%) (Cost $999,957,388*) 1,050,102,440
LIABILITIES IN EXCESS OF OTHER ASSETS (3.0%) (30,860,680)
--------------
NET ASSETS (100.0%) (applicable to 70,726,816 shares
outstanding) $1,019,241,760
==============
NET ASSET VALUE, offering and redemption price per share
($1,019,241,760 divided by 70,726,816) $ 14.41
==============
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $1,001,409,881.
See Accompanying Notes to Financial Statements.
15
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (72.8%)
Argentina (4.7%)
Banco de Galicia & Buenos Aires SA de CV ADR 12,860 $ 219,424
Telefonica de Argentina SA ADR 5,400 178,537
YPF SA ADR 24,700 714,756
-----------
1,112,717
-----------
Australia (2.4%)
Novus Petroleum, Ltd. 212,200 254,848
Oil Search, Ltd. 200,300 299,138
-----------
553,986
-----------
Brazil (2.2%)
Companhia Paranaense de Energia ADR 65,300 506,075
-----------
Croatia (3.2%)
Pliva GDR 51,700 761,282
-----------
Greece (1.9%)
STET Hellas Telecommunications SA ADR + 16,740 439,425
-----------
Hong Kong (7.5%)
Cosco Pacific, Ltd. 900,000 441,529
First Pacific Co., Ltd. 228,000 108,175
New World Development Co., Ltd. 178,000 413,643
Smartone Telecommunications 161,259 458,015
Wing Hang Bank, Ltd. 176,100 335,339
-----------
1,756,701
-----------
India (6.6%)
Mahanagar Telephone Nigam, Ltd. GDR 86,868 933,831
State Bank of India, Ltd. GDR 76,900 615,200
-----------
1,549,031
-----------
Israel (7.3%)
Blue Square Israel Co., Ltd. ADR 41,620 535,858
ECI Telecommunications Limited Designs 13,700 453,813
Formula Systems, Ltd. + 5,500 117,227
Formula Systems, Ltd. ADR + 700 15,750
Orbotech, Ltd. + 16,800 588,000
-----------
1,710,648
-----------
Kazakhstan (1.5%)
Hurricane Hydrocarbons, Ltd. Class A (USA) + 24,300 50,119
Hurricane Hydrocarbons, Ltd. Class A (CAN) + 140,800 292,165
-----------
342,284
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- -----------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Mexico (11.0%)
Cintra SA 556,600 $ 329,912
Fomento Economico Mexicano SA de CV ADR 29,620 771,971
Grupo Industrial Durango SA ADR 24,200 121,000
Grupo Industrial Saltillo SA de CV 215,000 484,258
Panamerican Beverages, Inc. Class A 8,000 162,000
Telefonos de Mexico SA ADR 7,325 386,852
TV Azteca SA de CV ADR 36,200 316,750
-----------
2,572,743
-----------
Philippines (0.4%)
Hi Cement Corp. 4,009,000 94,391
-----------
Poland (6.5%)
Bank Slaski SA 8,574 428,029
BIG Bank Gdanski SA 355,425 366,217
Elektrim Spolka Akcyjna SA 61,790 735,298
-----------
1,529,544
-----------
Portugal (3.5%)
Banco Mello SA 34,300 377,834
Portugal Telecom SA 9,200 436,263
-----------
814,097
-----------
Singapore (3.6%)
Development Bank of Singapore, Ltd. 107,900 675,936
Keppel Tatlee Bank, Ltd. 152,000 167,102
-----------
843,038
-----------
South Africa (5.5%)
Sappi, Ltd. + 177,100 883,947
South African Breweries, Ltd. 21,000 407,284
-----------
1,291,231
-----------
South Korea (2.1%)
Samsung Display Devices Co. 8,000 300,123
Samsung Heavy Industries Co., Ltd. + 35,000 196,292
-----------
496,415
-----------
Thailand (1.6%)
Hana Microelectronics Public Co., Ltd. + 139,900 375,032
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
---------- -----------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Turkey (1.3%)
Turkiye Is Bankasi AS Class C 6,268,750 $ 171,957
Yapi Ve Kredi Bankasi AS 11,817,580 133,360
-----------
305,317
-----------
TOTAL COMMON STOCKS (Cost $19,497,575) 17,053,957
-----------
PREFERRED STOCK (6.8%)
Brazil (6.8%)
Companhia Energetica de Minas Gerais 19,986,000 388,706
Telecomunicacoes de Sao Paulo Celular SA Class B + 5,754,000 284,596
Telecomunicacoes de Sao Paulo SA 3,712,600 622,465
Telecomunicacoes do Parana SA 893,000 149,723
Telecomunicacoes do Rio de Janeiro
Celular SA Class B + 4,848,000 150,373
-----------
TOTAL PREFERRED STOCK (Cost $2,333,658) 1,595,863
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-----
<S> <C> <C>
BONDS (9.7%)
Hong Kong (2.0%)
Cosco Treasury Co., Ltd. (Convertible) 1.000%,
03/13/03 (A) 668 472,610
-----------
Philippines (2.6%)
Metro Pacific Capital (Convertible) 2.500%, 04/11/03 $572 422,822
Piltel International Holding Corp. (Convertible) 1.750%,
07/17/06 583 187,318
-----------
610,140
-----------
South Korea (5.1%)
Republic of Korea 8.875%, 04/15/08 565 519,800
Samsung Electronics Co. (Convertible) 0.000%, 12/31/07 265 203,056
Ssangyong Oil Refining Co., Ltd. (Convertible) 3.750%,
12/31/08 530 466,400
-----------
1,189,256
-----------
TOTAL BONDS (Cost $2,299,819) 2,272,006
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
SHORT-TERM INVESTMENT (11.0%)
Repurchase agreement with State Street Bank & Trust Co.
dated 10/30/98 at 5.400% to be repurchased at
$2,579,160 on 11/02/98. (Collateralized by pro rata
amount of U.S. Treasury Notes ranging in par values
from $21,390,000 to $50,000,000, 3.375%-5.500%,
02/28/03-04/15/28. Pro rata market value of collateral
is $2,629,574) (Cost $2,578,000) $2,578 $ 2,578,000
-----------
TOTAL INVESTMENTS (100.3%) (Cost $26,709,052*) 23,499,826
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%) (73,304)
-----------
NET ASSETS (100.0%) (applicable to 4,094,239 shares
outstanding) $23,426,522
===========
NET ASSET VALUE, offering and redemption price per share
($23,426,522 divided by 4,094,239) $ 5.72
===========
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
GDR = Global Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
(A) Denominated in Hong Kong Dollars.
* Cost for federal income tax purposes is $26,933,386.
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- JAPAN GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (113.7%)
Chemicals (8.9%)
Sumitomo Bakelite Co., Ltd. 10,000 $ 66,937
Takeda Chemical Industries 2,000 65,050
-----------
131,987
-----------
Computers (11.3%)
Fujitsu Support & Service, Inc. 2,000 100,406
TDK Corp. 1,000 65,908
-----------
166,314
-----------
Consumer Durables (6.2%)
Sony Corp. 1,000 63,505
Tenma Corp. 3,000 27,805
-----------
91,310
-----------
Electric Components (19.7%)
Copal Co., Ltd. 4,000 16,408
Copal Electronics Co., Ltd. 3,000 16,992
Minebea Co., Ltd. 7,000 65,779
Nemic-Lambda K.K. 2,000 39,819
Rohm Co., Ltd. 1,000 88,392
Tokyo Seimitsu Co., Ltd. 2,000 62,647
-----------
290,037
-----------
Electronics (17.0%)
Advantest Corp. 1,100 69,383
Fanuc, Ltd. 2,000 60,072
Megachips Corp. 2,000 56,639
Tokyo Electronics, Ltd. 2,000 65,049
-----------
251,143
-----------
Financial Services (17.9%)
Kokusai Securities Co., Ltd. 3,000 25,745
Nomura Securities Co., Ltd. 3,000 22,656
Orix Corp. 1,000 71,657
Shohkoh Fund & Co., Ltd. 300 91,267
Takefuji Corp. 1,000 53,293
-----------
264,618
-----------
Medical Equipment (5.8%)
Hoya Corp. 2,000 85,646
-----------
Retail (7.6%)
Don Quijote Co. Ltd. 1,000 72,945
Shimamura Co. 1,000 39,648
-----------
112,593
-----------
Transportation (5.1%)
Fuji Heavy Industries, Ltd. 15,000 74,661
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- JAPAN GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Telecommunications & Equipment (14.2%)
DDI Corp. 10 $ 29,178
Matsushita Electric Industrial Group 1,000 46,256
Nippon Television Network Corp. 200 62,389
NTT Mobile Communications Network, Inc. 2 72,258
-----------
210,081
-----------
TOTAL INVESTMENTS (113.7%) (Cost $1,690,518*) 1,678,390
LIABILITIES IN EXCESS OF OTHER ASSETS (13.7%) (202,590)
-----------
NET ASSETS (100.0%) (applicable to 161,656 shares
outstanding) $ 1,475,800
===========
NET ASSET VALUE, offering and redemption price per share
($1,475,800 divided by 161,656) $ 9.13
===========
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes.
See Accompanying Notes to Financial Statements.
21
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY EMERGING MARKETS JAPAN GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- ---------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 22,972,124 $ 709,668 $ 7,538
Interest 5,470,735 271,965 16,781
Foreign taxes withheld (2,709,069) (105,704) (1,131)
------------ ------------ ---------
Total investment income 25,733,790 875,929 23,188
------------ ------------ ---------
EXPENSES:
Investment advisory 9,511,718 314,334 15,596
Administrative services 2,184,851 80,403 5,888
Audit 44,269 12,180 12,004
Custodian/Sub-Custodian 839,837 12,057 727
Directors 2,392 2,029 2,694
Insurance 23,048 676 15
Interest 4,272 174 100
Legal 147,697 5,369 327
Offering/Organizational costs 1 0 21,001
Printing 52,014 1,799 656
Registration 25,703 13,096 21,516
Transfer agent 8,534 1,303 170
Miscellaneous 8,047 1,975 1,131
------------ ------------ ---------
12,852,383 445,395 81,825
Less: fees waived, expenses reimbursed and
transfer agent offsets (1,557,219) (52,478) (64,103)
------------ ------------ ---------
Total expenses 11,295,164 392,917 17,722
------------ ------------ ---------
Net investment income 14,438,626 483,012 5,466
------------ ------------ ---------
NET REALIZED AND UNREALIZED LOSS FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED ITEMS:
Net realized loss from security and other
related transactions (124,396,419) (15,625,081) (27,825)
Net realized gain (loss) from foreign
currency related items 23,724,747 (70,413) 96,058
Net change in unrealized appreciation
(depreciation) from investments and foreign
currency related items 40,102,209 3,271,341 (223,874)
------------ ------------ ---------
Net realized and unrealized loss from
investments and foreign currency related
items (60,569,463) (12,424,153) (155,641)
------------ ------------ ---------
Net decrease in net assets resulting from
operations $(46,130,837) $(11,941,141) $(150,175)
============ ============ =========
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
-----------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 14,438,626 $ 11,581,658
Net realized gain (loss) from security transactions and
other related transactions (124,396,419) 58,513,022
Net realized gain (loss) from foreign currency related
items 23,724,747 23,820,080
Net change in unrealized appreciation (depreciation) from
investments and foreign currency related items 40,102,209 (39,639,490)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (46,130,837) 54,275,270
-------------- --------------
FROM DISTRIBUTIONS:
Dividends from net investment income (12,756,660) (7,904,857)
Distributions from realized gains (86,608,655) (29,169,050)
-------------- --------------
Net decrease in net assets from distributions (99,365,315) (37,073,907)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 172,832,170 383,795,316
Reinvested dividends 89,134,715 32,747,095
Net asset value of shares redeemed (267,045,777) (201,370,170)
-------------- --------------
Net increase (decrease) in net assets from capital
share transactions (5,078,892) 215,172,241
-------------- --------------
Net increase (decrease) in net assets (150,575,044) 232,373,604
NET ASSETS:
Beginning of period 1,169,816,804 937,443,200
-------------- --------------
End of period $1,019,241,760 $1,169,816,804
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME: $ 9,394,503 $ 14,484,339
============== ==============
24
<PAGE>
- --------------------------------------------------------------------------------
<CAPTION>
JAPAN GROWTH
EMERGING MARKETS PORTFOLIO PORTFOLIO
----------------------------------- -----------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1998
---------------- ---------------- -----------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 483,012 $ 346,114 $ 5,466
Net realized gain (loss) from security transactions and
other related transactions (15,625,081) 2,515,798 (27,825)
Net realized gain (loss) from foreign currency related
items (70,413) (144,915) 96,058
Net change in unrealized appreciation (depreciation) from
investments and foreign currency related items 3,271,341 (6,041,288) (223,874)
-------------- -------------- --------------
Net increase (decrease) in net assets resulting from
operations (11,941,141) (3,324,291) (150,175)
-------------- -------------- --------------
FROM DISTRIBUTIONS:
Dividends from net investment income (240,803) (208,151) (8,999)
Distributions from realized gains (2,746,087) (5,335) 0
-------------- -------------- --------------
Net decrease in net assets from distributions (2,986,890) (213,486) (8,999)
-------------- -------------- --------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 1,259,833 14,718,591 1,629,019
Reinvested dividends 2,985,126 213,486 8,999
Net asset value of shares redeemed (3,171,709) (3,811,119) (4,044)
-------------- -------------- --------------
Net increase (decrease) in net assets from capital
share transactions 1,073,250 11,120,958 1,633,974
-------------- -------------- --------------
Net increase (decrease) in net assets (13,854,781) 7,583,181 1,474,800
NET ASSETS:
Beginning of period 37,281,303 29,698,122 1,000
-------------- -------------- --------------
End of period $ 23,426,522 $ 37,281,303 $ 1,475,800
============== ============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME: $ 239,298 $ (218,637) $ 14,953
============== ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements.
25
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
PERIOD ENDED: ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 16.51 $ 16.14 $ 15.10 $ 16.34 $ 13.49
---------- ---------- -------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income 0.21 0.20 0.26 0.15 0.17
Net gain or (loss) from securities and
foreign currency related items (both
realized and unrealized) (0.91) 0.78 1.28 (0.64) 2.87
---------- ---------- -------- -------- --------
Total from investment activities (0.70) 0.98 1.54 (0.49) 3.04
---------- ---------- -------- -------- --------
DISTRIBUTIONS:
From net investment income (0.18) (0.13) (0.50) (0.18) (0.07)
From realized capital gains (1.22) (0.48) 0.00 (0.57) (0.12)
---------- ---------- -------- -------- --------
Total distributions (1.40) (0.61) (0.50) (0.75) (0.19)
---------- ---------- -------- -------- --------
Net asset value, end of period $ 14.41 $ 16.51 $ 16.14 $ 15.10 $ 16.34
========== ========== ======== ======== ========
Total return (4.11)% 6.20% 10.48% (2.83)% 22.62%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $1,019,242 $1,169,817 $937,443 $507,759 $331,297
Ratio of expenses to average net assets .95%@ .95%@ .96%@ .95% .95%
Ratio of net income to average net
assets 1.21% .98% 1.05% 1.20% .59%
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .13% .14% .18% .23% .29%
Portfolio turnover rate 113.58% 69.99% 29.91% 39.70% 19.34%
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the
Portfolio's expenses by .00%, .00% and .01% for the years ended October 31,
1998, 1997 and 1996, respectively. The operating expense ratio after
reflecting these arrangements were .95%, .95% and .95% for the years ended
October 31, 1998, 1997 and 1996, respectively.
See Accompanying Notes to Financial Statements.
26
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- EMERGING MARKETS PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996**
PERIOD ENDED: ------- ------- -------
<S> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 9.36 $ 9.86 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income 0.11(a) 0.10 0.01
Net gains or losses on investments and foreign currency
related items (both realized and unrealized) (2.99) (0.53) (0.15)
------- ------- -------
Total from investment activities (2.88) (0.43) (0.14)
------- ------- -------
DISTRIBUTIONS:
From net investment income (0.01) (0.02) 0.00
From realized capital gains (0.75) (0.05) 0.00
------- ------- -------
Total distributions (0.76) (0.07) 0.00
------- ------- -------
Net asset value, end of period $ 5.72 $ 9.36 $ 9.86
======= ======= =======
Total return (32.90)% (4.43)% (1.40)%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $23,427 $37,281 $29,698
Ratio of expenses to average net assets 1.25%@ 1.25%@ 1.25%*@
Ratio of net income to average net assets 1.54% .92% 1.75%*
Decrease reflected in above operating expense ratios due
to waivers/reimbursements .16% .40% 2.18%*
Portfolio turnover rate 152.57% 107.21% 2.39%+
</TABLE>
- --------------------------------------------------------------------------------
** For the period September 30, 1996 (commencement of operations) through
October 31, 1996.
(a) Per share information is calculated using the average share outstanding
method.
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no effect on the Portfolio's
expense ratio.
+ Non annualized.
* Annualized.
See Accompanying Notes to Financial Statements.
27
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- JAPAN GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
PERIOD ENDED: ----
<S> <C>
PER-SHARE DATA
Net asset value, beginning of period $10.00
------
INVESTMENT ACTIVITIES:
Net investment income 0.07
Net losses on investments and foreign currency related
items (both realized and unrealized) (0.85)
------
Total from investment activities (0.78)
------
DISTRIBUTIONS:
From net investment income (0.09)
------
Total distributions (0.09)
------
Net asset value, end of period $ 9.13
======
Total return (7.84)%
RATIOS AND SUPPLMENTAL DATA
Net assets, end of period (000s omitted) $1,476
Ratio of expenses to average net assets 1.25%@
Ratio of net income to average net assets 0.39%
Decrease reflected in above operating expense ratios due
to waivers/reimbursements 4.52%
Portfolio turnover rate 39.88%
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no effect on the Portfolio's
expense ratio.
See Accompanying Notes to Financial Statements.
28
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Institutional Fund, Inc. (the "Fund") is an open-end
management investment company and currently offers seven managed investment
funds (the "Portfolios") of which three are contained in this report:
International Equity Portfolio, which commenced operations on September 1, 1992,
seeks long-term capital appreciation by investing primarily in equity securities
of non-United States issuers; Emerging Markets Portfolio, which commenced
operations on September 30, 1996, seeks long-term growth of capital by investing
primarily in equity securities of non-U.S. issuers consisting of companies in
emerging securities markets; and Japan Growth Portfolio, which commenced
operations on October 31, 1997, seeks long-term growth of capital by investing
primarily in equity securities of Japanese issuers.
The net asset value of each Portfolio is determined daily as of the close
of regular trading on the New York Stock Exchange. Each Portfolio'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 prices. 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.
When a Portfolio writes or purchases a call or a put option, an amount
equal to the premium received or paid by the Portfolio is recorded as a
liability or asset, the value of which is marked-to-market daily to reflect the
current market value of the option. When the option expires, the Portfolio
realizes a gain or loss equal to the amount of the premium received or paid.
When the Portfolio exercises an option or enters into a closing transaction by
purchasing or selling an offsetting option, it realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security. The potential
loss associated with purchasing an option is limited to the premium paid, and
the premium would partially offset any gains achieved from its use.
The books and records of the Portfolios 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
29
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Portfolios 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 Portfolios 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.
The Portfolios may invest in securities of foreign countries and
governments which involve certain risks in addition to those inherent in
domestic investments. Such risks generally include, among other things,
fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the imposition of other laws and
restrictions. Securities of foreign issuers are often subject to less rigorous
regulatory practices and requirements than those applied in the United States
and may also be less liquid (and their prices more volatile) than securities of
comparable U.S. companies. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in many respects.
The Portfolios' investments in securities of issuers located in less
developed countries considered to be "emerging markets" involve risks in
addition to those generally applicable to foreign securities. Investments in the
securities of issuers located in emerging markets expose the Portfolio to
economic structures that are generally less diverse and mature than, and to
political systems that can be expected to have less stability than, those of
developed countries. The typically small size of the markets for securities of
issuers located in emerging markets may also result in a lack of liquidity and
greater price volatility.
Security transactions are accounted for on a trade date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date. 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 and distributions of net realized
capital gains, if any, are declared and paid annually. 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.
30
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
No provision is made for federal taxes as it is the Fund's intention to
have each Portfolio continue to qualify for and elect the tax treatment
applicable to regulated investment companies under the Internal Revenue Code and
make the requisite distributions to its shareholders which will be sufficient to
relieve it from federal income and excise taxes.
Costs incurred in connection with offering of shares have been deferred and
are being amortized over a period of one year from the date each Portfolio
commenced its operations.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, each Portfolio, along with the 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 Portfolios' 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 other party 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 statement and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
The Portfolios 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 Portfolios
received credits or reimbursements under this arrangement as follows:
PORTFOLIO AMOUNT
--------- ------
International Equity 45,913
Emerging Markets 1,262
Japan Growth 45
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, which is indirectly controlled by Warburg, Pincus & Co., serves as
each Portfolio's investment adviser. For its investment advisory services,
Warburg is entitled to receive the following fees computed daily and payable
monthly based on each Portfolio's average daily net assets:
31
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR -- (CONT'D)
FUND ANNUAL RATE
---- ---------------------------------
International Equity .80% of average daily net assets
Emerging Markets 1.00% of average daily net assets
Japan Growth 1.10% of average daily net assets
For the year ended October 31, 1998, investment advisory fees, voluntary
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY EXPENSE
FUND FEE WAIVER FEE REIMBURSEMENTS
- ---- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
International Equity $9,511,718 $(1,511,306) $8,000,412 $ 0
Emerging Markets 314,334 (13,496) 300,838 0
Japan Growth 15,596 (14,514) 1,082 (47,843)
</TABLE>
Counsellors Funds Service, Inc. ("CFSI"), a wholly owned subsidiary of
Warburg, and PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of PNC
Bank Corp. ("PNC"), serve as each Portfolio's co-administrators. For
administrative services, CFSI receives a fee calculated at an annual rate of
.10% of the Portfolios' average daily net assets. For the year ended October 31,
1998, administrative services fees earned by CFSI were as follows:
CO-ADMINISTRATION
FUND FEE
---- -----------------
International Equity $1,188,965
Emerging Markets 31,433
Japan Growth 1,414
For each Portfolio, PFPC receives a fee based on the following fee
structure:
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ --------------------------------
First $250 million .12% of average daily net assets
Second $250 million .10% of average daily net assets
Third $250 million .08% of average daily net assets
Over $750 million .05% of average daily net assets
For the year ended October 31, 1998, administrative service fees earned and
voluntarily waived by PFPC were as follows:
NET
CO-ADMINISTRATION CO-ADMINISTRATION
FUND FEE WAIVER FEE
---- ----------------- -------- -----------------
International Equity $995,886 $ 0 $995,886
Emerging Markets 48,970 (37,720) 11,250
Japan Growth 4,474 (1,701) 2,773
Counsellors Securities Inc. ("CSI"), also a wholly owned subsidiary of
Warburg, serves as distributor of each Portfolio's shares without compensation.
32
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
3. LINE OF CREDIT
The Portfolios, together with other Funds advised by Warburg Pincus Asset
Management, Inc. ("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 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 bank's base rate plus
.55%. Aggregate borrowings for each fund under the committed and uncommitted
lines of credit with PNC may not exceed the lowest of (a) thirty-three and
one-third percent (33 1/3%) of the assets of such fund, for any fund that does
not invest at least sixty-five percent (65%) of its assets in international
equity or fixed income securities (an "International Fund") and twenty-five
percent (25%) of the assets of any fund that is an International Fund or (b) the
maximum amount permitted by such fund's investment policies and restrictions.
Aggregate borrowings for each fund under the uncommitted line of credit facility
with Deutsche Bank may not exceed thirty-three and one-third percent (33 1/3%)
of the net assets of such fund. At October 31, 1998 and during the year ended
October 31, 1998, the Portfolios had no borrowings under the line of credit
agreement.
4. INVESTMENTS IN SECURITIES
Purchases and sales of investment securities for the year ended October 31,
1998 (excluding short-term investments) were as follows:
PORTFOLIO PURCHASES SALES
--------- -------------- --------------
International Equity $1,224,318,852 $1,280,113,931
Emerging Markets 41,829,914 42,486,379
Japan Growth 2,150,367 432,254
At October 31, 1998, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net depreciation from
investments for those securities having an excess of cost over value (based on
cost for Federal income tax purposes) was as follows:
33
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
4. INVESTMENTS IN SECURITIES -- (CONT'D)
NET
UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- --------- ------------ ------------ --------------
International Equity $122,230,808 $(73,538,249) $48,692,559
Emerging Markets 1,459,434 (4,892,994) (3,433,560)
Japan Growth 171,430 (183,558) (12,128)
5. FORWARD FOREIGN CURRENCY CONTRACTS
The Portfolios 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
Portfolio 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.
At October 31, 1998, the International Equity Portfolio had the following
open forward foreign currency contracts:
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN FOREIGN
EXPIRATION CURRENCY CONTRACT CONTRACT EXCHANGE
FORWARD CURRENCY CONTRACT DATE TO BE SOLD AMOUNT VALUE LOSS
- ------------------------- --------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 02/26/99 6,724,400,000 $50,343,640 $58,710,386 $ (8,366,746)
Japanese Yen 02/26/99 1,793,000,000 13,420,659 15,654,590 (2,233,931)
Japanese Yen 02/26/99 893,000,000 7,643,585 7,796,737 (153,152)
Japanese Yen 02/26/99 682,000,000 5,104,790 5,954,506 (849,716)
Japanese Yen 02/26/99 454,000,000 3,388,060 3,963,850 (575,790)
Japanese Yen 02/26/99 373,100,000 3,249,151 3,257,517 (8,366)
Japanese Yen 02/26/99 257,000,000 1,924,805 2,243,854 (319,049)
----------- ----------- ------------
$85,074,690 $97,581,440 $(12,506,750)
=========== =========== ============
</TABLE>
34
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
5. FORWARD FOREIGN CURRENCY CONTRACTS -- (CONT'D)
At October 31, 1998, the Japan Growth Portfolio had the following open
forward foreign currency contracts:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
CURRENCY FOREIGN
EXPIRATION TO BE CONTRACT CONTRACT EXCHANGE
FORWARD CURRENCY CONTRACT DATE SOLD AMOUNT VALUE LOSS
- ------------------------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Japanese Yen 02/26/99 134,832,000 $1,009,448 $1,177,211 $(167,763)
Japanese Yen 02/26/99 16,045,000 120,097 140,088 (19,991)
Japanese Yen 02/26/99 9,500,000 81,315 82,944 (1,629)
Japanese Yen 02/26/99 7,000,000 52,434 61,116 (8,682)
Japanese Yen 02/26/99 5,900,000 44,188 51,512 (7,324)
Japanese Yen 02/26/99 5,000,000 43,185 43,655 (470)
Japanese Yen 02/26/99 5,000,000 37,425 43,655 (6,230)
Japanese Yen 02/26/99 4,480,000 39,014 39,114 (100)
---------- ---------- ---------
$1,427,106 $1,639,295 $(212,189)
========== ========== =========
</TABLE>
6. EQUITY SWAP TRANSACTIONS
The International Equity Portfolio and the Emerging Markets Portfolio each
entered into a Korean equity swap agreement dated March 21, 1997, where each
Portfolio received a quarterly payment, representing the total return (defined
as market appreciation and dividend income) on a basket of Korean common stocks
("Common Stocks"). In return, the International Equity Portfolio and the
Emerging Markets Portfolio paid quarterly the LIBOR rate (London Interbank
Offered Rate), plus, 1.97% and 2.00%, respectively, per annum on the market
value of the Common Stocks ("Notional Amount"). The Notional Amount is
marked-to-market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Portfolios will be required to pay quarterly the
amount of any depreciation in value of the Notional Amount from the previous
quarter.
During the term of the equity swap transactions, changes in the value of
the Common Stocks as compared to the Notional Amount and the difference between
the accrued interest expense and dividend income are recognized as unrealized
gain or loss. At the quarterly reset date, the change in value of the Common
Stocks, adjusted for accrued interest expense and dividend income, is recognized
as realized gain or loss. At October 31, 1998, each Portfolio realized a loss of
$2,133,026 and $133,735, respectively, on the equity swap transaction which is
included in the net realized gain (loss) from security and other related
transactions. As of October 31, 1998, each Portfolio no longer held a position
in the swap.
35
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
7. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to thirteen billion full and fractional
shares of common stock of separate series having a $.001 par value per share.
Shares of nine series have been classified, seven of which constitute the
interests in the Portfolios.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY EMERGING MARKETS JAPAN GROWTH
-------------------------- --------------------------- -------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997 1998
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shares sold 11,088,063 22,310,155 149,483 1,322,864 160,988
Shares issued to
shareholders on
reinvestment of dividends 6,263,859 2,054,397 388,183 21,478 964
Shares redeemed (17,485,779) (11,573,856) (427,153) (372,624) (396)
----------- ----------- -------- --------- -------
Net increase (decrease) in
shares outstanding (133,857) 12,790,696 110,513 971,718 161,556
=========== =========== ======== ========= =======
</TABLE>
8. LIABILITIES
At October 31, 1998, the Portfolios had the following affiliated and
investment related liabilities:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING JAPAN
EQUITY MARKETS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ---------
<S> <C> <C> <C>
Payable for securities purchased (at value) $17,074,641 $602,554 $ 0
Administration services fee payable 82,596 1,819 118
Investment advisory fee payable 497,120 41,177 0
Payable for fund shares redeemed 1,251,374 0 0
</TABLE>
9. NET ASSETS
At October 31, 1998, capital contributions, undistributed net investment
income, accumulated net realized gain/(loss) from security transactions and
current period distributions have been adjusted for current period permanent
book/tax differences which arose principally from differing book/tax treatments
of foreign currency and equity swap transactions. The International Equity
Portfolio, the Emerging Markets Portfolio and the Japan Growth Portfolio
reclassified $(4,038,268), $83,008 and $(2,515), respectively, from accumulated
net realized gain/(loss) from security transactions and foreign currency related
items to undistributed net investment income. The Emerging Markets Portfolio and
the Japan Growth Portfolio reclassified offering costs of $38,621 and $(21,001),
respectively, from accumulated net investment income to capital contributions.
The International Equity Portfolio and the Emerging Markets Portfolio
reclassified $2,733,534 and $(171,339), respectively, of book distributions of
realized gains/(losses) to distributions of net investment income. In addition,
the International Equity Portfolio reclassified $1,846 from
36
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1998
- --------------------------------------------------------------------------------
9. NET ASSETS -- (CONT'D)
accumulated net realized loss to capital contributions. Net investment income,
net realized gain/(loss) on investments and net assets were not affected by this
reclassification.
Net assets at October 31, 1998, consisted of the following:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING JAPAN
EQUITY MARKETS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------- ----------
<S> <C> <C> <C>
Capital contributed, net $1,076,135,413 $42,268,498 $1,613,973
Undistributed net investment income 9,394,503 239,298 14,953
Accumulated net realized gain (loss) from security transactions (104,098,159) (15,871,659) 70,748
Net unrealized appreciation (depreciation) from
investments and foreign currency related items 37,810,003 (3,209,615) (223,874)
-------------- ----------- ----------
Net assets $1,019,241,760 $23,426,522 $1,475,800
============== =========== ==========
</TABLE>
10. CAPITAL CAPITAL LOSS CARRYOVER
At October 31, 1998, the International Equity Portfolio, the Emerging
Markets Portfolio and the Japan Growth Portfolio had capital loss carryovers of
$115,152,416, $15,647,325 and $141,441, respectively, expiring in 2006.
37
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
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>
MID-TERM LONG-TERM FOREIGN FOREIGN TAXES
ORDINARY CAPITAL CAPITAL SOURCE PAID OR
INCOME GAINS GAINS INCOME WITHHELD
FUND PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
- ---- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
PAYMENT DATE 12/19/97 12/19/97 12/19/97
-------- -------- --------
International Equity Portfolio $0.7213 $0.0000 $0.6816 $0.1500 $0.0304
Emerging Markets Portfolio 0.7532 0.0000 0.0000 0.0235 0.0152
Japan Growth Portfolio 0.0878 0.0000 0.0000 0.0000 0.0000
</TABLE>
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.
38
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
WARBURG, PINCUS INSTITUTIONAL 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 Institutional Fund, Inc. -- International Equity Portfolio,
Emerging Markets Portfolio and Japan Growth Portfolio (all portfolios
collectively referred to as the "Fund") at October 31, 1998, the results of
their operations for the year then ended, changes in their net assets for each
of the two years (or periods) presented and their financial highlights for each
of the years (or periods) presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 11, 1998
39
<PAGE>
[LOGO]
P.O. Box 4906, Grand Central Station, New York, NY 10163
800-369-2728 - www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPINI-2-1098
