N-30D 1 0001.txt WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND AR -------------------------------------------------------------------------------- [WARBURG PINCUS FUNDS logo omitted][CREDIT SUISSE ASSET MANAGEMENT logo omitted] ANNUAL REPORT AUGUST 31, 2000 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND More complete information about the Fund, including charges and expenses, is provided in the PROSPECTUS, which must precede or accompany this document and which should be read carefully before investing. You may obtain additional copies by calling 800-WARBURG (800-927-2874) or by writing to Warburg Pincus Funds, P.O. Box 9030, Boston, MA 02205-9030. Credit Suisse Asset Management Securities, Inc., Distributor, is located at 466 Lexington Ave., New York, NY 10017-3147. Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC. -------------------------------------------------------------------------------- FROM TIME TO TIME, THE FUND'S INVESTMENT ADVISER AND CO-ADMINISTRATORS MAY WAIVE SOME FEES AND/OR REIMBURSE SOME EXPENSES, WITHOUT WHICH PERFORMANCE WOULD BE LOWER. WAIVERS AND/OR REIMBURSEMENTS ARE SUBJECT TO CHANGE. RETURNS ARE HISTORICAL AND INCLUDE CHANGE IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. RETURNS AND SHARE PRICE WILL FLUCTUATE, AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. INVESTMENT IN SHARES OF THE FUND CAN BE MORE VOLATILE AND RISKY THAN SOME OTHER FORMS OF INVESTMENT. IN ADDITION, IF THE ADVISER TAKES LONG POSITIONS IN STOCKS THAT DECLINEOR SHORT POSITIONS IN STOCKS THAT INCREASE IN VALUE, THEN THE LOSSES OF THE FUND MAYEXCEED THOSE OF OTHER STOCK MUTUAL FUNDS THAT HOLD LONG POSITIONS ONLY. THE VIEWS OF THE FUND'S MANAGEMENT ARE AS OF THE DATE OF THE LETTERS AND PORTFOLIO HOLDINGS DESCRIBED IN THIS DOCUMENT ARE AS OF AUGUST 31, 2000; THESE VIEWS AND PORTFOLIO HOLDINGS MAY HAVE CHANGED SUBSEQUENT TO THESE DATES. NOTHING IN THIS DOCUMENT IS A RECOMMENDATION TO PURCHASE OR SELL SECURITIES. FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF CREDIT SUISSE ASSET MANAGEMENT, LLC ("CSAM")OR ANY AFFILIATE, ARE NOT FDICINSURED AND ARE NOT GUARANTEED BY CSAM OR ANY AFFILIATE. FUND INVESTMENTS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING LOSS OF YOUR INVESTMENT. WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND PORTFOLIO MANAGERS' LETTER -- AUGUST 31, 2000 -------------------------------------------------------------------------------- September 25, 2000 Dear Shareholders: We are writing to report on the results of the Warburg Pincus Long-Short Market Neutral Fund (the "Fund") for the fiscal year ended August 31, 2000. At August 31, 2000, the net asset value ("NAV") of the Fund's Common shares was $14.92, compared to an NAV of $14.19 on August 31, 1999. As a result, the Common shares' total return was 12.0%, assuming the reinvestment of dividends and distributions totaling $0.93 per share. By comparison, the Salomon Smith Barney U.S. One-Month Treasury Bill Index1 benchmark (the "Index") returned 5.1% during the same period. The Fund outperformed the Index benchmark during the fiscal year due to a positive combination of market conditions and our emphasis on stock selection using fundamental factors that our research concluded would be most effective. Long positions had most, if not all, of the characteristics we favored, while the converse was true for desirable short stocks. These factors included: o FINANCIAL CONDITION. Our analysis projected that companies whose financial condition was strong and improving would perform well. Among numerous criteria of financial condition, we successfully focused on companies with the best net profit margins within their competitive universe and relatively low debt levels. o RELATIVE STRENGTH. Our indicators of relative strength -- in other words, the strength of a stock's price momentum compared to that of the market as a whole -- performed at historically high levels late in 1999. This was especially noteworthy in the context of the late 1999-early 2000 market environment, when traders were piling into stocks that had recently performed well. Emphasizing this factor proved beneficial to the Fund's overall performance accordingly. o EARNINGS MOMENTUM. In an environment in which U.S. macroeconomic growth was slowing, we correctly highlighted companies whose earnings growth not only was showing above-average momentum, but also was driven by solid underlying fundamentals rather than questionable accounting treatments. In addition, we continued to focus on companies whose earnings estimates were being revised upward. Top-performing long positions during the fiscal year included Hartford Insurance, J.P. Morgan and Southwest Airlines, while our most successful shorts were Goodyear Tire, Atmel, Charles Schwab, Gillette and Bowater. 1 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND PORTFOLIO MANAGERS' LETTER -- AUGUST 31, 2000 (CONT'D) -------------------------------------------------------------------------------- On the negative side of the ledger, long stock selection was least effective among names like At Home Corp., Beckman Coulter, Niagara Mohawk and Circuit City. Our worst-performing shorts included Coca-Cola, Cardinal Health and SPX Corp. As developments occur that we believe would be of interest to you, we will keep you informed. Meanwhile, if you have any questions about your portfolio or the capital markets generally, please feel free to call upon us at any time. Sincerely yours, Credit Suisse Asset Management Structured Equities Management Team William W. Priest, Jr., Chairman/Americas and Managing Director Eric N. Remole, Managing Director Marc E. Bothwell, Vice President Michael A. Welhoelter, Vice President INVESTING IN SHARES OF THE FUND CAN BE MORE VOLATILE AND RISKY THAN SOME OTHER FORMS OF INVESTMENTS. IN ADDITION, IF THE ADVISER TAKES LONG POSITIONS IN STOCKS THAT DECLINE OR SHORT POSITIONS IN STOCKS THAT INCREASE IN VALUE, THEN LOSSES OF THE FUND MAY EXCEED THOSE OF OTHER STOCK MUTUAL FUNDS THAT HOLD LONG POSITIONS ONLY. 2 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND PORTFOLIO MANAGERS' LETTER -- AUGUST 31, 2000 (CONT'D) -------------------------------------------------------------------------------- COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND COMMON SHARES AND THE SALOMON SMITH BARNEY U.S. ONE-MONTH TREASURY INDEX1 FROM INCEPTION (9/8/98) AND AT EACH QUARTER END. (UNAUDITED) [line graph omitted] plot points as follows: Warburg Pincus Long-Short 30 Day U.S. Market Neutral Institutional Shares Treasury Bill Index 09/08/98 10000 10000 11/30/98 9803 10029 02/28/99 9927 10137 05/31/99 9674 10249 08/31/99 9467 10360 11/30/99 10288 10474 02/29/00 11136 10601 05/31/00 10638 10748 08/31/00 10603 10893 Average Annual Total Returns for the periods ended 8/31/00 (Common Shares) 1 year 12.00% Since Inception (9/8/98) 3.00% Note: Past performance is not predictive of future performance. Investment return and principle value of an investment will fluctuate so that an investor's shares upon redemption may be worth more or less than their original cost. 1 Monthly return equivalents of yield averages which are not marked to market. The Salomon Smith Barney U.S. One-Month Treasury Index consists of the last one-month Treasury bill issues. 3 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS August 31, 2000 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ----- COMMON STOCKS 87.6% AEROSPACE & DEFENSE 1.3% Textron, Inc. 1,500 $ 84,094 ---------- AIR TRANSPORT-FREIGHT 1.7% Southwest Airlines Co. 4,900 110,862 ---------- AUTOMOBILES 4.6% AutoNation, Inc.** 4,900 31,850 Ford Motor Co. 5,600 135,450 General Motors Corp. 1,300 93,844 General Motors Corp. Class H** 1,300 43,063 Visteon Corp. 1 11 ---------- 304,218 ---------- BEVERAGES & TOBACCO 0.5% Philip Morris Cos., Inc. 1,200 35,550 ---------- BUILDING & BUILDING MATERIALS 2.5% Armstrong Holdings, Inc. 10,400 165,750 ---------- BUSINESS SERVICES 2.4% Cendant Corp.** 1,300 17,144 Iron Mountain, Inc.** 1,000 34,125 Lamar Advertising Co.** 2,300 106,806 ---------- 158,075 ---------- CHEMICALS 1.8% Air Products & Chemicals, Inc. 1,300 47,206 Occidental Petroleum Corp. 3,500 75,688 ---------- 122,894 ---------- COMPUTERS, SOFTWARE & SERVICES 0.2% Earthlink, Inc.** 1,000 11,250 ---------- CONSTRUCTION & BUILDING MATERIALS 1.1% Ingersoll-Rand Co. 1,600 72,900 ---------- CONSUMER PRODUCTS & SERVICES 2.3% Nu Skin Enterprises, Inc.** 1,300 8,531 Unilever N.V. ADR 3,000 141,750 ---------- 150,281 ---------- ELECTRIC UTILITIES 6.0% FirstEnergy Corp. 3,300 81,675 Niagara Mohawk Power** 17,400 224,025 Pinnacle West Capital 2,400 98,850 ---------- 404,550 ---------- See Accompanying Notes to Financial Statements. 4 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ----- COMMON STOCKS (CONT'D) ELECTRONICS 6.0% Circuit City Stores 1,800 $ 46,688 Intel Corp. 1,400 104,825 Linear Technology Corp. 2,200 158,263 Motorola, Inc. 1,600 57,700 Teradyne, Inc.** 400 25,925 Xilinx, Inc.** 100 8,888 ---------- 402,289 ---------- ENERGY & OIL EXPLORATION 4.8% Apache Corp. 1,000 63,000 Burlington Resources, Inc. 2,900 114,006 Exxon Mobil Corp. 800 65,300 Tidewater, Inc. 2,000 80,750 ---------- 323,056 ---------- FINANCIAL SERVICES 10.3% AMBAC Financial Group, Inc. 200 12,925 Hartford Financial Services, Inc. 3,200 213,200 J.P. Morgan & Co., Inc. 1,300 217,344 Legg Mason, Inc. 1,600 84,400 Merrill Lynch & Co., Inc. 500 72,500 UnionBanCal Corp. 3,500 86,844 ---------- 687,213 ---------- FOOD & BEVERAGE 4.3% Anheuser-Busch Cos., Inc. 1,200 94,575 Coors, (Adolph) Class B 1,200 71,475 Darden Restaurants, Inc. 2,200 38,913 Tootsie Roll Industries 2,100 84,525 ---------- 289,488 ---------- HEALTH CARE 4.2% Abbott Laboratories 2,600 113,750 Cigna Corp. 1,200 116,700 Tenet Healthcare Corp. 1,600 49,600 ---------- 280,050 ---------- INSURANCE 2.1% CNA Financial Corp.** 2,400 95,250 Wesco Financial Corp. 200 48,000 ---------- 143,250 ---------- See Accompanying Notes to Financial Statements. 5 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE ------- ----- COMMON STOCKS (CONT'D) INTERNET CONTENT 2.1% Internet Capital Group, Inc.** 4,100 $ 142,988 ---------- INTERNET SOFTWARE 0.2% New Era of Networks, Inc.** 400 14,025 ---------- METALS & MINING 5.5% Barrick Gold Corp. 2,900 46,219 Bethlehem Steel Corp.** 3,500 12,250 Inco, Ltd.** 12,900 230,588 Newmont Mining Corp. 4,100 76,106 ---------- 365,163 ---------- PAPER & FOREST PRODUCTS 1.0% Weyerhaeuser Co. 1,400 64,838 ---------- PHARMACEUTICALS 2.8% Chiron Corp.** 900 48,656 ICOS Corp.** 2,400 140,850 ---------- 189,506 ---------- REAL ESTATE 7.1% Apartment Investment & Management Company Class A 3,500 157,063 CarrAmerica Realty Corp. 3,400 98,813 Equity Residential Properties Trust 1,100 52,800 General Growth Properties, Inc. 4,300 138,138 Simon Debartolo Group 1,300 29,656 ---------- 476,470 ---------- RETAIL 1.8% Best Buy Co., Inc.** 1,200 74,100 Ticketmaster Online-CitySearch, Inc.** 1,900 45,719 ---------- 119,819 ---------- RETAIL - SPECIALTY APPAREL STORES 0.6% Intimate Brands, Inc. Class A 2,600 41,925 ---------- SEMICONDUCTORS 0.7% National Semiconductor Corp.** 1,100 48,950 ---------- See Accompanying Notes to Financial Statements. 6 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE ------- ----- COMMON STOCKS (CONT'D) TELECOMMUNICATIONS 9.6% A. H. Belo Corp. Class A 3,500 $ 66,938 American Tower Corp. Class A** 200 7,263 Copper Mountain Networks, Inc.** 400 23,975 Cox Communications, Inc.** 3,900 138,694 QUALCOMM, Inc.** 700 41,913 Telephone and Data Systems, Inc. 2,900 336,400 WorldCom, Inc.** 800 29,200 ---------- 644,383 ---------- WASTE MANAGEMENT 0.1% Allied Waste Industries, Inc.** 400 3,675 ---------- TOTAL COMMON STOCKS (Cost $5,436,039) 5,857,512 ---------- SECURITIES SOLD SHORT (86.6%) AEROSPACE & DEFENSE (5.5%) AMR Corp.** (1,400) (45,938) General Dynamics Corp. (700) (44,056) Lear Corp.** (1,900) (40,969) Lockheed Martin Corp. (2,900) (82,288) T.R.W., Inc. (3,400) (155,338) ---------- (368,589) ---------- ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO (0.7%) Ryder System, Inc. (2,400) (46,050) ---------- AUTOMOBILE PARTS & EQUIPMENT (2.3%) Dana Corp. (2,700) (66,656) Goodyear Tire & Rubber Co. (3,800) (88,825) ---------- (155,481) ---------- BANKS & SAVINGS & LOANS (4.2%) FirstMerit Corp. (12,100) (282,081) ---------- BEVERAGES & TOBACCO (0.7%) UST, Inc. (2,100) (45,413) ---------- BUILDING & BUILDING MATERIALS (2.9%) Fluor Corp. (4,700) (140,706) Vulcan Materials Co. (1,200) (53,175) ---------- (193,881) ---------- See Accompanying Notes to Financial Statements. 7 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE ------- ----- SECURITIES SOLD SHORT (CONT'D) BUSINESS SERVICES (2.0%) Catalina Marketing Corp.** (2,400) $ (102,450) Keane, Inc.** (1,700) (29,431) ---------- (131,881) ---------- COMMUNICATIONS & MEDIA (0.2%) Ariba, Inc.** (100) (15,738) ---------- CONGLOMERATES (0.9%) General Electric Co. (1,000) (58,688) ---------- CONSUMER PRODUCTS & SERVICES (4.1%) American Standard Cos.** (2,400) (111,150) Colgate-Palmolive Co. (1,200) (61,125) Gillette Co. (2,100) (63,000) Whitman Corp. (3,100) (40,881) ---------- (276,156) ---------- CONTAINERS (0.3%) Crown Cork & Seal Co., Inc. (1,300) (16,819) ---------- ELECTRONICS (4.2%) Arrow Electronics, Inc.** (2,100) (76,388) Atmel Corp.** (1,800) (36,000) Cisco Systems** (500) (34,313) UtiliCorp United, Inc. (5,700) (135,731) ---------- (282,432) ---------- ENERGY (2.0%) Texas Utilities Co. (3,800) (132,763) ---------- ENERGY & OIL EXPLORATION (6.7%) Edison International (6,400) (132,400) National Fuel Gas Co. (1,200) (62,925) R & B Falcon Corp.** (3,800) (108,300) Texaco, Inc. (2,600) (133,900) Tosco Corp. (300) (9,150) ---------- (446,675) ---------- See Accompanying Notes to Financial Statements. 8 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE ------- ----- SECURITIES SOLD SHORT (CONT'D) FINANCIAL SERVICES (10.7%) American Financial Group (2,700) $ (66,994) Bank One Corp. (900) (31,725) Charles Schwab Corp. (1,800) (68,738) Cincinnati Financial Corp. (800) (31,100) Franklin Resources (4,300) (163,400) Freddie Mac (1,000) (42,125) H&R Block, Inc. (4,600) (165,025) People's Bank (1,300) (27,463) T. Rowe Price Associates, Inc. (1,700) (76,925) Union Planters Corp. (1,400) (42,438) ---------- (715,933) ---------- FOOD & BEVERAGE (4.7%) Campbell Soup Co. (2,700) (68,513) Coca-Cola Co. (2,900) (152,613) Dole Food Co., Inc. (4,400) (62,150) Tricon Global Restaurants, Inc.** (1,000) (29,125) ---------- (312,401) ---------- HEALTH CARE (6.6%) Beckman Coulter, Inc. (2,600) (197,925) Cardinal Health, Inc. (1,700) (139,081) United Healthcare Corp. (1,100) (103,950) ---------- (440,956) ---------- INDUSTRIAL GOODS & MATERIALS (2.2%) SPX Corp.** (900) (147,600) ---------- INDUSTRIAL MANUFACTURING & PROCESSING (0.4%) Cummins Engine Company, Inc. (700) (24,850) ---------- INTERNET CONTENT (0.5%) InfoSpace.com, Inc.** (800) (31,200) ---------- LEISURE (0.9%) International Game Technology** (2,100) (60,900) ---------- OFFICE EQUIPMENT & SUPPLIES (0.4%) Pitney Bowes, Inc. (800) (29,250) ---------- PAPER & FOREST PRODUCTS (1.7%) Bowater, Inc. (800) (41,100) Georgia-Pacific Group (2,600) (69,550) ---------- (110,650) ---------- See Accompanying Notes to Financial Statements. 9 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE ------- ----- SECURITIES SOLD SHORT (CONT'D) PHARMACEUTICALS (3.4%) FMC Corp.** (2,000) $ (135,625) PE Corp. - Celera Genomics Group** (200 (21,688) Pharmacia Corp. (1,200) (70,275) ----------- (227,588) ----------- PUBLISHING (1.2%) Investment Technology Group, Inc.** (1,700) (81,600) ----------- REAL ESTATE (4.4%) Spieker Properties, Inc. (5,400) (294,975) ----------- RETAIL (1.2%) RadioShack Corp. (1,300) (76,700) ----------- RETAIL - SPECIALTY APPAREL STORES (2.4%) Dillard's, Inc. Class A (3,300) (42,281) Payless ShoeSource, Inc.** (700) (37,363) J.C. Penney Co., Inc.. (5,800) (81,200) ----------- (160,844) ----------- TELECOMMUNICATIONS (9.0%) ALLTEL Corp. (1,400) (70,788) AT&T Corp. - Liberty Media Group Class A** (2,700) (57,713) Lucent Technologies (600) (25,088) Metromedia Fiber Network, Inc.** (4,700) (187,706) Nextel Communications, Inc. Cl. A** (100) (5,544) Qwest Communications International, Inc.** (3,600) (185,850) RCN Corp.** (1,500) (36,375) Vitesse Semiconductor Corp.** (400) (35,525) ----------- (604,589) ----------- TRANSPORTATION (0.2%) UAL Corp. (300) (14,325) ----------- TOTAL SECURITIES SOLD SHORT (Cost $5,362,784) $(5,787,008) ----------- See Accompanying Notes to Financial Statements. 10 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CON'D) August 31, 2000 ------------------------------------------------------------------------------- PAR (000) VALUE ------- ----- REPURCHASE AGREEMENT--11.0% Bear Stearns (Agreement dated 08/31/00, to be repurchased at $735,042, collaterized by $775,000 U.S. Treasury Note 3.375% due 01/15/07. Market Value of collateral is $747,147.) 6.620% 09/01/00 $735 $ 734,907 ---------- (Cost $734,907) TOTAL INVESTMENTS--12.0% (Cost $808,162*) 805,411 OTHER ASSETS IN EXCESS OF LIABILITIES--88.0% 5,883,851 ----------- TOTAL NET ASSET 100.0% $6,689,262 ========== * Cost for Federal income tax purposes at August 31, 2000 is $1,196,150. The gross appreciation (depreciation) on a tax basis is as follows: Gross Appreciation - Investments $ 725,075 Gross Depreciation - Investments (406,879) Gross Appreciation - Short Sales 233,406 Gross Depreciation - Short Sales (942,341) --------- Net Depreciation $ (390,739) ========= ** Non-income producing securities. INVESTMENT ABBREVIATIONS ADR American Depository Receipt See Accompanying Notes to Financial Statements. 11 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND STATEMENT OF ASSETS AND LIABILITIES August 31, 2000 -------------------------------------------------------------------------------- ASSETS Investments, at value (cost - $6,170,946) $ 6,592,419 Deposits with brokers and custodian bank for securities sold short 6,030,718 Receivable from investment adviser 5,450 Dividends and interest receivable 23,991 Prepaid expenses and other assets 30,655 ----------- Total Assets 12,683,233 ----------- LIABILITIES Securities sold short (proceeds - $5,362,784) 5,787,008 Due to custodian 163,415 Distribution fee payable (Common shares) 438 Accrued expenses payable 43,110 ----------- Total Liabilities 5,993,971 ----------- NET ASSETS Capital stock, $0.001 par value 451 Paid-in capital 7,933,246 Undistributed net investment income 164,310 Accumulated net realized loss from investments and securities sold short (1,405,994) Net unrealized depreciation on investments and other, if any (2,751) ----------- Net Assets $ 6,689,262 =========== INSTITUTIONAL SHARES Net assets $ 4,588,015 ----------- Shares outstanding 310,455 ----------- Net asset value, offering price and redemption price per share $ 14.78 =========== COMMON SHARES Net assets $ 2,101,247 ----------- Shares outstanding 140,862 ----------- Net asset value, offering price and redemption price per share $ 14.92 =========== See Accompanying Notes to Financial Statements. 12 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND STATEMENT OF OPERATIONS For the Year Ended August 31, 2000 -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 107,668 Interest 393,082 Foreign taxes withheld (422) --------- Total Investment Income 500,328 --------- EXPENSES: Investment advisory fees 89,315 Administration fees 9,884 Dividend expense 102,788 Printing fees 76,634 Registration fees 33,317 Transfer agent fees 21,304 Legal fees 19,785 Audit fees 19,455 Custodian fees 15,816 Directors fees 10,149 Distribution fees 6,625 --------- 405,072 Less fees waived, expenses reimbursed and transfer agent offsets (156,335) --------- Total Expenses 248,737 --------- Net Investment Income 251,591 --------- REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions 409,585 Securities sold short (369,208) --------- 40,377 --------- Net change in unrealized appreciation from investments 474,681 --------- Net gain on investments 515,058 --------- Net increase in net assets resulting from operations $ 766,649 ========= See Accompanying Notes to Financial Statements. 13 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 2000 AUGUST 31, 1999 --------------- --------------- FROM OPERATIONS: Net investment income $ 251,591 $ 499,594 Net gain/(loss) on investments 515,058 (1,815,539) ----------- ----------- Net increase/(decrease) in net assets resulting from operations 766,649 (1,315,945) ----------- ----------- FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional shares (345,792) (30,279) Common shares (127,325) (90,662) Net realized capital gains: Institutional shares -- (52,082) Common shares -- (159,858) ----------- ----------- Net decrease in net assets from dividends and distributions (473,117) (332,881) ----------- ----------- NET CAPITAL SHARE TRANSACTIONS (1,389,851) 3,132,125 ----------- ----------- Total increase/(decrease) in net assets (1,096,319) 1,483,299 NET ASSETS: Beginning of year 7,785,581 6,302,282 ----------- ----------- End of year $ 6,689,262 $ 7,785,581 =========== =========== Undistributed net investment income $ 164,310 $ 385,836 =========== ===========
See Accompanying Notes to Financial Statements. 14 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout Each Period) --------------------------------------------------------------------------------
INSTITUTIONAL COMMON ------------------------------------------------ --------------------------------- FOR THE YEAR FOR THE YEAR FOR THE PERIOD FOR THE YEAR ENDED ENDED JULY 31, 1998* ENDED FOR THE PERIOD AUGUST 31, AUGUST 31, TO AUGUST 31, AUGUST 31, SEPTEMBER 8, 1998* 2000 1999 1998 2000 TO AUGUST 31, 1999 ------------ ------------ -------------- ------------ ------------------ PER SHARE DATA: Net asset value, beginning of period $14.21 $15.27 $15.00 $14.19 $15.19 ------ ------ ------ ------ ------ INVESTMENT ACTIVITIES: Net investment income 0.70 0.39+ 0.05 0.61 0.32+ Net gain/(loss) on investments and securities sold short (both realized and unrealized) 0.99 (1.25) 0.22 1.05 (1.12) ------ ------ ------ ------ ------ Total from investment operations 1.69 (0.86) 0.27 1.66 (0.80) ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income (1.12) (0.07) -- (0.93) (0.07) Distributions from net realized capital gains -- (0.13) -- -- (0.13) ------ ------ ------ ------ ------ Total dividends and distributions (1.12) (0.20) -- (0.93) (0.20) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $14.78 $14.21 $15.27 $14.92 $14.19 ====== ====== ====== ====== ====== Total return 12.29% (5.68)% 1.80%3 12.00% (5.33)%3 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted)$4,588 $5,901 $6,302 $2,101 $1,885 Ratio of expenses to average net assets (including dividend expense) 3.44%1,2 3.33%1 4.32%1,4 3.80%1,2 3.40%1,4 Ratio of expenses to average net assets (excluding dividend expense) 2.00%1 2.00%1 2.00%1,4 2.26%1 2.24%1,4 Ratio of net investment income to average net assets 3.69% 2.65% 1.96%4 3.49% 2.46%4 Fund turnover rate 313% 705% 130%3 313% 705%3 ------------------ 1 Without the voluntary waiver of advisory fees and administration fees, the ratios of expenses to average net assets for the Institutional Class would have been 4.15% (excluding dividend expense) and 5.59% (including dividend expense) for the year ended August 31, 2000, 2.56% (excluding dividend expense) and 3.93% (including dividend expense) for the year ended August 31, 1999 and 5.12% (excluding dividend expense) and 7.44% (including dividend expense) annualized for the period ended August 31, 1998. Without the voluntary waiver of advisory fees and administration fees, the ratios of expenses to average net assets for the Common Class would have been 4.65% (excluding dividend expense) and 6.19% (including dividend expense) for the year ended August 31, 2000 and 2.84% (exclucing dividend expense) and 4.00% (including dividend expense) annualized for the period ended August 31, 1999. 2 Interest earned on uninvested cash balances is used to offset portions of the transfer agent expense. These arrangements had no effect on the fund's expense ratio. 3 Not Annualized. 4 Annualized. * Inception Date. + Per share information is calculated using the average share outstanding method.
See Accompanying Notes to Financial Statements. 15 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND NOTES TO FINANCIAL STATEMENTS August 31, 2000 -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Warburg, Pincus Long-Short Market Neutral Fund, Inc. (the "Fund"), is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a non-diversified, open-end management investment company. The Fund is authorized to offer three classes of shares: Common, Advisor and Institutional, although only Common shares and Institutional shares of the Fund are currently offered. Common shares for the Fund bear expenses paid pursuant to a shareholder servicing and distribution agreement at an annual rate not to exceed .25% of the average daily net asset value of the Fund's outstanding Common shares. In addition, the Common shares bear co-administration fees. A) SECURITY VALUATION -- The net asset value of the Fund is determined daily as of the close of regular trading on The New York Stock Exchange Inc. The Fund's securities for which market quotations are readily available are valued at market value, which is currently determined using the last reported sales price. If no sales are reported, as in the case of some securities traded over-the-counter, the securities are valued at the mean between the last reported bid and asked prices. All other securities and assets are valued as determined in good faith by the Fund's Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value. B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Certain expenses are class specific expenses and vary by class. Expenses not directly attributable to a specific class are allocated based on relative net assets of the class. C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund calculates its dividends from net investment income. Net investment income includes interest accrued and dividends earned on the Fund's portfolio securities for the applicable period less applicable expense. The Fund will distribute substantially all of its net realized capital gains and all net investment income, if any, to its shareholders at least annually. 16 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The character of distributions made during the year for net investment income or net realized gains may differ from their ultimate characterization for Federal income tax purposes due to generally accepted accounting principles ("GAAP") and tax differences in the character of income and expense recognition. These differences are primarily due to differing treatments for net operating losses. To the extent these differences are permanent in nature, such amounts are reclassified within capital accounts based on U.S. tax-basis treatment. Temporary differences do not require reclassification. D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes as it is the Fund's intention to qualify for and elect the tax treatment applicable to regulated investment companies under the Internal Revenue Code of 1986, as amended and make the requisite distributions to its shareholders which will be sufficient to relieve it from Federal income and excise taxes. E) USE OF ESTIMATES -- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F) REPURCHASE AGREEMENTS -- Money market instruments may be purchased from banks and non-bank dealers subject to the seller's agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments. The seller will be required on a daily basis to maintain the value of the securities subject to the agreement at not less than the repurchase price. The agreements are conditional upon the collateral being deposited under the Federal Reserve book-entry system or held in a separate account by the Fund's custodian or an authorized securities depository. The Fund had an open repurchase agreement at August 31, 2000. 17 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) G) FUTURES TRANSACTIONS -- A Fund invests in futures contracts for the purpose of hedging its existing portfolio securities, or securities that the Fund intends to purchase, against fluctuations in fair value caused by changes in prevailing market interest rates or securities prices, or for other purposes. The Fund may enter into futures contracts subject to certain limitations. Upon entering into a futures contract, the Fund is required to deposit cash or pledge U.S. Government securities of an initial margin. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying instrument, are made or received by the Fund each day (daily variations margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contracts. Risks of entering into futures contracts include the possibility that there will be an imperfect price correlation between the futures contracts and the underlying securities. Second, it is possible that a lack of liquidity for futures contracts could exist in the secondary market, resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Fund could lose more than the original margin deposit required to initiate a futures transaction. At August 31, 2000, the Fund did not have any open futures contracts. H) SECURITIES LENDING -- Loans of the securities are required at all times to be secured by collateral at least equal to 102% of the market value of domestic securities on loan including any accrued interest thereon and 105% of the market value of foreign securities on loan including any accrued interest thereon. Cash collateral received by the Fund in connection with securities lending activity is invested in the Boston Global Investment Trust. However, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. The Fund did not have any securities on loan to brokers at August 31, 2000. I) SHORT SALES -- When the Fund's investment adviser believes that a security is overvalued, it may sell the security short by borrowing the same security from a broker or other institution and selling the security. The Fund will incur a loss as a result of the short sale if the price of the borrowed security increases between the date of the short sale and the date on which the Fund replaces such security. The Fund will realize a gain if there is a decline in price of the security 18 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) between those dates, if the decline exceeds the cost of borrowing the security and other transaction costs. There can be no assurance that the Fund will be able to close out a short position at any particular time or at an acceptable price. Although the Fund's gain is limited to the amount at which it has sold a security short, its potential loss is limited only by the maximum attainable price of the security less the price at which the security was sold. Until the Fund replaces a borrowed security, it will maintain at all times cash or other liquid securities in an amount which, when added to any amount deposited with a broker as collateral will at least equal the current market value of the security sold short. Depending on arrangements made with brokers, the Fund may not receive any payments (including interest) on collateral deposited with them. The Fund will not make a short sale if, after giving effect to such sale, the market value of all securities sold short exceeds 100% of the value of its net assets. NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES Pursuant to an Investment Advisory Agreement, Credit Suisse Asset Management, LLC ("CSAM"), an indirect, wholly-owned subsidiary of Credit Suisse Group, serves as investment adviser for the Fund described herein. For its advisory services, CSAM is entitled to receive from the Fund a monthly fee equal to an annual rate of 1.50% of the Fund's average daily net assets. In addition, CSAM is entitled to a monthly performance adjustment fee, which may increase or decrease the total advisory fee by up to 0.50% per year. The performance adjustment fee decreased the total advisory fee by $15,069 or 0.21% of average daily net assets due to lower performance in comparison to the Salomon Smith Barney U.S. 1-Month Treasury Bill Index plus 5 percentage points for the year ended August 31, 2000. CSAM may, at its discretion, voluntarily waive all or any portion of its advisory fee for the Fund. For the year ended August 31, 2000, the advisory fee earned and waived by CSAM was as follows: GROSS NET ADVISORY FEE WAIVER ADVISORY FEE ------------ --------- ------------ $89,315 $(88,716) $599 CSAM reimbursed expenses of the Fund in the amount of $59,965 for the year ended August 31, 2000. 19 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED) State Street Bank and Trust Company ("State Street"), serves as the Fund's transfer and dividend disbursement agent. State Street has delegated most of its Fund service obligations to Boston Financial Data Services, Inc. (BFDS), a 50% owned subsidiary of State Street. The Fund has an arrangement with its transfer agent whereby interest earned on uninvested cash balances is used to offset a portion of its transfer agent expense. For the year ended August 31, 2000, the Fund received credits or reimbursements under this arrangement in the amount of $257. Counsellors Fund Services, Inc. ("CFSI"), a wholly-owned subsidiary of Credit Suisse Asset Management, LLC served as co-administrator of the Fund until November 1, 1999. On November 1, 1999 Credit Suisse Asset Management Securities, Inc. ("CSAMSI") replaced CFSI as co-administrator to the Fund. PFPC Inc. ("PFPC"), an indirect, wholly-owned subsidiary of PNC Financial Services Group, Inc., also serves as the Fund's co-administrator. For administration services, the Fund pays CSAMSI a fee calculated at an annual rate .05% of the Fund's first $125 million in average daily net assets of the Common shares and .10% of average daily net assets of the Common shares over $125 million. No compensation is payable by the Fund to CSAMSI for co-administration services for the Institutional shares. CFSI, at its discretion, voluntarily waived a portion of its co-administration fees for the Fund. For the period September 1, 1999 to October 31, 1999, the co-administration fee earned and waived by CFSI on the Common shares was as follows: GROSS NET CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE ------------------- ----------- ------------------- $163 $(131) $32 CSAMSI may, at its discretion, voluntarily waive all or any portion of its administrative fee for the Fund. For the period November 1, 1999 to August 31, 2000, the co-administrative service fee earned and waived by CSAMSI on the Common shares was as follows: GROSS CO-ADMINISTRATIVE NET CO-ADMINISTRATIVE FEE WAIVER FEE ------------------- ----------- ------------------- $1,162 $(929) $233 20 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED) For administration services, PFPC received a fee, for the period September 1, 1999 to July 31, 2000, calculated at an annual rate of .125% on the Fund's average daily net assets subject to a minimum annual fee and exclusive of out-of-pocket expenses. As of August 1, 2000, PFPC receives a fee calculated at an annual rate of .10% of the Fund's first $500 million in average daily net assets, .08% of the next $1 billion in average daily net assets and .06% of average daily net assets over $1.5 billion, subject to a minimum annual fee and exclusive of out of pocket expenses. PFPC may, at its discretion, voluntarily waive all or any portion of its administration fee for the Fund. For the year ended August 31, 2000, the co-administration fee earned and waived by PFPC was as follows: GROSS NET CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE --------------------- ----------- --------------------- $8,559 $(6,336) $2,223 In addition to serving as the Fund's co-administrator, CSAMSI served as distributor of the Fund's shares until January 1, 2000. On January 1, 2000, Provident Distributors, Inc. ("PDI") replaced CSAMSI as distributor to the Fund. On August 1, 2000, CSAMSI replaced PDI as distributor to the Fund. No compensation is payable by the Fund to PDI or CSAMSI for distribution services, but CSAMSI receives compensation from the Fund's Common shares under the co-administration agreement for shareholder servicing and distribution. For the Shareholder Servicing and Distribution Plan on the Common shares, CSAMSI receives a fee calculated at an annual rate of .25% of the average daily net assets of the Common shares of the Fund. For the year ended August 31, 2000, the shareholder services fee earned by CSAMSI was $6,625. NOTE 3. PURCHASES AND SALES OF SECURITIES For the year ended August 31, 2000, purchases and sales of investment securities (other than short-term investments) were as follows: INVESTMENT SECURITIES SHORT SECURITIES --------------------- ---------------- PURCHASES SALES SALES ----------- ----------- ---------- $19,281,005 $10,514,280 $8,900,802 21 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 2000 -------------------------------------------------------------------------------- NOTE 4. CAPITAL SHARES Transactions in capital shares for each period were as follows:
INSTITUTIONAL COMMON --------------------------------------------- ---------------------------------------------- FOR THE PERIOD FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED SEPTEMBER 8,1998* AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 2000 THROUGH AUGUST 31, 1999 ------------------ ------------------ --------------- ----------------------- SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE -------- ------- -------- ------- -------- ------- -------- ------- Shares sold 141,588 $ 2,105,343 2,702,645 $ 40,468,228 190,472 $ 2,886,336 3,454,318 $ 51,387,127 Shares issued in reinvestment of dividends 21,825 307,514 5,561 82,361 8,769 124,965 16,915 250,336 Shares repurchased (268,139) (3,928,705) (2,705,769) (39,525,343) (191,177) (2,885,304) (3,338,435) (49,530,584) -------- ---------- ---------- ------------ -------- ----------- ---------- ------------ Net increase/ (decrease) (104,726) $(1,515,848) 2,437 $ 1,025,246 8,064 $ 125,997 132,798 $ 2,106,879 ======== =========== ========== ============ ======== =========== ========== ============ *Inception Date.
On August 31, 2000, the number of shareholders that held 5% or more of the outstanding shares are as follows: NUMBER OF APPROXIMATE PERCENTAGE SHAREHOLDERS OF OUTSTANDING SHARES -------------- -------------------------- Institutional shares 5 92.83% Common shares 3 90.48 NOTE 5. LINE OF CREDIT The Fund, together with other funds advised by CSAM, has established a $350 million committed and a $75 million uncommitted, unsecured, line of credit facility ("Credit Facility") with Deutche Bank, AG as administrative agent, State Street Bank and Trust Company as operations agents, Bank of Nova Scotia as syndication agent and certain other lender, for temporary or emergency purposes primarily relating to unanticipated Fund share redemption. Under the terms of the Credit Facility, the funds with access to the Credit Facility pay an aggregate commitment fee at a rate of .075% per annum on the entire amount of the Credit Facility, which is allocated among the participating funds in such manner as is determined by the governing Boards of the various funds. In addition the participating funds will pay interest on borrowing at the Federal funds rate plus .50%. For the year ended August 31, 2000, the Fund had no borrowings under the credit facility. NOTE 6. CAPITAL LOSS CARRYOVER At August 31, 2000, capital loss carryovers were available to offset future realized gains in the amount of $483,438, which expires in 2008. WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND REPORT OF INDEPENDENT ACCOUNTANTS -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of Warburg, Pincus Long-Short Market Neutral Fund, Inc.: In our opinion, the accompanying statement of assets and liabilities including the schedule of investments of Warburg, Pincus Long-Short Market Neutral Fund, Inc., (the "Fund") as of August 31, 2000, and the related statement of operations and of changes in net assets and the financial highlights present fairly, in all material respects the financial position of the Fund at August 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years (or periods) in the period then ended and the financial highlights for each of the years (or periods) presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, 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 August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Two Commerce Square 2001 Market Street Philadelphia, Pennsylvania October 13, 2000 23 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND TAX INFORMATION LETTER August 31, 2000 -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION FOR CORPORATE SHAREHOLDERS (UNAUDITED) Corporate shareholders should note for the year ended August 31, 2000, the percentage of the Fund's investment income (I.E., net investment income plus short-term capital gains) that qualifies for the intercorporate dividends received deductions is 50.39%. 24 -------------------------------------------------------------------------------- [WARBURG PINCUS FUNDS logo omitted] P.O. BOX 9030, BOSTON, MA 02205-9030 800-WARBURG (800-927-2874) (TM) www.warburg.com CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. WPLSN-2-0800 --------------------------------------------------------------------------------