-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JEQj8zr3H4QRxRPCZ0BKEM2rGSzFCFThFZzl9SEeIKg3AyRc3S8VoqM2ues1yJxc vK+7pNlNIIdi1NtS0DVXyQ== 0000935069-99-000224.txt : 19991103 0000935069-99-000224.hdr.sgml : 19991103 ACCESSION NUMBER: 0000935069-99-000224 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARBURG PINCUS WORLDPERKS TAX FREE MONEY FUND INC CENTRAL INDEX KEY: 0001066776 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08901 FILM NUMBER: 99739286 BUSINESS ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017-3167 BUSINESS PHONE: 2128789548 MAIL ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017-3167 FORMER COMPANY: FORMER CONFORMED NAME: WARBURG PINCUS TAX FREE MONEY MARKET FUND INC DATE OF NAME CHANGE: 19980723 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARBURG PINCUS LONG SHORT MARKET NEUTRAL FUND INC CENTRAL INDEX KEY: 0001067476 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08925 FILM NUMBER: 99739287 BUSINESS ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017-3147 BUSINESS PHONE: 2127166081 MAIL ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017-3147 N-30D 1 WARBURG LONG SHORT AND MARKET NEUTRAL N-30D [GRAPHIC OMITTED] [GRAPHIC OMITTED] ANNUAL REPORT AUGUST 31, 1999 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND [ ] WARBURG PINCUS LONG-SHORT EQUITY FUND More complete information about the funds, including charges and expenses, is provided in the PROSPECTUS, which must precede or accompany this document and which should be read carefully before investing. You may obtain additional copies by calling 800-WARBURG (800-927-2874) or by writing to Warburg Pincus Funds, P.O. Box 9030, Boston, MA 02205-9030. Credit Suisse Asset Management Securities, Inc., Distributor, 466 Lexington Avenue,New York, NY 10017. Telephone: 800-888-6878. Warburg Pincus Funds is a division of Credit Suisse Asset Management Securities, LLC. FROM TIME TO TIME, THE FUNDS' INVESTMENT ADVISER AND CO-ADMINISTRATORS MAY WAIVE SOME FEES AND/OR REIMBURSE SOME EXPENSES, WITHOUT WHICH PERFORMANCE WOULD BE LOWER. WAIVERS AND/OR REIMBURSEMENTS ARE SUBJECT TO CHANGE. RETURNS ARE HISTORICAL AND INCLUDE CHANGE IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. RETURNS AND SHARE PRICE WILL FLUCTUATE, AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. INVESTMENT IN SHARES OF THE FUNDS CAN BE MORE VOLATILE AND RISKY THAN SOME OTHER FORMS OF INVESTMENT. IN ADDITION, IF THE ADVISER TAKES LONG POSITIONS IN STOCKS THAT DECLINE OR SHORT POSITIONS IN STOCKS THAT INCREASE IN VALUE, THEN THE LOSSES OF THE FUNDS MAY EXCEED THOSE OF OTHER STOCK MUTUAL FUNDS THAT HOLD LONG POSITIONS ONLY. THE VIEWS OF THE FUNDS' MANAGEMENT ARE AS OF THE DATE OF THE LETTERS AND PORTFOLIO HOLDINGS DESCRIBED IN THIS DOCUMENT ARE AS OF AUGUST 31, 1999; 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, 1999 - -------------------------------------------------------------------------------- September 15, 1999 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, 1999. At August 31, 1999, the net asset value ("NAV") of the Fund's institutional shares was $14.21, compared to an NAV of $15.27 on August 31, 1998. As a result, the institutional shares' total return was down 5.7% (assuming the reinvestment of dividends and distributions totaling $0.20 per share). By comparison, the Salomon Smith Barney U.S. One-Month Treasury Bill Index benchmark (the "Index") returned 4.3% during the same period. At August 31, 1999, the NAV of the Fund's common shares was $14.19, compared to an NAV of $15.19 at their inception of investment operations on September 8, 1998. Including the effect of linkage to the institutional shares, the common shares' total return between August 31, 1998 and August 31, 1999 thus was down 5.8% (assuming the reinvestment of dividends and distributions totaling $0.20 per share). By comparison, the Index returned 4.3% during the same period. We attribute the Fund's underperformance of its benchmark during the fiscal year to a combination of broad-based and sector-specific factors that prevailed in 1999 through the end of August. Broad market volatility was unusually high, as investors often were preoccupied with concerns about U.S. interest rates and inflation. As a result, two aspects of market activity worked against our particular investment discipline, which focuses on stock selection rather than macro-level or sector-related issues. First, there was a general unwillingness to commit to relatively long-term positions, which caused a choppier-than-usual trading environment. Second, there was an emphasis on positioning portfolios to benefit from expectations about interest rates by betting on industry sectors rather than individual stocks. In the latter trend, stocks within many sectors performed similarly, which negated the normal benefit we derive by highlighting companies with especially strong or weak fundamentals. 1 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND PORTFOLIO MANAGERS' LETTER -- AUGUST 31, 1999 (CONT'D) - -------------------------------------------------------------------------------- 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., 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, 1999 (CONT'D) - -------------------------------------------------------------------------------- COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE WARBURG PINCUS LONG-SHORT MARKET NEUTRAL INSTITUTIONAL SHARES AND THE 30-DAY U.S. TREASURY BILL INDEX1 FROM INCEPTION (7/31/98) AND AT EACH QUARTER END. (UNAUDITED) [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC WARBURG PINCUS 30 DAY LONG-SHORT U.S. TREASURY MARKET NEUTRAL FUND BILL INDEX 7/31/98 $10,000 $10,000 8/31/98 $10,180 $10,040 11/30/98 $9,927 $10,133 2/28/99 $10,061 $10,241 5/31/99 $9,804 $10,353 8/31/99 $9,601 $10,465 Average Annual Total Returns for the periods ended 8/31/99 (Institutional Shares)(Unaudited) 1 year Since Inception (5.68%) (7/31/98) (3.67%) 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 1 month T-Bill index consists of the last 1 month T-Bill issues. 3 WARBURG PINCUS LONG-SHORT EQUITY FUND PORTFOLIO MANAGERS' LETTER -- AUGUST 31, 1999 - -------------------------------------------------------------------------------- September 15, 1999 Dear Shareholders: We are writing to report on the results of the Warburg Pincus Long-Short Equity Fund (the "Fund") for the fiscal year ended August 31, 1999. At August 31, 1999, the net asset value ("NAV") of the Fund's institutional shares was $16.57, compared to an NAV of $15.00 at their inception of investment operations on September 11, 1998. As a result, the institutional shares' total return between September 11, 1998 and August 31, 1999 was 13.4% (assuming the reinvestment of dividends and distributions totaling $0.45 per share). By comparison, the Standard & Poor's 500 Index1 (the "Index") returned 36.5% during the same period. At August 31, 1999, the NAV of the Fund's common shares was $16.51, compared to an NAV of $15.72 at their inception of investment operations on October 30, 1998. The common shares' total return thus was 7.8% between October 30, 1998 and August 31, 1999 (assuming the reinvestment of dividends and distributions totaling $0.45 per share). By comparison, the Index returned 21.6% during the same period. We attribute the Fund's modest underperformance of its S&P 500 benchmark during the fiscal year to a combination of broad-based and sector-specific factors that prevailed in 1999 through the end of August. Broad market volatility was unusually high, as investors often were preoccupied with concerns about U.S. interest rates and inflation. As a result, two aspects of market activity worked against our particular investment discipline, which focuses on stock selection rather than macro-level or sector-related issues. First, there was a general unwillingness to commit to relatively long-term positions, which caused a choppier-than-usual trading environment. Second, there was an emphasis on positioning portfolios to benefit from expectations about interest rates by betting on industry sectors rather than individual stocks. In the latter trend, stocks within many sectors performed similarly, which negated the normal benefit we derive by highlighting companies with especially strong or weak fundamentals. An additional contributor to underperformance was the simple fact that, as a fairly new portfolio that was (and is) small and growing, the Fund periodically experienced disproportionate volatility in response to relatively large cash flows. We fully expect that the Fund's relative performance will more closely track that of the Warburg Pincus Long-Short Market Neutral 4 WARBURG PINCUS LONG-SHORT EQUITY FUND PORTFOLIO MANAGERS' LETTER -- AUGUST 31, 1999 (CONT'D) - -------------------------------------------------------------------------------- Fund, whose shares form its primary asset, as the Fund continues to grow larger. 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., 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 THE LOSSES OF THE FUND MAY EXCEED THOSE OF OTHER STOCK MUTUAL FUNDS THAT HOLD LONG POSITIONS ONLY. 1 The S&P Index is an unmanaged index (with no defined investment objective) of common stocks, includes reinvestments of dividends, and is a registered trademark of Standard & Poor's Corporation. 5 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS August 31, 1999 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ------- COMMON STOCKS 87.0% AEROSPACE/DEFENSE 2.1% Textron, Inc. 2,000 $ 161,500 ---------- AIR TRANSPORT-FREIGHT 1.7% Southwest Airlines Co. 7,800 130,162 ---------- AUTOMOTIVE -- 13.5% Delphi Automotive Systems Corp. 1,300 24,375 Ford Motor Co. 6,000 312,750 General Motors Corp. 1,900 125,638 Johnson Controls, Inc. 5,700 389,738 Navistar International Corp. 4,100 199,363 ---------- 1,051,864 ---------- BEVERAGES & TOBACCO 0.3% Anheuser-Busch Cos., Inc. 300 23,100 ---------- CABLE 2.9 At Home Corp. Series A** 5,600 224,700 ---------- CHEMICALS 3.1% Air Products & Chemicals, Inc. 4,200 142,800 Lyondell Petrochemical Co. 6,700 97,569 ---------- 240,369 ---------- COMMUNICATIONS & MEDIA 1.3% A. H. Belo Corp. Cl. A 5,400 102,263 ---------- COMPUTERS, SOFTWARE & SERVICING 0.9% GTECH Holdings 1,200 30,300 RealNetworks, Inc.** 500 40,875 ---------- 71,175 ---------- CONSTRUCTION & BUILDING MATERIALS 4.0% Ingersoll-Rand Co. 2,500 159,063 Lafarge Corp. 2,500 68,750 Masco Corp. 3,000 84,938 ---------- 312,751 ---------- CONSUMER PRODUCTS & SERVICES 1.8% Avon Products 2,400 105,300 Nu Skin Enterprises, Inc.** 3,200 34,200 ---------- 139,500 ---------- See Accompanying Notes to Financial Statements. 6 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS August 31, 1999 - ----------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ------ COMMON STOCKS (CONT'D) ELECTRIC UTILITIES 1.6% Niagara Mohawk Power 5,700 $ 86,213 Pinnacle West Capital 1,100 41,800 ---------- 128,013 ---------- ELECTRONICS 7.4% Circuit City Stores 5,000 215,000 Cisco Systems, Inc.** 2,200 149,188 Halliburton Co. 400 18,550 Linear Technology Corp. 1,800 113,288 Teradyne, Inc.** 500 34,031 UtiliCorp United, Inc. 1,900 44,056 ---------- 574,113 ---------- ENERGY & OIL EXPLORATION 0.8% Tidewater Inc. 1,900 61,750 ---------- FINANCIAL SERVICES 15.5% 20th Century Industries 1,700 31,875 Fannie Mae 300 18,638 Hartford Financial Services, Inc. 6,200 281,713 J.P. Morgan & Co. Inc. 2,400 310,050 Jefferson-Pilot Corp. 1,500 100,125 Lehman Brothers Holdings Inc. 3,700 198,875 Regions Financial Corp. 2,100 74,156 T. Rowe Price Associates, Inc. 1,400 43,313 UnionBanCal Corp. 3,000 115,125 Merrill Lynch & Co., Inc. 400 29,850 ---------- 1,203,720 ---------- FOOD & BEVERAGE 4.9% Coors, (Adolph) Cl. B 1,900 108,419 Fleming Companies, Inc. 12,800 154,400 U.S. Foodservice** 5,800 120,713 ---------- 383,532 ---------- FOREST PRODUCTS & PAPER 1.3% Weyerhaeuser Co. 1,800 101,250 ---------- GAS UTILITIES 0.6% Boise Cascade Corp. 500 18,188 Peoples Energy 700 25,506 ---------- 43,694 ---------- See Accompanying Notes to Financial Statements. 7 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 1999 - ----------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ------ COMMON STOCKS (CONT'D) HEALTH CARE 2.7% Aetna Inc. 700 $ 54,425 Wellpoint Health Networks, Inc.** 2,100 153,038 ---------- 207,463 ---------- METALS & MINING 1.7% Bethlehem Steel Corp.** 3,200 24,600 Freeport-McMoran Copper & Gold, Inc. Cl. B 4,300 69,069 Ryerson Tull, Inc. 2,200 41,663 ---------- 135,332 ---------- OIL SERVICES 4.8% Enron Corp. 7,000 293,125 Pennzoil-Quaker State Co. 5,700 79,088 ---------- 372,213 ---------- PHARMACEUTICALS 0.2% Bergen Brunswig Corp. 1,000 15,438 ---------- PUBLISHING & INFORMATION SERVICES 0.4% Donnelley (R.R.) & Sons Co. 1,000 31,375 ---------- REAL ESTATE 0.7% Host Marriott Corp. 1,700 15,725 Simon Debartolo Group 1,600 40,800 ---------- 56,525 ---------- RENTALS 0.6% Hertz Corp. 1,100 44,344 ---------- RETAIL-SPECIALTY APPAREL STORES 2.5% Dayton Hudson Corp. 1,000 58,000 Dollar Tree Stores** 1,500 49,500 Office Depot.** 5,900 61,581 Safeway, Inc.** 600 27,938 ---------- 197,019 ---------- TELECOMMUNICATIONS 9.7% AT&T Corp. 2,700 121,500 Galileo International, Inc. 1,600 77,600 General Instrument Corp.** 4,300 211,506 NEXTLINK Communications, Inc.** 2,400 120,900 SBC Communications, Inc. 800 38,400 Tellabs, Inc. 3,100 184,644 ---------- 754,550 ---------- TOTAL COMMON STOCKS (Cost $7,156,349) $6,767,715 ---------- See Accompanying Notes to Financial Statements. 8 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 1999 - ----------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ------ SECURITIES SOLD SHORT (91.0%) AEROSPACE & DEFENSE (3.1%) Lear Corp** (500) $ (20,094) Lockheed Martin Corp. (6,000) (222,000) ----------- (242,094) ----------- AGRICULTURE (0.6%) IMC Global, Inc. (3,000) (47,813) ----------- AUTOMOTIVE PARTS & EQUIPMENT (12.4%) Autonation, Inc.** (12,800) (165,600) General Motors Corp. Cl-H (6,900) (355,350) Genuine Parts Co. (1,100) (31,763) Goodyear Tire & Rubber Co. (7,400) (415,325) ----------- (968,038) ----------- BUILDING & BUILDING MATERIALS (2.7%) Armstrong World Industries (3,400) (165,113) Johns Manville Corp. (3,000) (43,125) ----------- (208,238) ----------- BUSINESS SERVICES (2.4%) ACNielsen Corp.** (1,300) (32,500) Catalina Marketing Corp.** (1,700) (154,275) ----------- (186,775) ----------- COMMUNICATIONS & MEDIA (4.5%) America Online (2,100) (191,756) Chris-Craft Industries, Inc.** (1,600) (81,000) USA Networks, Inc. (1,700) (76,288) ----------- (349,044) ----------- COMPUTERS, SOFTWARE & SERVICING (1.2%) Tandy Corp. (2,000) (94,500) ----------- CONGLOMERATES (0.3%) General Electric Co. (200) (22,463) ----------- CONSUMER PRODUCTS & SERVICES (6.4%) Colgate-Palmolive Co. (2,900) (155,150) Fruit of The Loom, Inc. Cl. A (2,400) (16,800) Gillette Co. (3,300) (153,863) Newell Rubbermaid, Inc. (2,200) (90,200) Whitman Corp. (5,000) (83,438) ----------- (499,451) ----------- ELECTRIC UTILITIES (1.2%) Unicom Corp. (2,500) (96,563) ----------- See Accompanying Notes to Financial Statements. 9 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 1999 - ----------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ------ SECURITIES SOLD SHORT (CONT'D) ELECTRONICS (6.6%) Atmel Corp.** (11,700) $ (459,956) Vishay Intertechnology** (2,450) (52,522) ----------- (512,478) ----------- ENERGY & OIL EXPLORATION (4.6%) Baker Hughes, Inc. (2,500) (85,000) USX - Marathon Group (2,000) (62,250) Weatherford International, Inc.** (6,000) (213,750) ----------- (361,000) ----------- ENVIRONMENTAL SERVICES (0.2%) Waste Management, Inc. (600) (13,088) ----------- FINANCIAL SERVICES (15.6%) American Financial Group (3,900) (115,050) American International Group Inc. (750) (69,516) Bank of America Corp. (5,100) (308,550) CCB Financial Corp. (1,100) (51,975) Charles Schwab Corp. (2,000) (79,000) Cincinnati Financial Corp. (1,100) (43,588) MBIA, Inc. (3,200) (166,000) MGIC Investment Corp. (2,400) (104,250) People's Bank/Connecticut (2,100) (55,125) PMI Group, Inc. (750) (31,875) Union Planters Corporation (2,300) (97,031) Wachovia Corp. (1,200) (94,050) ----------- (1,216,010) ----------- FOOD & BEVERAGE (0.9%) Coca-Cola Co. (1,100) (65,794) ----------- HEALTH CARE (1.1%) PE Corp.-PE Biosystems Group (1,200) (82,575) ----------- INDUSTRIAL GOODS & MATERIALS (0.7%) Owens-Illinois, Inc.** (600) (14,850) Southdown, Inc. (700) (35,350) ----------- (50,200) ----------- MEDICAL EQUIPMENT (2.3%) Beckman Coulter, Inc. (3,800) (180,025) ----------- OFFICE EQUIPMENT & SUPPLIES (2.8%) Harland ( John H. ) Co. (10,900) (216,638) ----------- See Accompanying Notes to Financial Statements. 10 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 1999 - ----------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ------ SECURITIES SOLD SHORT (CONT'D) OIL SERVICES (2.8%) Amerada Hess Corp. (3,500) $ (217,219) ----------- PAPER & FORESTRY PRODUCTS (4.8%) Bowater Inc. (7,000) (375,375) ----------- PHARMACEUTICALS (1.5%) Dura Pharmaceuticals** (2,000) (26,625) Forest Laboratories, Inc.** (1,300) (62,969) Monsanto Co. (600) (24,638) ----------- (114,232) ----------- REAL ESTATE (2.4%) Archstone Communities Trust (1,600) (34,200) Starwood Hotels & Resorts Worldwide, Inc. (700) (16,669) Vornado Realty Trust (4,000) (136,500) ----------- (187,369) ----------- RETAIL-SPECIALTY APPAREL STORES (2.9%) Gap, Inc. (1,500) (58,688) Ikon Office Solutions (7,300) (81,213) Kohls Corp.** (1,200) (85,500) ----------- (225,401) ----------- TELECOMMUNICATIONS (6.5%) AT&T Corp.-Liberty Media Group Cl. A** (1,100) (35,200) Cabletron Systems, Inc.** (4,700) (79,019) Citizens Utilities Co. Cl. B (2,700) (29,700) McLeodUSA, Inc. Class A** (10,800) (360,450) ----------- (504,369) ----------- TRANSPORTATION (0.5%) Wisconsin Central Transportation Corp (2,600) (41,438) ----------- TOTAL SECURITIES SOLD SHORT (Cost $6,989,392) $(7,078,190) ----------- REPURCHASE AGREEMENT--3.4% Par Bear Stearns (Agreement dated (000) 08/31/99, to be repurchased at ---- $266,930, collateralized by $235,000 U.S. Treasury Bond 9.375% due 02/15/06. Market Value of collateral is $275,526.) 5.430% 09/01/99 $267 $ 266,889 (Cost $266,889) ----------- See Accompanying Notes to Financial Statements. 11 WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND SCHEDULE OF INVESTMENTS (CONT'D) August 31, 1999 - ----------------------------------------------------------------------------- VALUE ------ TOTAL INVESTMENTS--0.6% (Cost $433,846*) $ (43,586) OTHER ASSETS IN EXCESS OF LIABILITIES--100.6% 7,829,167 ----------- TOTAL NETASSETS-- 100.0% $ 7,785,581 =========== * Cost for Federal income tax purposes at August 31, 1999 is $1,638,288. The gross appreciation (depreciation) on a tax basis is as follows: Gross Appreciation - Investments $ 133,371 Gross Depreciation - Investments (833,185) Gross Appreciation - Short Sales 48,770 Gross Depreciation - Short Sales (1,030,830) ------------ Net Depreciation $(1,681,874) =========== ** Non-income producing securities. See Accompanying Notes to Financial Statements. 12 WARBURG PINCUS LONG-SHORT EQUITY FUND SCHEDULE OF INVESTMENTS August 31, 1999 - ----------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------- ------ INVESTMENT COMPANY 90.1% Warburg Pincus Long-Short Market Neutral Fund, Institutional Shares (Cost $1,128,538) 75,910 $1,078,687 ---------- TOTAL INVESTMENTS 90.1% (Cost $1,128,538*) $1,078,687 ---------- OTHER ASSETS IN EXCESS OF LIABILITIES 9.9% 118,837 ---------- TOTAL NET ASSETS 100.0% $1,197,524 ========== * Cost for Federal income tax purposes at August 31, 1999 is $1,155,006. The gross appreciation (depreciation) on a tax basis is as follows: Gross and Net Depreciation $ (76,319) =========== See Accompanying Notes to Financial Statements. 13 WARBURG PINCUS FUNDS STATEMENTS OF ASSETS AND LIABILITIES August 31, 1999 - -------------------------------------------------------------------------------- LONG-SHORT MARKET NEUTRAL LONG-SHORT FUND EQUITY FUND -------------- ------------ ASSETS Investments, at value (cost - $7,423,238 and $1,128,538, respectively) $ 7,034,604 $1,078,687 Deposits with brokers and custodian bank for securities sold short or futures contracts 7,870,099 64 Cash -- 50,726 Receivable for investments sold -- 55,415 Receivable from investment adviser -- 65,537 Receivable on open futures contracts -- 6,570 Dividends and interest receivable 25,016 202 Prepaid expenses and other assets 16,531 -- ----------- ---------- Total Assets 14,946,250 1,257,201 ----------- ---------- LIABILITIES Securities sold short (proceeds $6,989,392 for Long-Short Market Neutral Fund) 7,078,190 -- Payable for Fund shares repurchased 55,415 -- Advisory fee payable 6,982 -- Distribution fee payable (Common shares) 6,341 513 Accrued expenses payable 13,741 59,164 ----------- ---------- Total Liabilities 7,160,669 59,677 ----------- ---------- NET ASSETS Capital stock, $0.001 par value 548 72 Paid-in capital 9,323,000 1,877,605 Undistributed net investment income 385,836 -- Accumulated net realized loss from investments, securities sold short and futures, if any (1,446,371) (636,904) Net unrealized depreciation on investments and other, if any (477,432) (43,249) ----------- ---------- Net Assets $ 7,785,581 $1,197,524 ----------- ---------- INSTITUTIONAL SHARES Net assets $ 5,900,706 $ 109,237 ----------- ---------- Shares outstanding 415,181 6,592 ----------- ---------- Net asset value, offering price and redemption price per share $ 14.21 $ 16.57 =========== ========== COMMON SHARES Net assets $ 1,884,875 $1,088,287 ----------- ---------- Shares outstanding 132,798 65,910 ----------- ---------- Net asset value, offering price and redemption price per share $ 14.19 $ 16.51 =========== ========== See Accompanying Notes to Financial Statements. 14 WARBURG PINCUS FUND STATEMENTS OF OPERATIONS For the Year Ended August 31, 1999 - -------------------------------------------------------------------------------- LONG-SHORT MARKET NEUTRAL LONG-SHORT FUND EQUITY FUND -------------- ----------- INVESTMENT INCOME Dividends $ 267,060 $ 178 Interest 897,074 33,753 Foreign taxes withheld (38) -- ----------- ---------- Total Investment Income 1,164,096 33,931 ----------- ---------- Expenses Investment advisory fees 291,148 4,332 Administration fees 31,235 7,383 Custodian fees 66,711 8,742 Audit fees 12,567 3,619 Printing fees 2,629 38,520 Registration fees 42,670 48,439 Legal fees 20,857 31,651 Transfer agent fees 11,042 19,289 Insurance expense 10,287 1,822 Directors fees 13,001 12,467 Dividend expense 244,307 -- Interest expense 2,475 -- Distribution fees 25,941 9,838 Miscellaneous fees 4,242 4,416 ----------- ---------- 779,112 190,518 Less fees waived and reimbursed (114,610) (70,941) ----------- ---------- Total Expenses 664,502 119,577 ----------- ---------- Net Investment Income/(Loss) 499,594 (85,646) ----------- ---------- Realized and Unrealized Gain/(Loss) on Investments, Futures and Securities Sold Short Net realized gain/(loss) from: Security transactions 4,455,545 (973,466) Futures tranactions -- 360,202 Securities sold short (5,585,519) -- ----------- ---------- (1,129,974) (613,264) ----------- ---------- Net change in unrealized appreciation/(depreciation): Investments (685,565) (49,851) Futures -- 6,602 ----------- ---------- (685,565) (43,249) ----------- ---------- Net Loss On Investments, Futures and Securities Sold Short (1,815,539) (656,513) ----------- ---------- Net Decrease In Net Assets Resulting From Operations $(1,315,945) $ (742,159) =========== ========== - --------------------- * Inception Date September 11, 1998. See Accompanying Notes to Financial Statements. 15 WARBURG PINCUS FUNDS STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
LONG-SHORT LONG-SHORT MARKET NEUTRAL FUND EQUITY FUND ---------------------------------- -------------------- FOR THE YEAR FOR THE PERIOD FOR THE PERIOD ENDED JULY 31, 1998* SEPTEMBER 11, 1998* AUGUST 31, 1999 TO AUGUST 31, 1998 TO AUGUST 31, 1999 --------------- ------------------ ------------------- INCREASE/(DECREASE) IN NET ASSETS: OPERATIONS: Net investment income/(loss) $ 499,594 $ 21,200 $ (85,646) Net gain/(loss) on investments, futures and securities sold short (1,815,539) 89,659 (656,513) ---------- ---------- ---------- Net increase/(decrease) in net assets resultingfrom operations (1,315,945) 110,859 (742,159) ---------- ---------- ---------- Dividends and Distributions to shareholders: From net investment income: Institutional shares (30,279) -- -- Common shares (90,662) -- -- From net realized capital gains: Institutional shares (52,082) -- (13,656) Common shares (159,858) -- (338) From capital: Institutional shares -- -- (15,857) Common shares -- -- (388) ---------- ---------- ---------- Total distributions to shareholders (332,881) -- (30,239) ---------- ---------- ---------- Net capital share transactions 3,132,125 6,191,423 1,969,922 ---------- ---------- ---------- Total increase in net assets 1,483,299 6,302,282 1,197,524 NET ASSETS: Beginning of period 6,302,282 -- -- ---------- ---------- ---------- End of period $7,785,581 $6,302,282 $1,197,524 ========== ========== ========== - ---------------------- * Inception Date.
See Accompanying Notes to Financial Statements. 16 WARBURG PINCUS FUNDS LONG-SHORT MARKET NEUTRAL FUND FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout Each Period) - --------------------------------------------------------------------------------
INSTITUTIONAL COMMON ----------------------------- ------------------ FOR THE YEAR FOR THE PERIOD ENDED JULY 31, 1998* FOR THE PERIOD AUGUST 31, TO AUGUST 31, SEPTEMBER 8, 1998* 1999 1998 TO AUGUST 31, 1999 ------------ -------------- ------------------ Net asset value, beginning of period $15.27 $15.00 $15.19 ------ ------ ------ Income from investment operations Net investment income 0.39(DAGGER) 0.05 0.32(DAGGER) Net gain/(loss) on investments and securities sold short (both realized and unrealized) (1.25) 0.22 (1.12) ------ ------ ------ Total from investment operations (0.86) 0.27 (0.80) ------ ------ ------ Less Distributions Dividends from net investment income (0.07) -- (0.07) Distributions from capital gains (0.13) -- (0.13) ------ ------ ------ Total distributions (0.20) -- (0.20) ------ ------ ------ Net asset value, end of period $14.21 $15.27 $14.19 ====== ====== ====== Total return (5.68)% 1.80%(c) (5.33)%(c) Ratios/Supplemental Data: Net assets, end of period (000s omitted) $5,901 $6,302 $1,885 Ratio of expenses to average net assets (including dividend expense) 3.33%(a) 4.32%(a)(b) 3.40%(a)(b) Ratio of expenses to average net assets (excluding dividend expense) 2.00%(a) 2.00%(a)(b) 2.24%(a)(b) Ratio of net investment income (loss) to average net assets 2.65% 1.96%(b) 2.46%(b) Fund turnover rate 705% 130%(c) 705% - ------------------ (a) 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 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 2.84% (excluding dividend expense) and 4.00% (including dividend expense) annualized for the period ended August 31, 1999. (b) Annualized. (c) Not Annualized. * Inception Date. (DAGGER) Per share information is calculated using the average share outstanding method.
See Accompanying Notes to Financial Statements. 17 WARBURG PINCUS FUNDS LONG-SHORT EQUITY FUND FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout Each Period) - --------------------------------------------------------------------------------
INSTITUTIONAL COMMON -------------------- ----------------- FOR THE PERIOD FOR THE PERIOD SEPTEMBER 11, 1998* OCTOBER 30, 1998* TO AUGUST 31, 1999 TO AUGUST 31, 1999 -------------------- ------------------ Net asset value, beginning of period $15.00 $15.72 ------ ------ Income from investment operations Net investment loss (0.09)(DAGGER) (0.07)(DAGGER) Net gain on investments and futures (both realized and unrealized) 2.11 1.31 ------ ------ Total from investment operations 2.02 1.24 ------ ------ Less Distributions Distributions from capital gains (0.21) (0.21) Return of capital (0.24) (0.24) ------ ------ Total distributions (0.45) (0.45) ------ ------ Net asset value, end of period $16.57 $16.51 ====== ====== Total return 13.42%(c) 7.82%(c) Ratios/Supplemental Data: Net assets, end of period (000s omitted) $109 $1,088 Ratio of expenses to average net assets 2.48%(a)(b) 2.79%(a)(b) Ratio of net investment income (loss) to average net assets 0.76%(b) (2.26)%(b) Fund turnover rate 951%(c) 951%(c) - -------------------------------------------------------------------------------- (a) 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 4.12% annualized for the period ended August 31, 1999. 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 4.43% annualized for the period ended August 31, 1999. (b) Annualized. (c) Not Annualized. * Inception Date. (DAGGER) Per share information is calculated using the average share outstanding method.
See Accompanying Notes to Financial Statements. 18 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS August 31, 1999 - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Warburg Pincus Funds covered in this report are comprised of Warburg, Pincus Long-Short Market Neutral Fund, Inc. ("Long-Short Neutral") and Warburg, Pincus Long-Short Equity Fund, Inc. ("Long-Short Equity"), (each, a "Fund" and collectively, the "Funds"), which are registered under the Investment Company Act of 1940 , as amended (the "1940 Act"), as non-diversified open-end management investment companies. Each Fund is authorized to offer three classes of shares: Common, Advisor and Institutional, although only Common shares and Institutional shares of each Fund are currently offered. Common shares for each Fund bear expenses paid pursuant to a shareholder servicing and distribution 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 a co-administrative fee. On October 23, 1998, pursuant to an Agreement and Plan of Reorganization, each Fund acquired all of the assets and liabilities of a corresponding investment series of The RBB Fund, Inc. (each an "Acquired Fund" and collectively, the "Acquired Funds"). The acquisitions were accomplished by a tax-free exchange of the following shares of each Fund in each case for the same amount of shares of the corresponding class of the applicable Acquired Fund. Shares were reissued to shareholders at the time of the reorganization. FUND COMMON SHARES INSTITUTIONAL SHARES -------------------------- ------------- -------------------- Long-Short Neutral -- $310,521 Long-Short Equity -- 7,168 The net assets of each Fund directly after the reorganization were the same as the corresponding Acquired Fund as described in the table below. Each Fund assumed the prior operating history of the corresponding Acquired Fund. UNREALIZED FUND NET ASSETS APPRECIATION/(DEPRECIATION)* ------ ------------ ----------------------------- Long-Short Neutral $4,693,517 $26,972 Long-Short Equity 109,073 (2,142) Certain of the Funds are permitted to engage in the investment strategies described in the Notes to Financial Statements. The Funds are not obligated to pursue any of the following strategies and do not represent that these techniques are available now or will be available at any time in the future. Please refer to each Fund's prospectus(es) and statements of additional information for a description of its investment strategies. - -------------------- * The amount of each Fund's net assets includes the amount of unrealized appreciation/(depreciation) listed above. 19 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A) SECURITY VALUATION -- The net asset value of each Fund is determined daily as of the close of regular trading on The New York Stock Exchange Inc. Each 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 a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. B) FOREIGN CURRENCY TRANSACTIONS -- Transactions denominated in foreign currencies are recorded in each Fund's records at the current prevailing exchange rates. Asset and liability accounts that are denominated in a foreign currency are adjusted daily to reflect current exchange rates. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. It is not practical to isolate that portion of both realized and unrealized gains and losses on investments in the statement of operations that result from fluctuations in foreign currency exchange rates. Each Fund reports certain foreign currency related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income (loss) for Federal income tax purposes. C) 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 Fund or class are allocated based on relative net assets of each Fund and class, respectively. D) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Each 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. 20 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Long-Short Neutral and Long-Short Equity will distribute substantially all of its net realized capital gains and all net investment income, if any, to its shareholders at least annually. 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, paydowns on mortgage-backed securities, passive foreign investment companies, and forward foreign currency contracts. To the extent these differences are permanent in nature, such amounts are reclassified within capital accounts based on their U.S. federal tax-basis treatment. Temporary differences do not require reclassification. At August 31, 1999, Long-Short Neutral and Long-Short Equity reclassified $(2,533) and $9,644, respectively, from accumulated net realized gain/(loss) to undistributed net investment income. Long-Short Equity reclassified $(82,601) from accumulated net investment income/(loss) to capital contributions. Long-Short Equity reclassified $(9,644) from accumulated net realized gain/(loss) to capital contributions. E) FEDERAL INCOME TAXES -- No provision is made for Federal taxes as it is each 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. F) 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. 21 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- Note 1. Summary of Significant Accounting Policies (Continued) G) 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 each Fund's custodian or an authorized securities depository. Long-Short Neutral had an open repurchase agreement at August 31, 1999. H) 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. Certain Fund's may enter into futures contracts subject to certain limitations. Upon entering into a futures contract, each 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 a Fund could lose more than the original margin deposit required to initiate a futures transaction. 22 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) As of August 31, 1999, Long-Short Equity held the following futures contracts: FUTURES EXPIRATION CONTRACT CONTRACT UNREALIZED CONTRACTS DATE AMOUNT VALUE GAIN/LOSS --------- ---------- -------- -------- ---------- S&P 500 Index Futures 09/16/99 $ 983,475 $ 989,850 $ 6,375 S&P 500 Mini Futures 09/17/99 197,775 197,970 195 I) OPTION TRANSACTIONS -- When a Fund writes or purchases a call or a put option, an amount equal to the premium received or paid by the Fund 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 Fund realizes a gain or loss equal to the amount of the premium received or paid. When the Fund exercises an option or enters into a closing transaction by purchasing or selling an offsetting option, it realizes a gain or loss without regard to any unrealized gain or loss to 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. J) TBA PURCHASE COMMITMENTS -- The Funds may enter into "TBA" (to be announced) purchases commitments to purchase securities for a fixed price at a future date, typically not exceeding 45 days. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date. This risk is in addition to the risk of decline in each Fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security Valuation" above. K) SECURITIES LENDING -- Loans of 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 Funds 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. Neither of the Funds had securities on loan to brokers at August 31, 1999. 23 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L) SHORT SALES -- When a 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. A 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. A Fund will realize a gain if there is a decline in price of the security between those dates, which decline exceeds the cost of the borrowing the security and other transaction costs. There can be no assurance that a Fund will be able to close out a short position at any particular time or at an acceptable price. Although a 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 a Fund replaces a borrowed security, it will maintain at all times cash or 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, a Fund may not receive any payments (including interest) on collateral deposited with them. Long-Short Neutral and Long-Short Equity 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. M) OTHER -- Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. Some countries in which the Funds invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is a deterioration in a country's balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by each Fund may be inhibited. In addition, a significant proportion of the aggregate market value of equity securities listed on the major securities exchanges in emerging markets are held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by a Fund. 24 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Lower-rated debt securities (commonly known as "junk bonds") possess speculative characteristics and are subject to greater market fluctuations and risk of lost income and principal than higher-rated debt securities for a variety of reasons. Also, during an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress which would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals and to obtain additional financing. In addition, periods of economic uncertainty and change can be expected to result in increased volatility of market prices of lower-rated debt securities and (to the extent a Fund invest in junk bonds) the Fund's net asset value. NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES Effective July 6, 1999, the Funds' investment adviser, Credit Suisse Asset Management became Credit Suisse Asset Management, LLC. In addition, in connection with the closing of the acquisition of Warburg Pincus Asset Management, Inc. by Credit Suisse Group, Warburg Pincus Asset Management, Inc. was merged into Credit Suisse Asset Management, LLC. Credit Suisse Asset Management had previously changed its name from BEA Associates effective January 1, 1999. Pursuant to Investment Advisory Agreements, Credit Suisse Asset Management, LLC ("CSAM") an indirect, wholly-owned subsidiary of Credit Suisse Group, serves as investment advisor for each of the two Funds described herein. For its advisory services, CSAM is entitled to receive from Long-Short Equity a monthly fee equal to an annual rate of 0.10% of the Fund's average daily net assets. 25 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED) For Long-Short Neutral, 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, starting in the thirteenth month of operation, 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 $3,395 or .50% 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 twelve months ended August 31, 1999. CSAM may, at its discretion, voluntarily waive all or any portion of its advisory fee for any of the Funds. For the year ended August 31, 1999 advisory fees and waivers for each of the two investment Funds were as follows: GROSS NET FUND ADVISORY FEE WAIVER ADVISORY FEE ------ ------------ ---------- ------------ Long-Short Neutral $291,148 $(97,341) $193,807 Long-Short Equity 4,332 (4,332) -- CSAM reimbursed expenses of Long-Short Equity in the amount of $66,605 for the year ended August 31, 1999. State Street Bank and Trust Company ("State Street"), serves as each 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. Counsellors Funds Service, Inc. ("CFSI"), a wholly-owned subsidiary of Credit Suisse Asset Management, LLC, and PFPC, Inc. ("PFPC"), an indirect, wholly-owned subsidiary of PNC Bank Corp., serve as each Fund's co-administrator. For administration services, each Fund, pays CFSI a fee calculated at an annual rate .05% of the Fund's first $125 million in average daily nets 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 Funds to CFSI for co-administration services for the Institutional shares. CFSI may, at its discretion, voluntarily waive all or any portion of its co-administration fees for any of the Funds. For the period October 24, 1998 to August 31, 1999, co-administration fees earned by CFSI on the Common shares were as follows: 26 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED) GROSS NET FUND ADMINISTRATION FEE WAIVER ADMINISTRATION FEE ------ ------------------ ---------- ------------------ Long-Short Neutral $5,180 $(4,144) $1,036 Long-Short Equity 1,968 -- 1,968 Prior to October 23, 1998, Provident Distributors, Inc. ("PDI") served as administrative service agent. An administrative service fee was computed daily and payable quarterly at an annual rate of .15% of the average daily net assets of each Fund's corresponding portfolio of The RBB Fund. The administrative agent may at its discretion voluntarily waive all or any portion of its administrative fee for any of the Funds. For the period September 1, 1998 through October 23, 1998, administrative service fees earned and waived by PDI were as follows: GROSS ADMINISTRATIVE NET ADMINISTRATIVE FUND SERVICE FEE WAIVER SERVICE FEE ------ -------------------- --------- ------------------ Long-Short Neutral $1,510 $(1,224) $286 Long-Short Equity 3 (3) -- For administration services, PFPC currently receives a fee calculated at annual rate of .125% on each Fund's average daily net assets, 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 any of the Funds. For the year ended August 31, 1999, the co-administration fees earned and waived by PFPC were as follows: GROSS ADMINISTRATIVE NET ADMINISTRATIVE FUND SERVICE FEE WAIVER SERVICE FEE ------ -------------------- --------- ------------------ Long-Short Neutral $24,545 $(11,902) $12,643 Long-Short Equity 5,412 -- 5,412 Credit Suisse Asset Management Securities Inc. ("CSI"), also a wholly-owned subsidiary of Credit Suisse Asset Management, LLC, serves as each Fund's distributor. No compensation is payable by any Fund to CSI for its distribution services for Institutional shares. For its distribution services for the Common shares, CSI receives a fee calculated at an annual rate .25% of the average daily net assets of the Common shares of each Fund. For the year ended August 31, 1999, distribution fees earned by CSI were as follows: FUND DISTRIBUTION FEE ------ ---------------- Long-Short Neutral $25,941 Long-Short Equity 9,838 27 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 3. PURCHASES AND SALES OF SECURITIES For the period ended August 31, 1999, purchases and sales of investment securities (other than short-term investments) were as follows: INVESTMENT SECURITIES SHORT SECURITIES -------------------------- ------------------ FUND PURCHASES SALES SALES ------ ------------ ----------- ----------- Long-Short Neutral $121,662,548 $59,668,602 $60,494,767 Long-Short Equity 34,374,838 32,274,697 -- NOTE 4. CAPITAL SHARES Transactions in capital shares for each period were as follows:
LONG-SHORT MARKET NEUTRAL FUND ------------------------------------------------------------------------------------------- INSTITUTIONAL COMMON --------------------------------------------------------- ---------------------------------- FOR THE YEAR ENDED FOR THE PERIOD JULY 31, 1998* FOR THE PERIOD SEPTEMBER 8, 1998* AUGUST 31, 1999 THROUGH AUGUST 31, 1998 THROUGH AUGUST 31, 1999 ------------------------ ----------------------------- ---------------------------------- SHARES VALUE SHARES VALUE SHARES VALUE ---------- ----------- ----------- ---------- ----------- ------------ Shares sold 2,702,645 $40,468,228 412,744 $6,191,423 3,454,318 $ 51,387,127 Shares issued in reinvestment of dividends 5,561 82,361 -- -- 16,915 250,336 Shares repurchased (2,705,769) (39,525,343) -- -- (3,338,435) (49,530,584) ---------- ----------- ------- ---------- ---------- ------------ Net increase 2,437 $ 1,025,246 412,744 $6,191,423 132,798 $ 2,106,879 ========== =========== ======= ========== ========== ============ *Inception Date.
LONG-SHORT EQUITY FUND ----------------------------------------------------------- INSTITUTIONAL COMMON ---------------------------------- -------------------------------- FOR THE PERIOD SEPTEMBER 11, 1998* FOR THE PERIOD OCTOBER 30, 1998* THROUGH AUGUST 31, 1999 THROUGH AUGUST 31, 1999 ---------------------------------- -------------------------------- SHARES VALUE SHARES VALUE ---------- ---------- ---------- ----------- Shares sold 65,686 $ 1,009,786 2,009,319 $ 35,443,765 shares issued in reinvestment of dividends 1,757 29,512 43 720 Shares repurchased (60,851) (1,011,801) (1,943,452) (33,502,061) ------- ----------- ---------- ------------ Net increase 6,592 $ 27,497 65,910 $ 1,942,424 ===== =========== ========== ============
28 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 4. CAPITAL SHARES (CONTINUED) On August 31, 1999, the number of shareholders that held 5% or more of the outstanding shares are as follows: Number of Approximate Percentage Shareholders of Outstanding Shares ------------ ---------------------- Long-Short Market Neutral Institutional shares 7 81.02 Long-Short Market Neutral Common shares 4 94.94 Long-Short Equity Institutional shares 1 100.00 Long-Short Equity Common shares 1 91.44 NOTE 5. FORWARD FOREIGN CURRENCY CONTRACTS The Funds will generally enter into forward foreign currency exchange contracts as a way of managing foreign exchange rate risk or to enhance total return. Each Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. Each Fund may also use these contracts to hedge the U.S. dollar value of securities denominated in foreign currencies that it already owns. The Fund may enter into these contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross-hedge against either transactions or portfolio positions. Forward foreign currency contracts are valued at the forward rate, and are marked-to-market daily. The change in market value is recorded by each Fund as an unrealized gain or loss. When the contract is closed, each Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. 29 WARBURG PINCUS FUNDS NOTES TO FINANCIAL STATEMENTS (CONT'D) August 31, 1999 - -------------------------------------------------------------------------------- NOTE 5. FORWARD FOREIGN CURRENCY CONTRACTS (CONTINUED) Each Fund's policy is to include this portion of realized and unrealized gains and losses on investments that result from foreign currency changes with other foreign currency gains and losses on the Statement of Operations. The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of each Fund's portfolio securities, but it does establish a rate of exchange that can be achieved in the future. Although forward foreign currency contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the counterparty to the contract is unable to meet the terms of their contract. During the year ended August 31, 1999 neither Fund entered into forward foreign currency contracts. NOTE 6. LINE OF CREDIT The Funds, together with other funds advised by CSAM, have established a $250 million committed line of credit facility ("Credit Facility") with Deutche Bank, AG as administrative agent, State Street Bank and Trust Company as operations agent, Bank of Nova Scotia as syndication agent and certain other lenders, for temporary or emergency purposes primarily relating to unanticipated portfolio share redemptions. 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 average daily balance of the Credit Facility that is undisbursed and uncanceled during the preceding quarter 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%. During the year ended August 31, 1999, neither Fund had borrowings under the line of credit agreement. 30 WARBURG PINCUS FUNDS REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders Of Warburg Pincus Long-Short Market Neutral Fund and Warburg Pincus Long-Short Equity Fund: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments of Warburg Pincus Long-Short Market Neutral Fund and Warburg Pincus Long-Short Equity Fund (all funds collectively referred to as the "Funds ), 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 the Funds at August 31, 1999, and the results of each of their operations for the year (or period) then ended, the changes in each of 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 Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1999 by correspondence with the custodians, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 2400 Eleven Penn Center Philadelphia, PA October 7, 1999 31 WARBURG PINCUS FUNDS TAX INFORMATION LETTERS August 31, 1999 - -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION FOR CORPORATE SHAREHOLDERS (UNAUDITED) Corporate shareholders should note that for the fiscal year ended August 31, 1999, the percentage of Fund's investment income (i.e., net investment income plus short-term capital gains) that qualifies for the intercorporate dividends received deductions is as follows: PERCENTAGE ----------- Warburg Pincus Long-Short Market Neutral Fund 20.78% IMPORTANT TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED) During the year ended August 31, 1999, the Funds declared the following dividends from realized capital gains: SHORT-TERM LONG-TERM CAPITAL GAIN CAPITAL GAIN PER SHARE PER SHARE ---------- ---------- Warburg Pincus Long Short Market Neutral Fund 0.1266 -- Warburg Pincus Long-Short Equity Fund 0.1433 0.2079 32 WARBURG PINCUS FUNDS YEAR 2000 COMPLIANCE NOT COVERED BY INDEPENDENT ACCOUNTANTS REPORT Many services provided to the Fund's and their shareholders by CSAM and certain of its affiliates ("CSAMService Providers") and the Fund's other service providers rely on the functioning of their respective computer systems. Many computer systems cannot distinguish the year 2000 from the year 1900, resulting in potential difficulty in performing various calculations ("Year 2000 Issue"). The Year 2000 could potentially have an adverse impact on the handling of security trades, the payment of interest and dividends, pricing, account services and other Fund operations. It has been reported that foreign institutions have made less progress in addressing the Year 2000 Issue than major U.S. entities, which could adversely affect the portfolios' foreign investments. The CSAM Service Providers recognize the importance of the Year 2000 Issue and are taking appropriate steps necessary in preparation for the year 2000. The CSAM Service Providers anticipate that their systems and those of the Fund's other service providers will be adapted in time for the Year 2000. The CSAM Service Providers have completed mission critical systems testing and have participated in industry-wide testing programs. In addition, the CSAM Service Providers are formulating a contingency plan to address the Year 2000 Issue and anticipate completion of the plan by the end of the third quarter of 1999. The CSAM Service Providers have also completed investigations of material operations of the Fund's other major service providers. The CSAM Service Providers continue to monitor the Year 2000 Issue and its potential impact on the Funds. However, there can be no assurance that these steps will be sufficient to avoid any adverse impact on the Funds nor can there be any assurance that the Year 2000 Issue will not have an adverse effect on the Fund's investments or on global markets or economics, generally. 33 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [GRAPHIC OMITTED] P.O. BOX 9030, BOSTON, MA 02205-9030 800-WARBURG (800-927-2874) (BOX) www.warburg.com CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. 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