ANNUAL
REPORT
December 31, 1998
WARBURG PINCUS TRUST
o INTERNATIONAL EQUITY PORTFOLIO
o SMALL COMPANY GROWTH PORTFOLIO
o POST-VENTURE CAPITAL PORTFOLIO
o GROWTH & INCOME PORTFOLIO
o EMERGING MARKETS PORTFOLIO
The Warburg Pincus Trust (the "Trust") Shares are not available directly to
individual investors, but may be offered only through certain insurance products
and pension and retirement plans.
More complete information about the Trust, including charges and expenses and,
where applicable, the special considerations and risks associated with
international investing 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 800-222-8977 or by writing to Warburg
Pincus, P.O. Box 9030, Boston, MA 02205-9030.
[LOGO]
ASSET MANAGEMENT
<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.
The views of the portfolios' management are as of the date of the letters and
portfolio holdings described in this document are as of December 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 TRUST -- INTERNATIONAL EQUITY PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
February 5, 1999
Dear Shareholder:
The objective of Warburg Pincus Trust -- International Equity Portfolio is
long-term capital appreciation. The portfolio pursues its objective by investing
in equity securities of companies located or conducting a majority of their
business outside the U.S. or companies whose securities trade primarily in
markets outside the U.S.
For the 12 months ended December 31, 1998, the portfolio had a total return of
5.35%, vs. a return of 14.09% for the Morgan Stanley All Country World Excluding
the U.S. Index.
The period saw a marked divergence in performance among foreign stock markets.
European markets enjoyed universally impressive gains, benefiting from a host of
factors, including low inflation, falling interest rates and optimism regarding
the approach of European Monetary Union. Asian-Pacific markets generally fell,
with many falling sharply, victims of the lingering economic and financial
contagion that began following the Thai baht devaluation in mid-1997. Latin
American markets suffered a similar fate, as did most of the rest of the
emerging-market universe.
Set against this backdrop, the portfolio had a positive performance for the
period, benefiting from solid showings from a range of holdings. The portfolio
fell short of its benchmark, however, due to a combination of less-than-timely
regional allocations and weaknesses in specific stocks. Regional allocations
that cost the portfolio included its Latin American exposure, which, while a
relatively small portion of assets through the period, proved a considerable
liability, given the substantial declines suffered by that region's stock
markets. The portfolio was also hurt 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.
Specific stocks that weighed on the portfolio were its European cyclical, or
economically sensitive, issues, which sold off heavily in August and September
amid the global market sell-off and widening fears of global recession. Also
taking a toll were the portfolio's European financial holdings, a number of
which also fell sharply during those months, largely due to worries over these
companies' exposure to Russia and other emerging markets. (On a positive note, a
good number of these holdings subsequently recovered strongly in the year's
final months, allowing the portfolio to recapture much of the ground lost during
the summer.)
1
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
A final factor that weighed on the portfolio was our decision to hedge most of
its Japanese-currency exposure, a stance we maintained as a defensive measure
through the period. Though this worked to the portfolio's advantage through much
of the 12 months, as the yen remained generally weak vs. the U.S. dollar, it
proved harmful late in the year, as the yen gained significantly in value over
that span. (Particularly damaging was the month of October, when the yen rose
from 136.66 per dollar to 116.15.) Our hedging strategy prevented the portfolio
from enjoying the currency-translation gains that an unhedged position would
have allowed, and cost the portfolio significantly in relative terms.
Heading into 1999, we see both opportunity and risk in foreign stock markets,
and have positioned the portfolio in an effort to take full advantage of the
former while hopefully avoiding most of the latter. As of this writing, the bulk
of the portfolio's assets remain concentrated in Europe, where markets are
benefiting from the combination of a relatively favorable macroeconomic backdrop
and positive developments on the corporate front. We are maintaining a
more-guarded stance in the Asian-Pacific region, as we did through most of 1998,
though we are encouraged by the region's recent economic improvement and can
foresee raising the portfolio's exposure meaningfully at some point in the year
if the recovery continues to progress. We remain cautious toward Latin America
and emerging markets generally, but are monitoring the markets closely and would
similarly look to raise our exposure if and when the risk-vs.-reward profile
becomes more attractive.
<TABLE>
<S> <C>
Harold E. Sharon Richard H. King
Co-Portfolio Manager Co-Portfolio Manager
Harold W. Ehrlich Vincent J. McBride
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
2
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF WARBURG PINCUS TRUST -- INTERNATIONAL
EQUITY PORTFOLIO SINCE INCEPTION AS OF DECEMBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in Shares
of Warburg Pincus Trust -- International Equity Portfolio from June 30, 1995
(inception) to December 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:
Trust
International MSCI
------------- --------
Jun-95 10000 10000
Jul-95 10270 10622.6
Aug-95 10489.78 10217.77
Sep-95 10589.43 10417.33
Oct-95 10319.4 10137.31
Nov-95 10479.35 10419.53
Dec-95 10728.76 10839.33
Jan-96 11081.74 10883.67
Feb-96 11041.84 10920.45
Mar-96 11344.39 11152.51
Apr-96 11897.99 11476.6
May-96 11656.46 11265.55
Jun-96 11797.51 11328.98
Jul-96 11162.8 10997.94
Aug-96 11253.22 11022.03
Sep-96 11485.04 11314.88
Oct-96 11333.43 11199.13
Nov-96 11776.57 11644.86
Dec-96 11800.13 11494.64
Jan-97 11830.81 11092.44
Feb-97 12026.01 11273.91
Mar-97 11953.86 11314.73
Apr-97 12210.87 11374.69
May-97 13043.65 12114.96
Jun-97 13568 12783.1
Jul-97 13907.2 12989.93
Aug-97 12776.55 12019.84
Sep-97 13362.99 12693.19
Oct-97 11965.22 11717.72
Nov-97 11656.52 11598.2
Dec-97 11534.12 11699.1
Jan-98 11677.15 12234.22
Feb-98 12479.37 13019.17
Mar-98 13171.97 13420.03
Apr-98 13480.2 13526.32
May-98 13424.93 13460.71
Jun-98 13062.45 13562.61
Jul-98 13281.9 13700.14
Aug-98 11369.31 12002.83
Sep-98 10852.01 11634.82
Oct-98 11467.32 12847.63
Nov-98 12039.53 13505.43
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 period or years ended
December 31.
<TABLE>
<CAPTION>
EAFE MSCI PORTFOLIO
------- ------- ---------
<S> <C> <C> <C>
1995................................... $10,839 $10,694 $10,729
1996................................... 11,495 11,406 11,800
1997................................... 11,699 11,602 11,534
1998................................... 14,038 13,237 12,150
</TABLE>
- ------------------
* 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. It is an unmanaged index (with no defined
investment objective) and includes reinvestment of dividends.
** The Morgan Stanley Europe, Australasia and Far East Index is an unmanaged
index (with no defined investment objective) of international equities that
includes reinvestment of dividends, and is the exclusive property of Morgan
Stanley & Co. Incorporated.
3
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
February 5, 1999
Dear Shareholder:
The objective of Warburg Pincus Trust -- Small Company Growth Portfolio is
capital growth. The portfolio pursues its objective by investing in equity
securities of small U.S. growth companies.
For the 12 months ended December 31, 1998, the portfolio had a total return of
- -2.85%, vs. a return of 1.23% for the Russell 2000 Growth Index.
The reporting period was a difficult one for the types of smaller-
company, growth-oriented stocks in which the portfolio invests. Weighing on
these stocks was investors' general bias toward larger, more-liquid securities,
a bias that persisted through most if not all of the year and was heightened
considerably during the markets' sharp sell-off during the summer. Though
small-company growth shares managed a solid recovery in the year's final three
months, the group still finished the year with uninspiring returns, particularly
measured against large-capitalization stocks.
Set against this background, the portfolio posted a decline for the 12 months,
and also lagged its benchmark. Stocks that weighed on the portfolio's
performance included its energy-related holdings, which, while a small
percentage of assets through the period, took a relatively heavy toll, given the
weakness in some of these securities. The portfolio was also hurt by a relative
underweighting in technology stocks late in the year, as the sector enjoyed a
burst of very strong performance during that period.
There were few major changes in the portfolio during the 12 months in terms of
its sector concentrations. The portfolio remained broadly diversified, with
modest overweightings in the consumer and business-services areas. This
reflected our belief that we could find attractive opportunities across a range
of industries, as well as our effort to temper the portfolio's volatility by
avoiding overconcentration in any one area.
Looking at 1999, our outlook on the prospects for small-cap growth stocks is
positive, notwithstanding the group's results in 1998. These companies continue
to enjoy rapid earnings growth, both in absolute terms and relative to
larger-cap companies. At the same time, equity valuations for the group stand at
extremely attractive levels vs. those on large-cap issues. We believe that the
combination should, ultimately, draw increasing amounts of investor attention to
the small-cap arena in the coming year, which could result in improved relative
performance. All told, we remain optimistic, and will continue to strive to
identify those companies with the best potential for long-term growth.
<TABLE>
<S> <C>
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
4
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS
TRUST -- SMALL COMPANY GROWTH PORTFOLIO SINCE INCEPTION
AS OF DECEMBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in Warburg
Pincus Trust -- Small Company Growth Portfolio from June 30, 1995 (inception) to
December 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:
Trust Small
Co Growth Russell 2000
----------- ------------
Jun-95 10000 10000
Jul-95 10320 10753
Aug-95 11040.34 10941.82
Sep-95 11560.34 11250.05
Oct-95 11190.41 10902.31
Nov-95 11990.52 11278.12
Dec-95 12510.91 11405.56
Jan-96 12360.78 11351.95
Feb-96 12840.37 11808.42
Mar-96 13130.57 12049.07
Apr-96 14419.99 13010.71
May-96 15149.64 13551.3
Jun-96 14280.05 13005.86
Jul-96 12690.68 11743.25
Aug-96 13700.86 12455.25
Sep-96 14370.83 13169.8
Oct-96 13921.02 12766.41
Nov-96 13930.77 12998
Dec-96 14241.43 13044.53
Jan-97 14581.8 13342.08
Feb-97 13521.7 12577.71
Mar-97 12441.32 11816.13
Apr-97 12250.96 11717.58
May-97 13980.8 13184.27
Jun-97 14621.12 13825.29
Jul-97 15401.89 14623.01
Aug-97 15822.36 14790.44
Sep-97 17213.14 15933.15
Oct-97 16423.06 15130.6
Nov-97 16142.23 14851.44
Dec-97 16482.83 15003.96
Jan-98 15863.07 14715.44
Feb-98 17233.64 15902.38
Mar-98 18114.28 16612.43
Apr-98 18233.84 16681.7
May-98 16844.42 15762.54
Jun-98 17273.95 15971.39
Jul-98 15624.29 14857.71
Aug-98 12463.49 11909.34
Sep-98 13353.39 12554.23
Oct-98 13874.17 13066.57
Nov-98 14884.21 13829.14
Dec-98 16013.92 14875.59
- ------------------
* The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Index with a
greater-than-average growth orientation. It includes reinvestment of
dividends, and is compiled by Frank Russell Company.
5
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
February 5, 1999
Dear Shareholder:
The objective of Warburg Pincus Trust -- Post-Venture Capital Portfolio is
long-term growth of capital. The portfolio pursues its objective by investing in
equity securities of U.S. companies considered to be in their post-venture-
capital stage of development.
For the 12 months ended December 31, 1998, the portfolio had a gain of 6.87%,
vs. gains of 1.23% for the Russell 2000 Growth Index, 3.10% for the Russell 2500
Growth Index and 6.82% for the NASDAQ Industrial Index.
The January-through-December span was a highly volatile, though ultimately
positive, period for the smaller-cap and aggressive-growth stocks targeted by
the portfolio. After rallying through mid-July, these stocks sold off heavily
through early October (small-cap stocks were hit particularly hard). This
reversal reflected an ever-lengthening list of negative developments -- e.g.,
Russia's financial meltdown and a domestic hedge-fund crisis -- which prompted
investors to abandon risk in all forms. Small-cap and aggressive-growth stocks
enjoyed a strong finish to the year, however. Valuations on these issues, which
were historically compelling before the group's steep decline, became much more
so by early October. This, along with a worldwide easing of monetary policy over
the final months of the period, encouraged investors to revisit the group.
Against this backdrop, the portfolio had respectable performance, both in
absolute terms and relative to its benchmarks. Helping the portfolio were good
showings from its technology, media and business-services holdings in
particular.
We made a few noteworthy changes to the portfolio 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 portfolio 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
6
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 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 somewhat 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 weightings for the portfolio included computers, where we
had a bias toward domestically oriented software companies; financial services,
where we emphasized insurance and asset-management stocks; and the consumer
area, broadly defined. One consumer stock we added during the period was Dial
Corp. The consumer-products company has made significant strides in lowering
costs and expanding into new markets since going public recently via a spinoff.
(Although Dial consumer products have existed for more than a century, the
company's consumer division has operated independently only since 1996.)
Going forward, our outlook on the collective prospects for stocks of post-
venture companies remains positive. (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 early stages of the development of a new
product or service, or as part of a restructuring or recapitalization of the
company. The investment of venture-capital financing, distribution of the
company's securities to venture-capital investors or initial public offering,
whichever is later, will have been made within 10 years prior to the portfolio's
purchase of the company's securities.) These companies continue to have rapid
earnings growth, both in absolute terms and relative to blue-chip-type
companies, and their stock valuations for the most part remain very attractive
compared to those of large-cap stocks. Set against this backdrop, we will
continue to devote our efforts to identifying innovative, well-financed
companies we deem to have the best long-term prospects.
<TABLE>
<S> <C>
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
7
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS TRUST --
POST-VENTURE CAPITAL PORTFOLIO SINCE INCEPTION AS OF DECEMBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in Warburg
Pincus Trust -- Post-Venture Capital Portfolio from September 30, 1996
(inception) to December 31, 1998, compared to the Russell 2000 Growth Index
("R2000G")*, the 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:
Russell Trust Post NASDAQ
R2500G 2000G Venture Industrials
-------- -------- ---------- -----------
Sep-96 10000 10000 10000 10000
Oct-96 9730 9568.7 9720.1 9688.9
Nov-96 9760.16 9834.81 10074.59 10044.1
Dec-96 9760.16 10026.58 10017.97 10093.31
Jan-97 10200.35 10277.05 10463.77 10395.2
Feb-97 9519.98 9656.52 9900.09 9939.79
Mar-97 8869.77 8975.16 9190.85 9285.85
Apr-97 8899.93 8871.4 9000.69 9327.64
May-97 9879.81 10204.86 10239.9 10445.65
Jun-97 10090.25 10550.91 10677.76 10795.05
Jul-97 10949.94 11091.54 11380.89 11480.22
Aug-97 10860.15 11424.4 11591.55 11760.33
Sep-97 11570.4 12336.06 12416.18 12590.96
Oct-97 10840.31 11595.16 11454.42 11805.41
Nov-97 10840.31 11319.19 11290.05 11624.44
Dec-97 11062.53 11325.99 11024.39 11583.17
Jan-98 10932 11175.01 10949.65 11431.89
Feb-98 12031.76 12161.54 11834.05 12413.32
Mar-98 12741.63 12671.72 12295.1 12874.23
Apr-98 12911.09 12749.4 12543.83 12991.26
May-98 12021.52 11823.15 12015.99 12157.35
Jun-98 12521.61 11944.1 12044.23 12246.46
Jul-98 11312.03 10946.65 11366.74 11334.59
Aug-98 8941.03 8419.73 8748.3 8758.92
Sep-98 9591.04 9273.4 9315.27 9526.9
Oct-98 9950.7 9757.1 10068.88 10169.96
Nov-98 10760.69 10514.25 10973.07 10893.05
Dec-98 11820.62 11465.79 11776.29 11942.05
In past annual reports, we have compared the portfolio'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
- ------------------
* 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. It includes reinvestment of dividends, and is
compiled by Frank Russell Company.
*** The NASDAQ Industrial Index is an unmanaged index that 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.
8
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
performance of more than 3000 industrial issues included in the NASDAQ OTC
Composite Index, are more descriptive benchmarks for the portfolio. The
following compares PVCI, R2500G, NASDAQ and the portfolio's annual value for the
fiscal period or years ended December 31.
<TABLE>
<CAPTION>
PVCI R2500G NASDAQ PORTFOLIO
------- ------- ------- ---------
<S> <C> <C> <C> <C>
1996.................. $ 9,926 $10,093 $10,018 $ 9,760
1997.................. 10,172 11,583 11,024 11,063
1998.................. 14,848 11,942 11,776 11,821
</TABLE>
9
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
February 5, 1999
Dear Shareholder:
The objective of Warburg Pincus Trust -- Growth & Income Portfolio is
long-term growth of capital and income and a reasonable current return. The
portfolio pursues its objective by investing primarily in equity securities of
value companies.
For the 12 months ended December 31, 1998, the portfolio had a return of
12.13%, vs. a return of 28.57% for the S&P 500 Index.
The 12-month period was ultimately a strong one for the U.S. stock market,
though it was marked by periods of extreme volatility. Following new highs it
set in mid July, the market suffered a severe decline, with the S&P 500 Index
plunging almost 20% by the end of August. The selloff was driven by a material
deterioration in actual and forecasted U.S. corporate profit trends, as well as
growing concerns over economic and political crises abroad. However, the market
subsequently rallied, buoyed by Federal Reserve interest-rate cuts in September,
October and November.
Against this backdrop, the portfolio lagged the S&P 500 Index by a significant
margin. The portfolio's underperformance was largely attributable to its limited
participation in market rallies, in particular those sharp, "narrow" rallies
driven by relatively few stocks. And while rallies tended to be narrow, market
declines during the period were generally broad-based. All told, these trends
hampered the portfolio. Consistent with our value-based approach, we maintained
limited exposure to the handful of large-cap growth stocks that, in fact,
accounted for the bulk of the index's advance. We deemed most of these companies
to be expensive from a valuation perspective, and underweighted them in favor of
stocks we believed had better risk-adjusted prospects.
We remained broadly diversified by sector during the period. That said, we
made a number of strategy changes within certain industry groups, most notably
among financial-services companies. The market's sharp decline in August and
September created some compelling valuations here among stocks we had heretofore
regarded as expensive. This prompted us to shift our focus away from insurance
and mortgage-services stocks (specifically the government-sponsored enterprise
companies) and toward banking, brokerage and consumer-lending stocks. We added
names such as Lehman Brothers Holdings, American Express and Household
International, which we deemed to be oversold on investors' general concerns
regarding balance-sheet risk. In our view, the valuations of these stocks did
not reflect the underlying earnings power of these companies under normal
operating conditions.
We modestly increased our exposure to the consumer area, specifically the
food, beverages & tobacco sector. We continued to find attractive buying
10
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
opportunities here, particularly among food companies in the process of
restructuring their operations such as Keebler and H.J. Heinz. Elsewhere in the
consumer area, we maintained exposure to the retail sector, where our holdings
included department stores (e.g., Federated Department Stores and May Department
Stores), as well as selected specialty retailers (most notably, TJX Companies
and Payless ShoeSource). In very general terms, our positive view on the
prospects for retail stocks is based on the industry's improved
inventory-management skills (which has continued to enhance balance-sheet
returns), combined with reasonable valuations.
Other noteworthy areas of emphasis for the portfolio during the period
included computer stocks. Our holdings here, which included IBM and Sun
Microsystems, represented what we deemed to be undervalued stocks of companies
with attractive rates of return and good long-term earnings growth potential.
That said, we limited our exposure to other technology stocks during the period.
We viewed most software stocks as unattractive on a valuation basis, and largely
avoided commodity-type technology stocks (e.g., semiconductor stocks) due to our
concerns over weakness in commodity prices.
We also maintained some exposure to energy stocks. Our focus through the
period was on multinational, integrated oil companies whose profit growth and
free-cash generation is not heavily dependent on rising oil prices. Rather, we
continued to emphasize companies whose growth is geared to expanding production
profiles and continuous productivity enhancements. Our largest holdings here
during the period included British Petroleum and Total.
The rest of the portfolio remained diversified across a wide range of sectors.
These included the telecommunications & equipment area, where we held a mix of
local and long-distance service providers, and health care, where we emphasized
health-maintenance-organization companies. We deemed several HMO stocks to be
attractively priced, given their reasonable valuations and higher underlying
growth rates vs. other insurance-related stocks.
Looking ahead, we believe that, the Federal Reserve's recent actions
notwithstanding, equities will face frequent bouts of volatility, given their
generally lofty valuations and still-uncertain global economic conditions.
However, we also believe that a number of attractive investment opportunities
exist from a relative-valuation perspective. In this context, our efforts will
remain concentrated on identifying stocks we deem to have the best risk-
adjusted longer-term prospects.
Brian S. Posner
Portfolio Manager
11
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS
TRUST -- GROWTH & INCOME PORTFOLIO
SINCE INCEPTION AS OF DECEMBER 31, 1998
The graph below illustrates the hypothetical investment of $10,000 in Warburg
Pincus Trust -- Growth & Income Portfolio from October 31, 1997 (inception) to
December 31, 1998, compared to the S&P 500 Index* for the same period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Trust Growth
& Income S&P500
Oct-97 10000 10000
Nov-97 10130 10279
Dec-97 10389.33 10452.72
Jan-98 10449.59 10472.37
Feb-98 11132.99 11129.3
Mar-98 11554.93 11644.47
Apr-98 11595.37 11707.12
May-98 11565.22 11528.12
Jun-98 11676.25 11666.92
Jul-98 11375 11381.19
Aug-98 9755.2 9773.83
Sep-98 10037.13 10212.28
Oct-98 10740.73 10954.1
Nov-98 11354.03 11482.09
Dec-98 11648.1 11872.48
- ------------------
* 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 McGraw-Hill Co., Inc.
12
<PAGE>
WARBURG PINCUS TRUST -- EMERGING MARKETS PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
February 5, 1999
Dear Shareholder:
The objective of Warburg Pincus Trust -- Emerging Markets Portfolio is
long-term growth of capital. The portfolio pursues its objective by investing
primarily in equity securities of companies located in or conducting a majority
of their business in emerging markets or whose securities trade primarily in
emerging markets.
For the 12 months ended December 31, 1998, the portfolio had a total return of
- -17.30%, vs. a total return of -25.33% for the Morgan Stanley Emerging Markets
Free Index.
The year was an extremely difficult one for emerging markets. Weighing on the
group was a confluence of forces: a sharp economic and financial contraction
across the Asian-Pacific region, set in motion by Thailand's currency
devaluation in mid-1997; 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 a settling of market contagion on Latin
America, most notably Brazil, the region's economic giant. Though emerging
markets collectively managed a strong recovery in the final three months of
1998, led by particularly strong gains in several Asian-Pacific markets, it was
insufficient to make up for the group's earlier, substantial losses.
The portfolio suffered proportionately, weighed down by the markets' broad
weakness, though it fared well vs. its benchmark. In terms of general strategy,
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 Asian-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 roughly benchmark-neutral weighting in Latin America. The
strategy resulted in an outperformance vs. our benchmark, as noted, which is
encouraging, though clearly we were disappointed by the portfolio's absolute
performance.
Looking ahead, while there are certainly near-term challenges for emerging
markets, including that posed by the recent devaluation of Brazil's currency,
13
<PAGE>
WARBURG PINCUS TRUST -- EMERGING MARKETS PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
we see reason for optimism, especially from a medium- to longer-term
perspective. Equity valuations in these markets are very attractive vs. those in
developed markets. This should, at some point, draw increasing notice from
investors. The economic backdrop facing most of these markets also stands to
gradually improve, and the recent signs of improvement in several economies,
including some of the previously hardest-hit in the Asian-Pacific region, are
very encouraging. The combination of attractive valuations, potentially improved
investor sentiment and a strengthening macroeconomic backdrop suggests a far
better environment for emerging markets in 1999 and beyond than the one they
encountered in 1998.
Given that, we remain optimistic, and believe the portfolio is well-
positioned in terms of its regional allocations and specific holdings. 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 individuals with a relatively low tolerance
for risk would probably be best served by choosing a more conservative
investment. 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.
<TABLE>
<S> <C>
Richard H. King Vincent J. McBride
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
14
<PAGE>
WARBURG PINCUS TRUST -- EMERGING MARKETS PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT -- DECEMBER 31, 1998 (CONT'D)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS TRUST --
EMERGING MARKETS PORTFOLIO SINCE INCEPTION AS OF DECEMBER 31, 1998
The graph below illustrates a hypothetical investment of $10,000 in Warburg
Pincus Trust -- Emerging Markets Portfolio from December 31, 1997 (inception) to
December 31, 1998, compared to the Morgan Stanley Emerging Markets Free Index
("MSCI")* for the same time period.
[GRAPHIC]
Trust MS-Emerging
Emerging Markets
Markets Free Index
-------- ----------
10000 10000
Jan-98 10270 9303.7
Feb-98 11760.18 10135.08
Mar-98 12110.63 10512.2
Apr-98 11941.08 10562.77
May-98 10260.97 9170.07
Jun-98 9530.39 8300.29
Jul-98 9680.02 8553.28
Aug-98 7040.28 6102.59
Sep-98 7490.15 6331.5
Oct-98 7970.27 6939.96
Nov-98 8330.53 7406.32
Dec-98 8270.55 7313.75
In the printed version of the document, a line graph appears which depicts
the following plot points:
- ------------------
* The Morgan Stanley Emerging Markets Free Index is a market-
capitalization-weighted index of emerging-market countries determined by
Morgan Stanley. The index includes only those countries open to non-local
investors.
15
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (96.6%)
Argentina (1.1%)
Banco de Galicia Buenos Aires SA de CV ADR 27,141 $ 478,360
YPF SA ADR 122,300 3,416,756
------------
3,895,116
------------
Austria (1.0%)
Erste Bank Der Oesterreichischen Sparkassen AG 21,900 1,172,741
V.A. Technologie AG 9,955 776,432
Wienerberger Baustoffindustrie AG 7,870 1,566,201
------------
3,515,374
------------
Belgium (0.7%)
Dexia Belgium 14,930 2,498,999
------------
Denmark (3.9%)
International Service System AS Class B 77,000 5,008,838
Tele Danmark AS Class B 35,000 4,723,970
Unidanmark AS 47,700 4,309,552
------------
14,042,360
------------
France (9.4%)
Banque Nationale de Paris 44,900 3,699,059
Elf Aquitaine SA 22,800 2,636,730
Lagardere Groupe SCA 146,379 6,223,586
PSA Peugeot Citroen 28,600 4,428,743
Rhone-Poulenc Ltd. Class A 69,363 3,571,207
Societe Generale d'Enterprises SA 109,300 5,126,486
Suez Lyonnaise des Eaux SA 39,800 8,179,434
------------
33,865,245
------------
Germany (14.2%)
BHF Bank AG 165,200 6,645,612
Degussa AG 73,200 4,023,644
Fresenius Medical Care AG 74,900 5,284,085
Hannover Rueckversicherungs-Gesellschaft AG 32,500 3,463,633
Hoechst AG 107,600 4,464,167
Mannesmann AG 57,740 6,621,560
Muenchener Rueckversicherungs-Gesellschaft AG 7,600 3,682,454
Schering AG 42,400 5,326,985
Siemens AG 92,000 5,938,085
Viag AG 9,609 5,636,674
------------
51,086,899
------------
Greece (0.8%)
Hellenic Telecommunication Organization SA ADR + 209,000 2,769,250
------------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
COMMON STOCKS (CONT'D)
<S> <C> <C>
Hong Kong (0.9%)
New World Development Co., Ltd. 276,000 $ 694,719
Smartone Telecommunications 858,000 2,381,174
------------
3,075,893
------------
Ireland (1.5%)
Bank of Ireland 196,100 4,371,157
Greencore Group PLC 191,310 884,254
------------
5,255,411
------------
Israel (2.2%)
Blue Square Israel Co., Ltd. ADR 109,200 1,132,950
ECI Telecommunications Limited Designs 131,250 4,675,781
Orbotech, Ltd. 47,900 2,269,263
------------
8,077,994
------------
Italy (7.3%)
Alleanza Assicurazioni 282,000 3,993,408
San Paolo-IMI SpA 280,400 4,965,563
Seat Pagine Gialle SpA 8,283,000 6,379,682
Telecom Italia SpA 801,400 6,852,927
Telecom Italia SpA 313,100 1,974,804
Unione Immobiliare SpA + 3,863,000 2,019,480
------------
26,185,864
------------
Japan (13.6%)
Advantest Corp. 35,700 2,266,132
Hankyu Realty Co., Ltd. 230,000 919,620
Matsushita Communication Industrial Co., Ltd. 93,000 4,394,547
Minebea Co., Ltd. 406,000 4,657,622
NTT Mobile Communications Network, Inc. 600 2,473,479
Orix Corp. 93,500 6,996,132
Rohm Co., Ltd. 41,000 3,740,272
Sanwa Bank, Ltd. 275,000 2,123,512
Shohkoh Fund & Co., Ltd. 16,100 5,195,546
Sony Corp. 60,400 4,406,976
Sumitomo Bank, Ltd. 230,000 2,365,319
TDK Corp. 48,000 4,395,877
Toshiba Corp. 876,000 5,226,646
------------
49,161,680
------------
Mexico (0.8%)
Fomento Economico Mexicano SA de CV ADR 82,500 2,196,563
Gruma SA de CV Class B 259,642 656,344
------------
2,852,907
------------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
COMMON STOCKS (CONT'D)
<S> <C> <C>
Netherlands (7.0%)
CSM NV 84,700 $ 4,892,432
ING Groep NV 94,574 5,770,180
Koninklijke Pakhoed NV 97,000 2,449,978
Laurus NV 85,190 2,138,069
Philips Electronics NV 47,000 3,155,589
Vedior NV 154,628 3,048,611
Vendex Non-Foods NV 155,280 3,773,049
------------
25,227,908
------------
New Zealand (0.5%)
Fletcher Challenge Energy 931,900 1,772,228
------------
Norway (0.1%)
Smedvig ASA ADR Class B 43,300 324,750
------------
Portugal (0.3%)
Banco Mello SA 88,666 986,754
------------
Singapore (1.4%)
Development Bank of Singapore, Ltd. 224,000 2,022,837
Oversea-Chinese Banking Corp., Ltd. 149,000 1,011,418
United Overseas Bank, Ltd. 310,000 1,991,563
------------
5,025,818
------------
South Africa (0.3%)
Sappi, Ltd. + 247,600 957,550
------------
Spain (4.2%)
Argentaria SA 202,100 5,241,800
Endesa SA 374,800 9,945,903
------------
15,187,703
------------
Sweden (3.8%)
Biora AB ADR + 102,400 1,331,200
Electrolux AB Series B 210,839 3,628,634
Ericsson LM Series B 301,300 7,174,217
Kinnevik AB-B 69,200 1,622,100
------------
13,756,151
------------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
COMMON STOCKS (CONT'D)
<S> <C> <C>
Switzerland (5.1%)
Novartis AG 2,587 $ 5,085,549
Roche Holding AG 381 4,649,183
SAIA-Burgess Electronics AG + 8,720 2,158,604
Sulzer AG 3,475 2,115,138
Swisscom AG 10,600 4,437,633
------------
18,446,107
------------
Taiwan (0.4%)
Taiwan Semiconductor Manufacturing Co. + 714,000 1,573,539
------------
United Kingdom (16.1%)
Barclays PLC 224,900 4,849,514
Bass PLC 266,500 3,879,797
British Airport Authority PLC 363,736 4,245,391
British Energy PLC 805,300 9,211,580
Glaxo Wellcome PLC 136,200 4,686,314
Lloyds TSB Group PLC 167,600 2,384,207
Orange PLC 717,700 8,340,903
Reed International PLC 734,500 5,743,722
Royal & Sun Alliance Insurance Group PLC 342,701 2,798,204
Standard Chartered Bank PLC 194,800 2,257,428
Williams PLC 1,044,648 5,931,252
Zeneca Group PLC 87,400 3,805,563
------------
58,133,875
------------
TOTAL COMMON STOCKS (Cost $308,418,215) $347,675,375
------------
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
PREFERRED STOCK (1.1%)
Brazil (0.4%)
Companhia Energetica de Minas Gerais 13,079,000 $ 248,980
Telecomunicacoes de Sao Paulo SA 5,681,000 774,425
Telesp Participacoes SA + 19,100,000 434,738
------------
1,458,143
------------
Germany (0.7%)
GEA AG 61,600 1,479,418
KSB AG 6,290 1,068,777
------------
2,548,195
------------
TOTAL PREFERRED STOCK (Cost $5,818,040) 4,006,338
------------
<CAPTION>
PAR
(000)
----------
<S> <C> <C>
SHORT TERM INVESTMENT (4.2%)
Repurchase agreement with Merrill Lynch & Co. dated 12/31/98
at 4.95% to be repurchased at $15,180,345 on 01/04/1999.
(Collateralized by a pro rata amount of U.S. Treasury Notes
ranging in par values from $6,025,000 - $50,000,000, 6.25% -
8.75%, 03/25/99 - 02/15/27. Pro rata market value of
collateral is $15,475,362.) (Cost $15,172,000) $ 15,172 15,172,000
------------
TOTAL INVESTMENTS AT VALUE (101.9%) (Cost $329,408,255*) 366,853,713
LIABILITIES IN EXCESS OF OTHER ASSETS (1.9%) (6,729,255)
------------
NET ASSETS (100.0%) (applicable to 32,759,037 shares
outstanding) $360,124,458
============
NET ASSET VALUE, offering and redemption price per share
($360,124,628 divided by 32,759,037) $ 10.99
============
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $330,641,147.
See Accompanying Notes to Financial Statements.
20
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (94.1%)
Aerospace & Defense (0.6%)
TriStar Aerospace Co. + 625,600 $ 4,379,200
------------
Banks & Savings & Loans (1.2%)
Commonwealth Bancorp, Inc. 286,800 4,463,325
Texas Regional Bancshares, Inc. Class A 172,100 4,313,256
------------
8,776,581
------------
Building & Building Materials (0.9%)
D.R. Horton, Inc. 298,600 6,867,800
------------
Business Services (15.4%)
BISYS Group, Inc. + 159,800 8,249,675
CB Richard Ellis Services, Inc. + 244,200 4,426,125
Getty Images, Inc. + 435,600 7,486,875
Hagler Bailly, Inc. + 268,300 5,366,000
Hypercom Corp. + 579,100 5,718,612
INSpire Insurance Solutions, Inc. + 305,600 5,615,400
Lason, Inc. + 119,700 6,965,044
NOVA Corp. 197,483 6,850,192
On Assignment, Inc. + 185,600 6,403,200
Protection One, Inc. + 752,800 6,445,850
QRS Corp. + 222,700 10,689,600
Robert Half International, Inc. 162,650 7,268,422
Sterling Commerce, Inc. + 218,700 9,841,500
SunGard Data Systems, Inc. + 232,900 9,243,219
Technology Solutions Co. + 442,650 4,744,655
Trammell Crow Co. + 270,600 7,576,800
------------
112,891,169
------------
Communications & Media (6.6%)
Central European Media Enterprises, Ltd. Class A + 244,700 1,605,844
Granite Broadcasting Corp. + 321,600 1,929,600
Heftel Broadcasting Corp. + 209,100 10,298,175
Infoseek Corp. + 88,500 4,369,687
Lycos, Inc. + 175,200 9,734,550
Metro Networks, Inc. + 195,600 8,337,450
Outdoor Systems, Inc. + 416,863 12,505,875
------------
48,781,181
------------
Computers (10.9%)
Boole & Babbage, Inc. + 267,800 7,883,362
Citrix Systems, Inc. + 215,550 20,921,822
Documentum, Inc. + 114,800 6,134,625
Hyperion Solutions Corp. + 268,700 4,836,600
Legato Systems, Inc. + 69,600 4,589,250
Mercury Interactive Corp. + 141,200 8,930,900
National Instruments Corp. + 224,650 7,666,181
Radiant Systems, Inc. + 440,300 3,247,212
Transactions Systems Architects, Inc. Class A + 323,000 16,150,000
------------
80,359,952
------------
</TABLE>
See Accompanying Notes to Financial Statements.
21
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Consumer Non-Durables (1.6%)
Central Garden & Pet Co. + 472,300 $ 6,789,312
Interface, Inc. 574,800 5,334,862
------------
12,124,174
------------
Consumer Services (4.2%)
DeVry, Inc. + 479,700 14,690,812
ITT Educational Services, Inc. + 265,000 9,010,000
Strayer Educational, Inc. 203,800 7,183,950
------------
30,884,762
------------
Electronics (8.4%)
ATMI, Inc. + 153,200 3,868,300
Avant! Corp. + 402,400 6,438,400
Burr-Brown Corp. + 333,500 7,816,406
DII Group, Inc. + 291,500 6,795,594
Novellus Systems, Inc. + 96,300 4,766,850
Photronics, Inc. + 220,100 5,275,522
Uniphase Corp. + 213,900 14,839,312
Vitesse Semiconductor Corp. + 258,300 11,784,937
------------
61,585,321
------------
Energy (1.4%)
Chieftain International, Inc. + 300,200 4,315,375
Stone Energy Corp. + 216,300 6,218,625
------------
10,534,000
------------
Environmental Services (2.5%)
Allied Waste Industries, Inc. + 347,830 8,217,484
Casella Waste Systems, Inc. + 279,000 10,357,875
------------
18,575,359
------------
Financial Services (4.4%)
Allmerica Financial Corp. 189,400 10,961,525
Amerin Corp. + 263,700 6,229,912
Enhance Financial Services Group, Inc. 199,000 5,970,000
Protective Life Corp. 224,900 8,953,831
------------
32,115,268
------------
Food, Beverages & Tobacco (2.3%)
Consolidated Cigar Holdings, Inc. + 372,300 6,585,056
Suiza Foods Corp. + 195,700 9,968,469
------------
16,553,525
------------
Healthcare (7.6%)
Alternative Living Services, Inc. + 269,400 9,226,950
Core, Inc. + 740,700 4,228,200
MiniMed, Inc. + 176,500 18,488,375
Renal Care Group, Inc. + 302,550 8,717,222
Sunrise Assisted Living, Inc. + 202,200 10,489,125
VWR Scientific Products Corp. + 255,000 4,430,625
------------
55,580,497
------------
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Leisure & Entertainment (6.0%)
Coach USA, Inc. + 291,000 $ 10,094,063
Family Golf Centers, Inc. + 296,850 5,862,788
Premier Parks, Inc. + 502,000 15,185,500
Sunterra Corp. + 389,900 5,848,500
Vistana, Inc. + 484,700 6,785,800
------------
43,776,651
------------
Lodging & Restaurants (1.3%)
Bob Evans Farms, Inc. 365,000 9,512,813
------------
Metals & Mining (0.6%)
Metals USA, Inc. + 434,100 4,232,475
------------
Office Equipment & Supplies (0.7%)
United Stationers, Inc. + 200,500 5,213,000
------------
Oil Services (0.8%)
Petroleum Geo Services ADR + 367,900 5,794,425
Southern Mineral Corp. +# 176,625 126,949
------------
5,921,374
------------
Pharmaceuticals (6.0%)
Alkermes, Inc. + 374,500 8,309,219
ChiRex, Inc. + 307,400 6,570,675
PharMerica, Inc. + 570,000 3,420,000
Sepracor, Inc. + 126,700 11,094,169
Serologicals Corp. + 484,400 14,532,000
------------
43,926,063
------------
Real Estate (2.6%)
Apartment Investment & Management Co. Class A 178,488 6,637,523
Fairfield Communities, Inc. + 519,600 5,748,075
U.S. Restaurant Properties, Inc. 286,550 6,966,747
------------
19,352,345
------------
Retail (3.5%)
99 Cents Only Stores + 148,250 7,282,781
Stage Stores, Inc. + 247,900 2,324,063
Staples, Inc. + 168,800 7,374,450
Whole Foods Market, Inc. + 181,100 8,760,713
------------
25,742,007
------------
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Telecommunications & Equipment (2.2%)
Gilat Satellite Networks + 175,000 $ 9,646,875
McLeodUSA, Inc. Class A + 209,400 6,543,750
------------
16,190,625
------------
Transportation (2.4%)
Heartland Express, Inc. + 287,750 5,035,625
Mark VII, Inc. + 281,700 5,246,663
Swift Transportation Co., Inc. + 254,200 7,125,544
------------
17,407,832
------------
TOTAL COMMON STOCK (Cost $551,963,597) 691,283,974
------------
SHORT TERM INVESTMENTS (5.5%)
Mutual Funds (4.3%)
RBB Money Market-Select Class (Cost $31,928,038) 31,928,038 31,928,038
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-----
<S> <C> <C>
Repurchase Agreements (1.2%)
Repurchase agreement with Merrill Lynch & Co. dated
12/31/98 at 4.95% to be repurchased at $8,398,617 on
01/04/1999. (Collateralized by a pro rata amount of U.S.
Treasury Notes ranging in par value from $6,025,000 to
$50,000,000, 6.25% - 8.75%, 03/25/99 - 02/15/27. Pro rata
market value of collateral is $8,561,837.) (Cost
$8,394,000) $8,394 8,394,000
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $40,322,038) 40,322,038
------------
TOTAL INVESTMENTS AT VALUE (99.6%) (Cost $592,285,635*) 731,606,012
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%) 3,296,153
------------
NET ASSETS (100.0%) (applicable to 45,894,420 shares
outstanding) $734,902,165
============
NET ASSET VALUE, offering and redemption price per share
($734,902,165 divided by 45,894,420) $ 16.01
============
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $592,555,090.
# Restricted security.
See Accompanying Notes to Financial Statements.
24
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (92.1%)
Aerospace & Defense (1.2%)
Gulfstream Aerospace Corp. + 13,400 $ 713,550
-----------
Business Services (17.1%)
BISYS Group, Inc. + 10,700 552,387
CB Richard Ellis Services, Inc. + 21,200 384,250
Concord EFS, Inc. + 15,600 661,050
CSG Systems International, Inc. + 14,100 1,113,900
Hays PLC 115,000 1,009,309
IMS Health, Inc. 15,500 1,169,281
Lason, Inc. + 17,500 1,018,281
On Assignment, Inc. + 15,700 541,650
Pharmaceutical Product Development, Inc. + 19,000 571,187
Protection One, Inc. 78,200 669,587
QRS Corp. + 16,200 777,600
Realty Information Group, Inc. + 32,400 409,050
Sterling Commerce, Inc. + 14,000 630,000
SunGard Data Systems, Inc. + 27,700 1,099,344
-----------
10,606,876
-----------
Communications & Media (11.1%)
America Online, Inc. 13,600 2,176,000
Central European Media Enterprises, Ltd. + 58,800 385,875
Heftel Broadcasting Corp. + 23,400 1,152,450
Infinity Broadcasting Corp. + 6,900 188,887
Outdoor Systems, Inc. + 21,631 648,915
USA Networks, Inc. + 34,300 1,136,187
Yahoo!, Inc. + 5,800 1,363,362
-----------
7,051,676
-----------
Computers (14.7%)
BMC Software, Inc. + 18,800 837,775
Citrix Systems, Inc. + 17,000 1,650,062
Compuware Corp. + 8,800 687,500
Documentum, Inc. + 16,000 855,000
Hyperion Solutions Corp. + 29,200 525,600
JDA Software Group, Inc. + 30,850 298,859
Legato Systems, Inc. + 11,600 764,875
Micrografx, Inc. + 39,100 430,100
Network Appliance, Inc. + 22,100 994,500
New Era of Networks, Inc. + 16,200 712,800
Transactions Systems Architects, Inc. Class A + 22,700 1,135,000
Women.Com Network +# 75,988 250,001
-----------
9,142,072
-----------
Consumer Durables (0.9%)
Furniture Brands International, Inc.+ 20,400 555,900
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
25
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Consumer Non-Durables (0.9%)
Dial Corp. 18,700 $ 539,962
-----------
Consumer Services (2.7%)
DeVry, Inc. + 38,500 1,179,062
Stewart Enterprises, Inc. 21,400 476,150
-----------
1,655,212
-----------
Distribution (0.3%)
Transportation Components, Inc. + 44,700 206,737
-----------
Electronics (7.4%)
Maxim Integrated Products, Inc. + 34,600 1,511,587
Solectron Corp. + 5,900 548,331
Uniphase Corp. + 15,800 1,096,125
Vitesse Semiconductor Corp. + 19,400 885,125
Xilinx, Inc. + 7,900 514,487
-----------
4,555,655
-----------
Energy (0.4%)
Chaparral Resources, Inc. +# 166,667 250,001
-----------
Environmental Services (1.5%)
Allied Waste Industries, Inc. + 17,985 424,896
Waste Management, Inc. 10,200 475,575
-----------
900,471
-----------
Financial Services (5.0%)
3i Group PLC 48,000 463,205
AMBAC Financial Group, Inc. 8,700 523,631
Amerin Corp. + 13,500 318,938
AMVESCAP PLC ADR 9,700 373,450
Nationwide Financial Services, Inc. 16,000 827,000
Reinsurance Group of America, Inc. 10,000 607,500
-----------
3,113,724
-----------
Food, Beverages & Tobacco (1.1%)
Ben & Jerry's Homemade, Inc. Class A + 300 6,713
Suiza Foods Corp. + 13,000 662,188
-----------
668,901
-----------
Healthcare (3.2%)
American Oncology Resources, Inc. + 34,700 505,319
AmeriSource Health Corp. Class A + 8,300 539,500
Total Renal Care Holdings, Inc. + 32,300 954,869
-----------
1,999,688
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
26
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Leisure & Entertainment (2.2%)
Coach USA, Inc. + 14,500 $ 502,969
Premier Parks, Inc. + 28,900 874,225
-----------
1,377,194
-----------
Lodging & Restaurants (1.1%)
Garden Fresh Restaurant Corp. + 32,300 464,313
Il Fornaio America Corp. + 27,600 203,550
-----------
667,863
-----------
Metals & Mining (0.6%)
Metals USA, Inc. + 35,400 345,150
-----------
Pharmaceuticals (7.6%)
Alkermes Inc. + 27,300 605,719
GelTex Pharmaceuticals, Inc. + 22,500 509,063
Incyte Pharmaceuticals, Inc. + 15,300 571,838
Medimmune, Inc. + 5,900 586,681
SangStat Medical Corp. + 12,500 265,625
Serologicals Corp. + 31,500 945,000
Watson Pharmaceuticals, Inc. + 19,600 1,232,350
-----------
4,716,276
-----------
Publishing (2.1%)
Scholastic Corp. + 10,200 546,975
The Petersen Cos., Inc. Class A + 22,100 748,638
-----------
1,295,613
-----------
Real Estate (0.6%)
Fairfield Communities, Inc. + 31,700 350,681
-----------
Retail (3.3%)
Stage Stores, Inc. + 3,800 35,625
Staples, Inc. + 25,500 1,114,031
Whole Foods Market, Inc. + 17,900 865,913
-----------
2,015,569
-----------
Telecommunications & Equipment (7.1%)
Cisco Systems, Inc. + 15,175 1,408,430
Gilat Satellite Networks + 18,500 1,019,813
MCI WorldCom, Inc. + 20,700 1,485,225
Shaw Communications, Inc. Class B + 20,800 503,100
-----------
4,416,568
-----------
TOTAL COMMON STOCK (Cost $45,059,983) 57,145,339
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
27
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
----- -----
<S> <C> <C>
SHORT TERM INVESTMENT (10.1%)
Repurchase agreement with Merrill Lynch & Co. dated
12/31/98 at 4.95% to be repurchased at $6,256,439 on
01/04/1999. (Collateralized by a pro rata amount of U.S.
Treasury Notes ranging in par values from $6,025,000 -
$50,000,000, 6.25%-8.75%, 03/25/99-02/15/27. Pro rata
market value of collateral is $6,378,028.) (Cost
$6,253,000) $6,253 $ 6,253,000
-----------
TOTAL INVESTMENTS AT VALUE (102.2%) (Cost $51,312,983*) 63,398,339
LIABILITIES IN EXCESS OF OTHER ASSETS (2.2%) (1,343,265)
-----------
NET ASSETS (100.0%) (applicable to 5,251,861 shares
outstanding) $62,055,074
===========
NET ASSET VALUE, offering and redemption price per share
($62,055,074 divided by 5,251,861) $ 11.82
===========
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $51,561,417.
# Restricted security.
See Accompanying Notes to Financial Statements.
28
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (84.8%)
Aerospace & Defense (4.2%)
General Dynamics Corp. 2,800 $ 164,150
Gulfstream Aerospace Corp. + 2,500 133,125
Litton Industries, Inc. + 2,150 140,287
Raytheon Co. Class A 3,250 167,984
-----------
605,546
-----------
Banks & Savings & Loans (4.2%)
Bank One Corp. 2,600 132,762
Citigroup Inc. 5,525 273,487
Washington Mutual, Inc 5,300 202,394
-----------
608,643
-----------
Building & Building Materials (1.5%)
USG Corp. + 4,200 213,937
-----------
Business Services (1.6%)
WPP Group PLC 8,800 53,551
WPP Group PLC ADR 2,800 172,900
-----------
226,451
-----------
Capital Equipment (5.2%)
AlliedSignal, Inc. 2,800 124,075
American Standard Co., Inc. + 2,900 104,219
Case Corp. 4,400 95,975
Caterpillar, Inc. 800 36,800
Emerson Electric Co. 1,650 103,228
Federal-Mogul Corp. 1,300 77,350
Ingersoll-Rand Co. 1,900 89,181
ITT Industries, Inc. 3,200 127,200
-----------
758,028
-----------
Chemicals (2.2%)
Ferro Corp. 2,550 66,300
Rhone Poulenc SA ADR Series A 2,750 138,187
Union Carbide Corp. 2,550 108,375
-----------
312,862
-----------
Communications & Media (0.4%)
Scripps (E.W.) Co. 1,100 54,725
-----------
Computers (5.4%)
Compaq Computer Corp. 4,000 167,750
International Business Machines Corp. 1,900 351,025
Sun Microsystems, Inc. + 2,400 205,500
Unisys Corp. + 1,700 58,544
-----------
782,819
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
29
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
<S> <C> <C>
Conglomerates (2.8%)
Harsco Corp. 3,800 $ 115,662
TRW, Inc. 3,000 168,562
United Technologies Corp. 1,050 114,187
-----------
398,411
-----------
Consumer Durables (2.9%)
DaimlerChrysler AG ADR 1,132 108,743
Ford Motor Co. 4,400 258,225
Volvo AB ADR 2,000 46,625
-----------
413,593
-----------
Consumer Non-Durables (1.4%)
Premark International, Inc. 5,800 200,825
-----------
Electronics (1.3%)
Dallas Semiconductor Corp. 2,600 105,950
Textronix, Inc. 2,600 78,162
-----------
184,112
-----------
Energy (4.7%)
Amerada Hess Corp. 1,400 69,650
British Petroleum Co. PLC ADR 3,056 273,894
Royal Dutch Petroleum Co. ADR 3,200 153,200
Total SA ADR 3,500 174,125
-----------
670,869
-----------
Environmental Services (2.1%)
Allied Waste Industries, Inc. + 2,800 66,150
Waste Management, Inc. 5,200 242,450
-----------
308,600
-----------
Financial Services (9.4%)
American Express Co. 900 92,025
Associates First Capital Corp. Class A 1,228 52,037
Fannie Mae 1,400 103,600
FINOVA Group, Inc. 2,550 137,541
Household International, Inc. 2,000 79,250
Lehman Brothers Holdings, Inc. 3,050 134,391
MBIA, Inc. 3,600 236,025
MGIC Investment Corp. 2,900 115,456
Old Republic International Corp. 4,500 101,250
Terra Nova (Bermuda) Holdings, Ltd. Class A 4,250 107,313
The PMI Group, Inc. 3,850 190,094
-----------
1,348,982
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
30
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
<S> <C> <C>
Food, Beverages & Tobacco (7.4%)
Anheuser-Busch Companies, Inc. 4,350 $ 285,469
Corn Products International, Inc. + 2,550 77,456
Heinz (H.J.) Co. 1,200 67,950
Keebler Foods Co. + 4,250 159,906
Philip Morris Cos., Inc. 6,000 321,000
Ralston Purina Group 1,700 55,038
Sara Lee Corp. 3,300 93,019
-----------
1,059,838
-----------
Healthcare (4.2%)
Baxter International, Inc. 2,850 183,291
Tenet Healthcare Corp. + 3,650 95,813
Trigon Healthcare, Inc. + 4,950 184,697
Wellpoint Health Networks, Inc. + 1,700 147,900
-----------
611,701
-----------
Industrial Manufacturing & Processing (1.9%)
UNOVA, Inc. + 14,800 268,250
-----------
Metals & Mining (1.2%)
Aluminum Company of America 2,332 173,880
-----------
Office Equipment & Supplies (0.7%)
Pitney Bowes, Inc. 1,500 99,094
-----------
Pharmaceuticals (1.0%)
Merck & Co., Inc. 950 140,303
-----------
Publishing (0.5%)
Donnelley (R.R.) & Sons, Inc. 1,600 70,100
-----------
Real Estate (0.2%)
Equity Residential Properties Trust 900 36,394
-----------
Retail (7.6%)
CompUSA, Inc. + 5,200 67,925
Consolidated Stores Corp. + 4,100 82,769
Federated Department Stores, Inc. + 6,750 294,047
May Department Stores Co. 2,500 150,938
Payless ShoeSource, Inc. + 1,128 53,439
Ross Stores, Inc. 2,400 94,500
Saks, Inc. 2,950 93,109
Sears, Roebuck and Co. 3,000 127,500
TJX Cos., Inc. 4,400 127,600
-----------
1,091,827
-----------
Telecommunications & Equipment (7.8%)
ALLTEL Corp. 1,200 71,775
Ameritech Corp. 3,000 190,125
AT&T Corp. 4,000 301,000
Bell Atlantic Corp. 4,900 278,381
BellSouth Corp. 2,400 119,700
SBC Communications, Inc. 3,100 166,238
-----------
1,127,219
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
31
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------- -----------
<S> <C> <C>
Transportation (0.6%)
Burlington Northern Santa Fe Corp. 2,500 $ 84,375
-----------
Utilities-Electric (2.4%)
Allegheny Energy, Inc. 3,050 105,225
American Electric Power Co., Inc. 1,700 80,006
Illinova Corp. 1,900 47,500
Wisconsin Energy Corp. 3,600 113,175
-----------
345,906
-----------
TOTAL COMMON STOCK (Cost $11,015,197) 12,197,290
-----------
PREFERRED STOCK (2.1%)
Capital Equipment (0.7%)
Ingersoll-Rand Co. Series G 0.78% (Convertible) 5,000 99,375
-----------
Industrial Manufacturing & Processing (1.3%)
Mediaone Group, Inc. 6.25% (Convertible) 2,900 192,850
-----------
Real Estate (0.1%)
Equity Residential Properties Series G 7.25% 800 16,400
-----------
TOTAL PREFERRED STOCK (Cost $279,799) 308,625
-----------
<CAPTION>
PAR
(000)
-------
<S> <C> <C>
BONDS (0.2%)
National Semiconductor Corp. 6.50% 10/01/02 (Convertible)
(Cost $28,355) $30,000 26,250
-----------
SHORT TERM INVESTMENT (10.6%)
Repurchase agreement with Merrill Lynch & Co. dated
12/31/98 at 4.95% to be repurchased at $1,524,838 on
01/04/1999. Collateralized by a pro rata amount of U.S.
Treasury Notes ranging in par values from $6,025,000 to
$50,000,000, 6.25% - 8.75%, 03/25/99 - 02/15/27. Pro rata
market value of collateral is $1,554,472.) (Cost
$1,524,000) 1,524 1,524,000
-----------
TOTAL INVESTMENTS AT VALUE (97.7%) (Cost $12,847,351*) 14,056,165
OTHER ASSETS IN EXCESS OF LIABILITIES (2.3%) 324,604
-----------
NET ASSETS (100.0%) (applicable to 1,252,881 shares
outstanding) $14,380,769
===========
NET ASSET VALUE, offering and redemption price per share
($14,380,769 divided by 1,252,881) $ 11.48
===========
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $12,902,497.
See Accompanying Notes to Financial Statements.
32
<PAGE>
WARBURG PINCUS TRUST -- EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (75.8%)
Argentina (4.7%)
Banco de Galicia & Buenos Aires SA ADR 2,796 $ 49,279
YPF SA ADR 2,800 78,225
----------
127,504
----------
Australia (2.2%)
Novus Petroleum, Ltd. 26,000 20,732
Oil Search, Ltd. 37,200 37,648
----------
58,380
----------
Brazil (1.6%)
Companhia Paranaense de Energia-Copel ADR 4,000 28,500
Uniao de Bancos Brasileriros SA GDR 1,000 14,437
----------
42,937
----------
Croatia (2.8%)
Pliva DD GDR 4,600 75,926
----------
Greece (2.1%)
Hellenic Telecommunication Organization SA ADR + 4,200 55,650
----------
Hong Kong (9.0%)
Cosco Pacific, Ltd. 154,000 64,109
First Pacific Co., Ltd. 104,000 49,671
Liu Chong Hing Bank, Ltd. 9,000 11,501
New World Development Co., Ltd. 11,000 27,688
Smartone Telecommunications 14,200 39,409
VTech Holdings, Ltd. 3,000 13,089
Wing Hang Bank, Ltd. 14,500 36,124
----------
241,591
----------
Hungary (1.6%)
Mol Magyar Olaj-es Gazipari RT 1,600 43,885
----------
India (7.0%)
Mahanagar Telephone Nigam, Ltd, GDR 11,475 139,995
State Bank of India, Ltd. GDR 5,800 48,285
----------
188,280
----------
Israel (5.9%)
Blue Square Israel Co., Ltd. ADR 3,191 33,107
ECI Telecommunications, Ltd. 1,100 39,187
Orbotech, Ltd. 1,850 87,644
----------
159,938
----------
Kazakhstan (0.3%)
Hurricane Hydrocarbons, Ltd. + (CAN) 6,700 7,677
----------
</TABLE>
See Accompanying Notes to Financial Statements.
33
<PAGE>
WARBURG PINCUS TRUST -- EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ----------
<S> <C> <C>
COMMON STOCK (CONT'D)
Korea (6.5%)
Korea Telecom Corp. + 100 $ 3,160
Samsung Display Devices Co. 800 39,452
Samsung Electronics Co., Ltd. 900 60,401
Ssangyong Oil Refining Co., Ltd. 3,800 72,684
----------
175,697
----------
Mexico (6.1%)
Cintra SA 45,700 26,155
Fomento Economico Mexicano SA de CV ADR 2,900 77,212
Grupo Industrial Durango SA ADR 19,900 49,701
TV Azteca SA de CV ADR 1,700 11,369
----------
164,437
----------
Poland (5.7%)
Bank Slaski SA 1,146 59,424
Big Bank Gdanski SA 13,700 12,295
Elektrim Spolka Akcyjna SA 7,696 83,320
----------
155,039
----------
Portugal (1.9%)
Banco Mello SA 4,493 50,002
----------
Singapore (5.5%)
Development Bank of Singapore, Ltd. 8,500 76,759
Keppel Tatlee Land Ltd. 41,000 71,565
----------
148,324
----------
South Africa (4.4%)
Sappi, Ltd. + 17,100 66,131
South African Breweries, Ltd. 3,100 52,276
----------
118,407
----------
Spain (1.1%)
Funespana SA + 1,700 30,295
----------
Taiwan (2.8%)
Far Eastern Textile 45,000 36,736
Taiwan Semiconductor Manufacturing Co. + 18,000 39,669
----------
76,405
----------
Thailand (1.8%)
Hana Microelectronics Public Co., Ltd. + 19,600 47,471
----------
</TABLE>
See Accompanying Notes to Financial Statements.
34
<PAGE>
WARBURG PINCUS TRUST -- EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ----------
<S> <C> <C>
COMMON STOCK (CONT'D)
Turkey (2.8%)
Turkiye Is Bankasi AS Class C 961,825 $ 25,007
Yapi Ve Kredi Bankasi AS 4,358,877 50,445
----------
75,452
----------
TOTAL COMMON STOCKS (Cost $1,922,050) 2,043,297
----------
PREFERRED STOCK (6.4%)
Brazil (6.4%)
Companhia Energetica de Minas Gerais 2,607,500 49,638
Tele Norte Leste Participacoes SA + 1,686,000 21,072
Telecomunicacoes de Sao Paulo Celular SA Class B + 507,800 22,318
Telecomunicacoes de Sao Paulo SA 329,000 44,849
Telecomunicacoes do Parana SA 103,000 18,328
Telecomunicacoes do Rio de Janeiro Celular SA Class B + 718,000 16,937
----------
TOTAL PREFERRED STOCK (Cost $224,564) 173,142
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-----
<S> <C> <C>
CORPORATE BONDS (5.2%)
China (1.6%)
Cosco Treasury Co., Ltd., 1.00% 3/13/03 (Convertible)
(Matures @ $146.70) $ 61 44,530
----------
Philippines (3.6%)
Metro Pacific Capital 2.50% 4/11/03 59 52,486
Piltel International Holding Corp. 1.75% 7/17/06
(Convertible) (Putable 1/17/02 @ $138.73)
(Callable 1/18/02 @ $100) 78 43,423
----------
95,909
----------
TOTAL CORPORATE BONDS (Cost $137,170) 140,439
----------
SHORT TERM INVESTMENT (13.0%)
Repurchase agreement with Merrill Lynch & Co. dated
12/31/98 at 4.95% to be repurchased at $351,193 on
01/04/1999. (Collateralized by a pro rata amount of U.S.
Treasury Notes ranging in par value from $6,025,000 -
$50,000,000, 6.25% - 8.75%, 03/25/99 - 02/15/27. Pro rata
market value of collateral is $358,018.) (Cost $351,000) 351 351,000
----------
TOTAL INVESTMENTS AT VALUE (100.4%) (Cost $2,634,784*) 2,707,878
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%) (12,106)
----------
NET ASSETS (100.0%) (applicable to 329,349 shares
outstanding) $2,695,772
==========
NET ASSET VALUE, offering and redemption price per share
($2,695,772 divided by 329,349) $ 8.19
==========
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
GDR = Global Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Cost for federal income tax purposes is $2,699,211.
See Accompanying Notes to Financial Statements.
35
<PAGE>
WARBURG PINCUS TRUST
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANY POST-VENTURE GROWTH & EMERGING
EQUITY GROWTH CAPITAL INCOME MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 6,657,775 $ 1,980,643 $ 74,596 $108,737 $ 30,351
Interest 1,481,730 2,294,202 184,902 58,398 22,399
Foreign taxes withheld (719,297) 0 (1,668) (1,441) (3,534)
----------- ------------ ---------- -------- ---------
Total investment income 7,420,208 4,274,845 257,830 165,694 49,216
----------- ------------ ---------- -------- ---------
EXPENSES:
Investment advisory 3,689,492 6,094,569 567,052 58,759 17,606
Administrative services 805,926 1,315,273 93,728 23,659 10,525
Audit 19,056 19,947 12,132 12,033 14,533
Custodian/Sub-custodian 289,313 127,406 27,629 34,625 1,895
Trustees 3,575 3,444 2,643 3,068 2,602
Interest 1,000 1,500 128 40 90
Insurance 7,112 11,632 652 (908) 0
Legal 28,449 62,395 2,539 (397) 116
Offering/Organizational costs 12,443 12,399 27,357 34,258 38,678
Printing 61,094 84,091 31,490 9,239 30,178
Registration 0 100 (100) 100 100
Transfer agent 6,008 313 5,950 817 1,540
Miscellaneous 301 9,995 1,734 (952) 1,318
----------- ------------ ---------- -------- ---------
4,923,769 7,743,064 772,934 174,341 119,181
Less fees waived, expenses
reimbursed and transfer agent
fee offsets (12,073) (21,263) (137,836) (95,996) (99,462)
----------- ------------ ---------- -------- ---------
Total expenses 4,911,696 7,721,801 635,098 78,345 19,719
----------- ------------ ---------- -------- ---------
Net investment income (loss) 2,508,512 (3,446,956) (377,268) 87,349 29,497
----------- ------------ ---------- -------- ---------
NET REALIZED AND UNREALIZED GAIN
(LOSS) FROM INVESTMENTS AND FOREIGN
CURRENCY RELATED ITEMS:
Net realized loss from security
and other related transactions (13,570,730) (24,310,017) (5,574,888) (454,057) (248,533)
Net realized gain (loss) from
foreign currency related items 4,293,895 0 0 (61) (7,185)
Net change in unrealized
appreciation (depreciation) from
investments and foreign currency
related items 27,818,000 12,266,488 8,660,364 1,140,836 72,885
----------- ------------ ---------- -------- ---------
Net realized and unrealized
gain (loss) from investments
and foreign currency related
items 18,541,165 (12,043,529) 3,085,476 686,718 (182,833)
----------- ------------ ---------- -------- ---------
Net increase (decrease) in net assets
resulting from operations $21,049,677 $(15,490,485) $2,708,208 $774,067 $(153,336)
=========== ============ ========== ======== =========
</TABLE>
See Accompanying Notes to Financial Statements.
36
<PAGE>
This page intentionally left blank
37
<PAGE>
WARBURG PINCUS TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO SMALL COMPANY GROWTH PORTFOLIO
------------------------------------- -------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss) $ 2,508,512 $ 2,371,553 $ (3,446,956) $ (2,695,081)
Net realized gain (loss)
from security and other
related transactions (13,570,730) (18,668,797) (24,310,017) 1,317,196
Net realized gain (loss)
from foreign currency
related items 4,293,895 11,010,785 0 0
Net change in unrealized
appreciation
(depreciation) from
investments and foreign
currency related items 27,818,000 (7,070,165) 12,266,488 80,858,786
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from operations 21,049,677 (12,356,624) (15,490,485) 79,480,901
------------- ------------- ------------- -------------
FROM DISTRIBUTIONS:
Dividends from net
investment income (1,737,856) (305,296) 0 0
Distributions in excess of
net investment income 0 0 0 0
Return of capital 0 0 0 0
Distribution from realized
gains (203,842) (21,970,160) 0 0
------------- ------------- ------------- -------------
Net decrease in net
assets from
distributions (1,941,698) (22,275,456) 0 0
------------- ------------- ------------- -------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from sale of
shares 560,600,065 169,935,030 356,119,068 473,863,814
Reinvested dividends 1,941,380 22,275,452 0 0
Net asset value of shares
redeemed (568,753,948) (108,567,703) (272,120,075) (226,348,615)
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets from
capital share
transactions (6,212,503) 83,642,779 83,998,993 247,515,199
------------- ------------- ------------- -------------
Net increase in net
assets 12,895,476 49,010,699 68,508,508 326,996,100
NET ASSETS:
Beginning of period 347,228,982 298,218,283 666,393,657 339,397,557
------------- ------------- ------------- -------------
End of period $ 360,124,458 $ 347,228,982 $ 734,902,165 $ 666,393,657
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME: $ 109,776 $ (902,800) $ 0 $ 0
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Accompanying Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME EMERGING MARKETS
POST-VENTURE CAPITAL PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------- --------------------------------------- -----------------
FOR THE PERIOD
OCTOBER 31, 1997
FOR THE FOR THE FOR THE (COMMENCEMENT OF FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) THROUGH YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998
- ----------------- ----------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
$ (377,268) $ (230,112) $ 87,349 $ 5,697 $ 29,497
(5,574,888) (179,000) (454,057) (8,068) (248,533)
0 0 (61) 0 (7,185)
8,660,364 3,246,410 1,140,836 67,978 72,885
------------ ------------ ----------- ---------- ----------
2,708,208 2,837,298 774,067 65,607 (153,336)
------------ ------------ ----------- ---------- ----------
0 (4,291) (116,510) (5,697) (22,312)
0 (129) 0 0 0
0 0 0 (4,497) (494)
0 0 0 0 0
------------ ------------ ----------- ---------- ----------
0 (4,420) (116,510) (10,194) (22,806)
------------ ------------ ----------- ---------- ----------
82,888,701 67,627,302 14,068,832 1,927,534 2,979,651
0 4,420 115,563 10,194 15,065
(54,062,024) (52,343,943) (2,454,324) 0 (123,902)
------------ ------------ ----------- ---------- ----------
28,826,677 15,287,779 11,730,071 1,937,728 2,870,814
------------ ------------ ----------- ---------- ----------
31,534,885 18,120,657 12,387,628 1,993,141 2,694,672
30,520,189 12,399,532 1,993,141 0 1,100
------------ ------------ ----------- ---------- ----------
$ 62,055,074 $ 30,520,189 $14,380,769 $1,993,141 $2,695,772
------------ ------------ ----------- ---------- ----------
------------ ------------ ----------- ---------- ----------
$ 0 $ 0 $ 9,214 $ 0 $ 0
------------ ------------ ----------- ---------- ----------
------------ ------------ ----------- ---------- ----------
</TABLE>
See Accompanying Notes to Financial Statements.
39
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 19951
PERIOD ENDED: -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 10.49 $ 11.48 $ 10.65 $ 10.00
-------- -------- -------- -------
INVESTMENT ACTIVITIES:
Net investment income 0.08 0.10 0.00 0.03
Net gains or losses on investments and foreign
currency related items (both realized and
unrealized) 0.48 (0.37) 1.06 0.70
-------- -------- -------- -------
Total from investment activities 0.56 (0.27) 1.06 0.73
-------- -------- -------- -------
DISTRIBUTIONS:
From net investment income (0.05) (0.01) (0.06) (0.01)
In excess of net investment income 0.00 0.00 (0.10) (0.07)
From realized gains (0.01) 0.00 (0.06) 0.00
In excess of realized gains 0.00 (0.71) (0.01) 0.00
-------- -------- -------- -------
Total distributions (0.06) (0.72) (0.23) (0.08)
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 10.99 $ 10.49 $ 11.48 $ 10.65
-------- -------- -------- -------
-------- -------- -------- -------
Total return 5.35% (2.26)% 9.98% 7.30%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $360,124 $347,229 $298,218 $64,537
Ratio of expenses to average net assets 1.33%(4) 1.36%(4) 1.36%(4) 1.44%(3)
Ratio of net income to average net assets 0.68% 0.66% 0.64% 0.48%(3)
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.00% 0.00% 0.04% 0.77%(3)
Portfolio turnover rate 105.28% 78.65% 30.82% 8.31%(2)
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period June 30, 1995 (commencement of operations) through
December 31, 1995.
(2) Non-annualized.
(3) Annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements resulted in a reduction to
the portfolio's net expense ratio by .00%, .01% and .00% for the years ended
December 31, 1998, 1997 and 1996, respectively. The portfolio's operating
expense ratio after reflecting these arrangements were 1.33%, 1.35% and
1.36% for the years ended December 31, 1998, 1997 and 1996, respectively.
See Accompanying Notes to Financial Statements.
40
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995(1)
PERIOD ENDED: -------- -------- -------- -------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 16.48 $ 14.25 $ 12.51 $ 10.00
-------- -------- -------- -------
INVESTMENT ACTIVITIES:
Net investment loss (0.06) (0.07) (0.06) (0.01)
Net gains or losses on investments (both
realized and unrealized) (0.41) 2.30 1.80 2.52
-------- -------- -------- -------
Total from investment activities (0.47) 2.23 1.74 2.51
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 16.01 $ 16.48 $ 14.25 $ 12.51
-------- -------- -------- -------
-------- -------- -------- -------
Total return (2.85%) 15.65% 13.91% 25.10%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $734,902 $666,394 $339,398 $97,445
Ratio of expenses to average net assets 1.14%(4) 1.15%(4) 1.16%(4) 1.25%(3)
Ratio of net loss to average net assets (0.51%) (.56%) (.66%) (0.36%)(3)
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.00% 0.00% 0.01% 0.25%(3)
Portfolio turnover rate 65.61% 92.45% 101.50% 34.25%(2)
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period June 30, 1995 (commencement of operations) through
December 31, 1995.
(2) Non-annualized.
(3) Annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements resulted in a reduction to
the portfolio's net expense ratio by .00%, .01% and .00% for the years ended
December 31, 1998, 1997 and 1996, respectively. The portfolio's operating
expense ratio after reflecting these arrangements were 1.14%, 1.14% and
1.16% for the years ended December 31, 1998, 1997 and 1996, respectively.
See Accompanying Notes to Financial Statements.
41
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996(1)
PERIOD ENDED: ------- ------- ---------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 11.06 $ 9.76 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES:
Net investment loss (0.04) (0.08) 0.00
Net gains or losses on investments (both realized and
unrealized) 0.80 1.38 (0.24)
------- ------- -------
Total from investment activities 0.76 1.30 (0.24)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.82 $ 11.06 $ 9.76
------- ------- -------
------- ------- -------
Total return 6.87% 13.34% (2.40)%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $62,055 $30,520 $12,400
Ratio of expenses to average net assets(4) 1.40% 1.40% 1.41%(3)
Ratio of net income (loss) to average net assets (0.83%) (0.75%) 0.80%(3)
Decrease reflected in above operating expense ratios due
to waivers/reimbursements 0.30% 0.18% 4.16%(3)
Portfolio turnover rate 73.18% 238.12% 6.80%(2)
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period September 30, 1996 (commencement of operations) through
December 31, 1996.
(2) Non-annualized.
(3) Annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements resulted in a reduction to
the portfolio's net expense ratio by .00%, .00% and .01% for the year or
period ended December 31, 1998, 1997 and 1996, respectively. The portfolio's
operating expense ratio after reflecting these arrangements were 1.40%,
1.40% and 1.40% for the year or period ended December 31, 1998, 1997 and
1996, respectively.
See Accompanying Notes to Financial Statements.
42
<PAGE>
WARBURG PINCUS TRUST -- GROWTH & INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997(1)
PERIOD ENDED: ------- -------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 10.33 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income 0.09 0.04
Net gains on investments and foreign currency related
items (both realized and unrealized) 1.16 0.35
------- -------
Total from investment activities 1.25 0.39
------- -------
DISTRIBUTIONS:
From net investment income (0.10) (0.03)
Return of capital 0.00 (0.03)
------- -------
Total distributions (0.10) (0.06)
------- -------
NET ASSET VALUE, END OF PERIOD $ 11.48 $ 10.33
------- -------
------- -------
Total return 12.13% 3.89%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $14,381 $ 1,993
Ratio of expenses to average net assets(4) 1.00% 1.00%(3)
Ratio of net income to average net assets 1.11% 2.08%(3)
Decrease reflected in above operating expense ratios due
to waivers/reimbursements 1.22% 9.37%(3)
Portfolio turnover rate 57.93% 64.38%(3)
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period October 31, 1997 (commencement of operations) through
December 31, 1997.
(2) Non-annualized.
(3) Annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the
portfolio's expense ratio.
See Accompanying Notes to Financial Statements.
43
<PAGE>
WARBURG PINCUS TRUST -- EMERGING MARKETS PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
PERIOD ENDED: ------
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $10.00
------
INVESTMENT ACTIVITIES:
Net investment income 0.10
Net losses on investments and foreign currency related
items (both realized and unrealized) (1.83)
------
Total from investment activities (1.73)
------
DISTRIBUTIONS:
From net investment income (0.08)
------
NET ASSET VALUE, END OF PERIOD $ 8.19
------
------
Total return (17.30%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $2,696
Ratio of expenses to average net assets 1.40%(1)
Ratio of net income to average net assets 2.09%
Decrease reflected in above operating expense ratios due
to waivers/reimbursements 6.81%
Portfolio turnover rate 21.29%
</TABLE>
- --------------------------------------------------------------------------------
(1) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the
portfolio's expense ratio.
See Accompanying Notes to Financial Statements.
44
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Trust (the "Trust") is an open-end management investment
company registered under the Investment Company Act of 1940, as amended, and
currently offers five investment funds: International Equity Portfolio is a
diversified investment fund that seeks long-term capital appreciation by
investing in equity securities of companies located in or conducting a majority
or their business outside the U.S. or companies whose securities trade primarily
in markets outside of the U.S.; Small Company Growth Portfolio is a
non-diversified investment fund that seeks capital growth by investing in a
portfolio of equity securities of small U.S. growth companies; Post-Venture
Capital Portfolio is a diversified investment fund that seeks long-term growth
of capital by investing in equity securities, of U.S. companies considered to be
in their post-venture-capital stage of development; Growth & Income Portfolio is
a diversified investment fund that seeks long-term growth of capital, and income
by investing primarily in equity securities of value companies; and Emerging
Markets Portfolio is a non-diversified investment fund that seeks long-term
growth of capital by investing primarily in equity securities of companies
located in or conducting a majority of their business in emerging markets or
whose securities trade primarily in emerging markets. Shares of a portfolio are
not available directly to individual investors but may be offered only to
certain (a) life insurance companies for allocation to certain of their separate
accounts established for the purpose of funding variable annuity contracts and
variable life insurance contracts and (b) tax-qualified pension and retirement
plans ("Plans"), including participant-directed Plans which elect to make a
portfolio an investment option for Plan participants.
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. If market quotations are
not readily available, securities and other assets are valued by another method
that the Board of Trustees believes accurately reflects fair value. Debt that
will mature in 60 days or less is valued on the basis of amortized cost, which
approximates market value, unless the Board determines that using this method
would not reflect an investment's value.
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
45
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
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 portfolios do not isolate that portion of
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 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 International Equity Portfolio and the Emerging Markets Portfolio 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 others, currency risk (fluctuations in currency
exchange rates), information risk (key information may be inaccurate or
unavailable) and political risk (expropriation, nationalization or the
imposition of capital or currency controls or punitive taxes). Other risks of
investing in foreign securities include liquidity and valuation risks.
A portfolio's 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. Focusing on emerging (less
developed) markets involves higher levels of risk, including increased currency,
information, liquidity, market, political and valuation risks. Deficiencies in
regulatory oversight, market infrastructure, shareholder protections and company
laws could expose the portfolio to operational and other risks as well. Some
countries may have restrictions that could limit the portfolio's access to
attractive opportunities. Additionally, emerging markets often face serious
economic problems (such as high external debt, inflation and unemployment) that
could subject the portfolio to increased volatility or substantial declines in
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
46
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
or selling an offsetting option, it realizes a gain or loss without regard to
any unrealized gain in 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.
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.
No provision is made for federal income taxes as it is the Trust'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 by the Trust in connection with its organization have been
deferred and are being amortized over a period of five years from the date the
Trust commenced its operations. Costs incurred by the portfolios in connection
with the offering of their shares have been deferred and are being amortized
over a one year period from the date each portfolio commenced its operations.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, each Portfolio, along with other funds advised by Warburg Pincus
Asset Management, Inc., the portfolios' investment adviser ("Warburg")
(collectively the "Warburg Funds"), transfers uninvested cash balances to a
Pooled Cash Account, which is invested in repurchase agreements collateralized
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.
47
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
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 their
transfer agent expense. For the year ended December 31, 1998, the portfolios
received credits or reimbursements under the arrangement as follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT
- --------- -------
<S> <C>
International Equity $12,073
Small Company Growth 21,263
Post-Venture Capital 1,531
Growth & Income 213
Emerging Markets 37
</TABLE>
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 receives the following fees based on each portfolio's average daily net
assets:
<TABLE>
<CAPTION>
PORTFOLIO ANNUAL RATE
- --------- -----------
<S> <C>
International Equity 1.00% of average daily net assets
Small Company Growth 0.90% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
Growth & Income 0.75% of average daily net assets
Emerging Markets 1.25% of average daily net assets
</TABLE>
For the year ended December 31, 1998, investment advisory fees, voluntary
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
PORTFOLIO ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- --------- ------------ -------- ------------ --------------
<S> <C> <C> <C> <C>
International Equity $3,689,492 $ 0 $3,689,492 $ 0
Small Company Growth 6,094,569 0 6,094,569 0
Post-Venture Capital 567,052 (90,941) 476,111 0
Growth & Income 58,759 (52,105) 6,654 (31,926)
Emerging Markets 17,606 (17,606) 0 (80,129)
</TABLE>
48
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR -- (CONT'D)
Abbott Capital Management, LLC ("Abbott") serves as sub-investment adviser for
the Post-Venture Capital Portfolio's assets invested in private equity
portfolios ("Private Fund Investments"). Pursuant to the sub-advisory agreement
between Abbott and Warburg, Abbott is entitled to a quarterly fee from Warburg
at the annual rate of 1.00% of the net asset value of Private Fund Investments,
which fee amount or a portion thereof may be waived by Abbott. No compensation
is paid by the Post-Venture Capital Portfolio 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., serve as each portfolio's co-administrators. For its administrative
services, CFSI currently receives a fee calculated at an annual rate of .10% of
each portfolio's average daily net assets. For the year ended December 31, 1998,
administrative services fees earned by CFSI were as follows:
<TABLE>
<CAPTION>
PORTFOLIO CO-ADMINISTRATION FEE
- --------- ---------------------
<S> <C>
International Equity $368,949
Small Company Growth 677,174
Post-Venture Capital 45,364
Growth & Income 7,835
Emerging Markets 1,409
</TABLE>
For its administrative services for the Small Company Growth Portfolio and the
Post-Venture Capital Portfolio, PFPC currently receives a fee calculated at an
annual rate of .10% on each portfolio'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 International Equity
Portfolio and the Emerging Markets Portfolio, PFPC receives a fee calculated at
an annual rate of .12% on the portfolio's first $250 million in average daily
net assets, .10% on the next $250 million in average daily net assets, .08% on
the next $250 million in average daily net assets and .05% of the average daily
net assets over $750 million. For the Growth & Income Portfolio, PFPC receives a
fee calculated at an annual rate of .15% on the portfolio's first $500 million
in average daily net assets, .10% on the next $1 billion in average daily net
assets and .05% of average daily net assets over $1.5 billion. For the year
ended December 31, 1998, adminstrative service fees earned and waived by PFPC
were as follows:
49
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR -- (CONT'D)
<TABLE>
<CAPTION>
NET
PORTFOLIO CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- --------- --------------------- -------- ---------------------
<S> <C> <C> <C>
International Equity $436,977 $ 0 $436,977
Small Company Growth 638,099 0 638,099
Post-Venture Capital 48,364 (45,364) 3,000
Growth & Income 15,824 (11,752) 4,072
Emerging Markets 9,116 (1,690) 7,426
</TABLE>
Counsellors Securities Inc. ("CSI"), also a wholly owned subsidiary of
Warburg, serves as each portfolio's distributor. No compensation is paid by the
portfolios to CSI for its distribution services.
3. LINE OF CREDIT
The portfolios, together with other 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. 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 balances 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 December 31, 1998 and for the year then ended, none of the portfolios
had borrowings under those lines of credit facilities.
50
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
4. INVESTMENTS IN SECURITIES
For the year ended December 31, 1998, purchases and sales of investment
securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- --------- ------------ ------------
<S> <C> <C>
International Equity $374,684,915 $356,811,750
Small Company Growth 510,264,368 418,996,837
Post-Venture Capital 74,006,866 49,656,496
Growth & Income 14,161,110 4,018,298
Emerging Markets 3,970,630 1,441,815
</TABLE>
At December 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:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- --------- ------------ ------------ --------------
<S> <C> <C> <C>
International Equity $ 56,013,029 $(19,800,463) $ 36,212,566
Small Company Growth 197,076,812 (58,025,890) 139,050,922
Post-Venture Capital 14,521,128 (2,684,206) 11,836,922
Growth & Income 1,550,644 (396,976) 1,153,668
Emerging Markets 208,238 (199,571) 8,667
</TABLE>
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. The
portfolios will enter into forward contracts primarily for hedging purposes. The
forward currency contracts are adjusted daily 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 December 31, 1998, the International Equity Portfolio had the following
open forward currency contract:
<TABLE>
<CAPTION>
FORWARD FOREIGN UNREALIZED
CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN/LOSS
-------- ---------- ------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 02/26/99 4,250,100,000 $33,262,510 $37,969,256 $(4,706,746)
</TABLE>
51
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
6. RESTRICTED SECURITIES
A summary of the restricted securities held at December 31, 1998 follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION MARKET PERCENTAGE
PORTFOLIO DESCRIPTION DATE COST VALUE OF NET ASSETS
--------- --------------------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Southern Mineral
Small Company Growth Corp. 12/20/96 $794,813 $126,949 0.02%
Chaparral Resources,
Post-Venture Capital Inc. 07/28/98 250,000 250,001 0.40%
Women.Com Network 06/04/98 250,001 250,001 0.40%
</TABLE>
7. CAPITAL SHARE TRANSACTIONS
Each portfolio is authorized to issue an unlimited number of full and
fractional shares of beneficial interest, par value of $.001 per share.
Transactions in shares of each portfolio were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL COMPANY
PORTFOLIO GROWTH PORTFOLIO POST-VENTURE CAPITAL
---------------------------- --------------------------- -------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
------------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 50,488,163 13,953,274 22,514,856 31,306,018 7,145,658 6,512,613
Shares issued to shareholders
on reinvestment of dividends 181,099 2,160,568 0 0 0 421
Shares redeemed (50,915,580) (8,988,051) (17,112,706) (14,702,808) (4,652,230) (5,025,372)
------------- ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in
shares outstanding (246,318) 7,125,791 5,402,150 16,603,210 2,493,428 1,487,662
============= ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
EMERGING
GROWTH & INCOME MARKETS
PORTFOLIO PORTFOLIO
------------------------------- ------------
FOR THE PERIOD
OCTOBER 31, 1997
(COMMENCEMENT OF
FOR THE YEAR OPERATIONS) FOR THE YEAR
ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
------------ ---------------- ------------
<S> <C> <C> <C>
Shares sold 1,266,220 191,971 343,741
Shares issued to shareholders
on reinvestment of dividends 10,402 1,011 1,900
Shares redeemed (216,723) 0 (16,292)
---------- ------------ -------
Net increase in shares
outstanding 1,059,899 192,982 329,349
========== ============ =======
</TABLE>
52
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
8. LIABILITIES
At December 31, 1998, the portfolios had the following affiliated and
investment related liabilities:
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANY POST-VENTURE EMERGING
EQUITY GROWTH CAPITAL GROWTH & INCOME MARKETS
------------- ------------- ------------ --------------- --------
<S> <C> <C> <C> <C> <C>
Payable for securities purchased (at
value) $ 0 $ 0 $1,910,568 $64,682 $45,131
Investment advisory fee payable 307,313 520,866 38,197 0 0
Administration services fee payable 30,731 57,874 4,780 1,133 210
Payable for Fund shares redeemed 848,017 469,278 184,531 0 196
</TABLE>
9. NET ASSETS
At December 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. The International Equity Portfolio, the Growth & Income
Portfolio and the Emerging Markets Portfolio reclassed ($457,038), ($61) and
($7,185), respectively, from accumulated net realized gain/(loss) from security
transactions to undistributed net investment income. The International Equity
Portfolio reclassed ($203,842) in distributions from realized gains to
distributions from net investment income. The Small Company Growth Portfolio,
the Post-Venture Capital Portfolio and the Growth & Income Portfolio
reclassified ($3,446,956), ($377,268) and ($38,436), respectively, from
accumulated net investment income/(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 December 31, 1998, consisted of the following:
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANY POST-VENTURE EMERGING
EQUITY GROWTH CAPITAL GROWTH & INCOME MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Capital contributed, net $365,386,056 $637,185,020 $55,771,726 $13,624,866 $2,871,420
Undistributed net investment income 109,776 0 0 9,214 0
Accumulated net realized loss from
security transactions (38,141,460) (41,603,232) (5,801,988) (462,125) (248,533)
Net unrealized appreciation
(depreciation)
from investments and foreign currency
related items 32,770,086 139,320,377 12,085,336 1,208,814 72,885
------------ ------------ ----------- ----------- ----------
Net assets $360,124,458 $734,902,165 $62,055,074 $14,380,769 $2,695,772
============ ============ =========== =========== ==========
</TABLE>
53
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1998
- --------------------------------------------------------------------------------
10. CAPITAL LOSS CARRYOVER
At December 31, 1998, capital loss carryovers available to offset possible
future capital gains of each portfolio were as follows:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRING IN
----------------------------------- TOTAL CAPITAL
PORTFOLIO 2004 2005 2006 LOSS CARRYOVER
- --------- ----------- ------- ----------- --------------
<S> <C> <C> <C> <C> <C>
International Equity $ 0 $ 0 $41,615,314 $41,615,314
Small Company Growth 17,167,113 0 24,188,511 41,355,624
Post-Venture Capital 47,891 71,085 5,434,579 5,553,555
Growth & Income 0 8,068 398,911 406,979
Emerging Markets 0 0 184,106 184,106
</TABLE>
54
<PAGE>
WARBURG PINCUS TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
WARBURG PINCUS TRUST:
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 Trust -- International Equity Portfolio, Small Company Growth
Portfolio, Post-Venture Capital Portfolio, Growth & Income Portfolio and
Emerging Markets Portfolio (all portfolios collectively referred to as the
"Trust") at December 31, 1998, the results of their operations for the year then
ended, the changes in their net assets for each of the two years (or periods) in
the period then ended 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 Trust's 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 at
December 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
February 5, 1999
55
<PAGE>
[LOGO]
ASSET MANAGEMENT
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 n www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-2-1298
