-----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, UAzvl2EqANwUM4IKLHgTxPPluSAXLE73uZdsxCtQBg5WcGf1Y+I8FaAI3U2y9JPQ 8XY3m30kCUDTqnOXGXP8BQ== 0000950115-99-000629.txt : 19990430 0000950115-99-000629.hdr.sgml : 19990430 ACCESSION NUMBER: 0000950115-99-000629 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990429 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: 99604373 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARBURG PINCUS LONG SHORT EQUITY FUND INC CENTRAL INDEX KEY: 0001067477 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08929 FILM NUMBER: 99604374 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 SEMI-ANNUAL REPORT SEMIANNUAL REPORT February 28, 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. [WARBURG PINCUS LOGO] 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 valve, 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 February 28, 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. Warburg Pincus Long-Short Market Neutral Fund Portfolio Managers' Letter -- February 28, 1999 - -------------------------------------------------------------------------------- April 20, 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 half-year ended February 28, 1999. At February 28, 1999, the net asset value ("NAV") of the Fund's Institutional shares was $14.89, compared to an NAV of $15.27 on August 31, 1998. As a result, the Institutional shares' total return was down 1.2% (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(1) (the "Index") returned 2.0% during the same period. At February 28, 1999, the NAV of the Fund's Common shares was $14.88, compared to an NAV of $15.19 at their inception of investment operations on September 8, 1998. The Common shares' total return between September 8, 1998 and February 28, 1999 thus was down 0.7% (assuming the reinvestment of dividends and distributions totaling $0.20 per share). By comparison, the Index returned 1.9% during the same period. The Fund's underperformance of its Index benchmark was primarily due to our emphasis on two of the five "drivers" that we believe contribute most to appreciation in stock prices. The first of these was good valuation, which was attractively low for many companies following the global sell-off in equities in the summer of 1998. The second was improvement both in earnings strength and earnings expectations. Unfortunately for the Fund, we chose to highlight these drivers during a period when investors appeared to be much more concerned with choosing an investment theme for the market than with selecting stocks on the basis of company fundamentals. Among individual holdings, returns were particularly strong for two long positions: Broadcom, a manufacturer of bandwidth-enhancing semiconductor chips that started the period with a relatively reasonable valuation and whose earnings growth was accelerating; and Southwest Airlines Co., whose emphasis on cost-efficiency helped its earnings to grow faster than those of its peers. A short position that proved particularly unsuccessful was Netscape Communications. We sold this stock short based on its extraordinarily high valuation and rapidly declining fundamentals, but it rose significantly on the news that America Online intended to acquire it. 1 Warburg Pincus Long-Short Market Neutral Fund Portfolio Managers' Letter -- February 28, 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 Equity Management Team William W. Priest, Jr., CEO 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. (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. 2 Warburg Pincus Long-Short Equity Fund Portfolio Managers' Letter -- February 28, 1999 - -------------------------------------------------------------------------------- April 20, 1999 Dear Shareholders: We are writing to report on the results of the Warburg Pincus Long-Short Equity Fund (the "Fund") for the fiscal half-year ended February 28, 1999. At February 28, 1999, the NAV of the Fund's Institutional shares was $16.76, 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 February 28, 1999 was 14.7% (assuming the reinvestment of dividends and distributions totaling $0.45 per share). By comparison, the Standard & Poor's 500 Index(1) (the "Index") returned 27.2% during the same period. At February 28, 1999, the NAV of the Fund's Common shares was $16.74, compared to an NAV of $15.72 at their inception of investment operations on October 30, 1998. The Common shares' total return between October 30, 1998 and February 28, 1999 thus was 9.3% (assuming the reinvestment of dividends and distributions totaling $0.45 per share). By comparison, the Index returned 13.2% during the same period. The Fund underperformed its Index benchmark due to two factors: o As a young portfolio that was (and is) small and growing, the Fund experienced disproportionate volatility as it absorbed comparatively substantial new investments. We fully expect that the Fund's relative performance will more closely track that of the Warburg Pincus Long-Short Market Neutral Fund, whose shares form its primary asset, as the Fund continues to grow larger. o We emphasized two of the five "drivers" that we believe contribute most to appreciation in stock prices. The first of these was valuation, which was attractively low for many companies following the global sell-off in equities in the summer of 1998. The second was improvement both in earnings strength and earnings expectations. Unfortunately for the Fund, we chose to highlight these drivers during a period when investors appeared to be much more concerned with choosing an investment theme for the market than with selecting stocks on the basis of company fundamentals. 3 Warburg Pincus Long-Short Equity Fund Portfolio Managers' Letter -- February 28, 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 Equity Management Team William W. Priest, Jr., CEO 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 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. 4 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments February 28, 1999 (Unaudited) - ------------------------------------------------------------------------------- Number of Shares Value --------- --------- COMMON STOCKS 86.7% Air Transport 3.5% Continental Airlines, Inc. Cl. B** 10,400 $ 360,100 Southwest Airlines Co. 18,900 569,362 --------- 929,462 --------- Automotive 10.0% Ford Motor Co. 5,900 349,944 General Motors Corp. 6,600 544,913 Johnson Controls, Inc. 18,900 1,162,350 Navistar International Corp. 14,400 619,200 --------- 2,676,407 --------- Business Services 0.2% Robert Half International, Inc. 1,800 64,800 --------- Chemicals 2.7% Air Products & Chemicals, Inc. 12,200 391,925 Lyondell Petrochemical Co. 24,800 331,700 --------- 723,625 --------- Communications & Media 1.7% A. H. Belo Corp. Cl. A 18,900 342,562 CBS Corp. 2,700 99,562 Comsat Corp. 600 17,550 --------- 459,674 --------- Computers, Software & Servicing 1.8% Cadence Design Systems** 5,000 120,312 GTECH Holdings** 4,100 92,762 Microsoft Corp. 1,800 270,225 --------- 483,299 --------- Construction & Building Materials 3.8% Caterpillar, Inc. 2,300 104,794 Ingersoll-Rand Co. 8,600 408,500 Lafarge Corp. 8,600 274,125 Masco Corp. 8,600 225,750 --------- 1,013,169 --------- Consumer Products 2.0% Avon Products 7,200 299,700 Nu Skin Enterprises, Inc.** 11,300 235,888 --------- 535,588 --------- See Accompanying Notes to Financial Statements. 5 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value --------- --------- COMMON STOCKS (cont'd) Electric Utilities 2.8% Niagara Mohawk Power 19,800 $ 289,575 Pinnacle West Capital 12,600 455,175 ---------- 744,750 ---------- Electronics 5.3% Broadcom Corp.** 3,600 216,675 Linear Technology Corp. 22,600 990,163 Teradyne, Inc. 1,400 66,675 UtiliCorp United Inc. 4,000 137,500 ---------- 1,411,013 ---------- Entertainment 1.3% Clear Channel Communications 5,900 354,000 ---------- Financial Services 15.8% AmSouth Bancorporation 6,800 319,600 Chubb Corp. (The) 900 53,775 Equitable Companies 1,800 121,613 Fannie Mae 800 56,000 First Union Corp. 1,800 95,963 Hartford Financial Services, Inc. 1,800 97,313 J.P. Morgan & Co. Inc. 3,600 401,175 Jefferson-Pilot Corp. 5,900 400,094 Lehman Brothers Holdings Inc. 10,800 572,400 Old Republic International 2,600 48,913 Regions Financial Corp. 7,200 273,600 SLM Holding 8,600 368,725 T. Rowe Price Associates, Inc. 5,400 166,388 Transamerica Corp. 10,800 783,675 20th Century Industries 5,900 112,838 UnionBanCal Corp. 10,800 339,525 ---------- 4,211,597 ---------- Food & Beverage 5.1% Coors, (Adolph) Cl. B 6,800 405,025 Fleming Companies, Inc. 47,300 348,838 SUPERVALU INC. 2,000 48,125 Tootsie Roll Industries 1,800 82,800 U.S. Foodservice** 10,000 464,375 ---------- 1,349,163 ---------- See Accompanying Notes to Financial Statements. 6 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value --------- --------- COMMON STOCKS (cont'd) Gas Utilities 0.3% Peoples Energy 2,300 $ 78,056 ---------- Health Care 3.0% Aetna Inc. 2,600 192,563 Shared Medical Systems Corp. 1,400 71,400 Stryker Corp. 2,300 108,675 Wellpoint Health Networks, Inc.** 5,400 425,925 ---------- 798,563 ---------- Manufacturing 2.9% Aeroquip-Vickers, Inc. 4,100 232,163 Honeywell Inc. 4,500 314,719 Tyco International Ltd. 3,000 223,313 ---------- 770,195 ---------- Metals & Mining 2.1% Bethlehem Steel Corp. 11,300 99,581 Freeport-McMoran Copper & Gold, Inc. 17,600 166,100 Phelps Dodge Corp. 2,700 130,950 Ryerson Tull, Inc. 8,600 156,950 ---------- 553,581 ---------- Oil & Gas Exploration 2.9% Cooper Cameron Corp.** 6,800 157,250 Helmerich & Payne 23,000 375,188 Smith International, Inc. 5,000 121,563 Tidewater Inc. 6,300 118,519 ---------- 772,520 ---------- Oil Services 1.8% PennzEnergy Co. 21,600 202,500 Pennzoil-Quaker State Co. 21,600 268,650 ---------- 471,150 ---------- Pharmaceuticals 0.2% Bergen Brunswig Corp. 1,900 46,431 ---------- Publishing & Information Services 0.4% Donnelley (R.R.) & Sons Co. 2,800 95,900 ---------- See Accompanying Notes to Financial Statements. 7 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value ------ ---------- COMMON STOCKS (cont'd) Real Estate 1.5% Host Marriott Corp. 5,869 $ 63,459 Kimco Realty 5,200 197,275 Simon Debartolo Group 5,900 150,081 ---------- 410,815 ---------- Rentals 0.3% Hertz Corp. 1,800 71,663 ---------- Retail 6.6% Dayton Hudson Corp. 2,700 168,919 Dollar Tree Stores** 2,300 92,000 Federated Department Stores, Inc.** 2,300 87,544 Office Depot.** 15,300 546,019 Sears Roebuck & Co. 2,300 93,438 TJX Companies 26,600 759,763 ---------- 1,747,683 ---------- Telecommunications 7.9% AirTouch Communications** 1,400 127,488 AT&T Corp. 9,500 780,188 General Instrument Corp.** 11,300 330,525 Northern Telecom Ltd. 2,700 156,769 Tellabs, Inc.** 7,200 576,450 Vitesse Semiconductor Corp.** 3,200 147,000 ---------- 2,118,420 ---------- Waste Management 0.8% Browning-Ferris Industries 7,200 226,800 ---------- TOTAL COMMON STOCKS (Cost $22,115,475) $23,118,324 ---------- See Accompanying Notes to Financial Statements. 8 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value --------- --------- SECURITIES SOLD SHORT (85.8%) Aerospace & Defense (2.9%) Lockheed Martin Corp. (20,600) $ (776,363) ---------- Agriculture (2.4%) IMC Global, Inc. (10,300) (205,356) Pioneer Hi-Bred International (18,900) (442,969) ---------- (648,325) ---------- Air Transport (1.2%) Delta Air Lines, Inc. (4,500) (273,656) US Airways Group, Inc. (1,100) (52,113) ---------- (325,769) ---------- Automotive (0.6%) Autoliv, Inc. (1,300) (49,400) Genuine Parts Co. (3,600) (107,775) ---------- (157,175) ---------- Building & Building Materials (3.2%) Armstrong World Industries (8,500) (418,094) Home Depot, Inc. (The) (2,700) (161,156) Johns Manville Corp. (10,300) (180,894) Lennar Corp. (3,600) (83,475) ---------- (843,619) ---------- Business Services (1.4%) ACNielsen Corp. (4,500) (117,000) Electronic Data Systems Corp. (5,400) (251,100) ---------- (368,100) ---------- Chemicals (0.2%) Cabot Corp. (2,200) (55,413) ---------- Communications & Media (2.3%) Time Warner, Inc. (4,500) (290,250) Univision Communications, Inc. - Cl. (2,200) (89,650) USA Networks, Inc. (5,800) (230,550) ---------- (610,450) ---------- Computers, Software & Servicing (0.3%) Hewlett-Packard Co. (1,200) (79,725) ---------- Conglomerates (1.0%) General Electric Co. (2,700) (270,844) ---------- See Accompanying Notes to Financial Statements. 9 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value --------- --------- SECURITIES SOLD SHORT (cont'd) Consumer Products (3.1%) Fruit of the Loom, Inc., Cl. A (7,600) $ (96,425) Gillette Co. (7,600) (407,550) Whitman Corp. (17,100) (324,900) ---------- (828,875) ---------- Electric Utilities (2.8%) Unicom Corp. (8,600) (305,838) Wisconsin Energy Corp. (17,100) (437,119) ---------- (742,957) ---------- Electronics (7.9%) Atmel Corp. (40,000) (687,500) General Motors Corp. Cl-H (28,000) (1,321,250) Vishay Intertechnology (6,700) (86,681) ---------- (2,095,431) ---------- Financial Services (17.5%) American Financial Group (13,900) (513,431) Bank America Corp. (21,500) (1,404,219) Capital One Financial Corporation (1,300) (165,913) CCB Financial Corp. (3,600) (186,975) Morgan Stanley Dean Witter Discover (10,800) (977,400) People's Bank/Connecticut (7,200) (201,600) Providian Financial Corp. (5,400) (551,475) Union Planters Corporation (7,600) (343,425) Wachovia Corp. (4,000) (340,250) Wesco Financial Corp. (200) (69,288) ---------- (4,753,976) ---------- Health Care (0.4%) Humana, Inc. (3,600) (63,000) United Healthcare (1,100) (54,244) ---------- (117,244) ---------- Industrial Goods & Materials (0.4%) Owens-Illinois, Inc. (2,200) (52,663) UNIFI Inc. (4,500) (54,281) ---------- (106,944) ---------- Medical Equipment (7.3%) Beckman Coulter, Inc. (13,000) (628,063) Perkin Elmer (11,900) (1,127,525) Raychem Corp. (8,100) (184,781) ---------- (1,940,369) ---------- See Accompanying Notes to Financial Statements. 10 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value --------- --------- SECURITIES SOLD SHORT (cont'd) Metals & Mining (0.7%) Battle Mountain Gold (53,000) $ (178,875) ----------- Office Equipment & Supplies (1.9%) Harland (John H.) Co. (36,900) (495,844) ----------- Oil & Gas Exploration (1.5%) Baker Hughes, Inc. (13,500) (243,000) USX - Marathon Group (7,600) (157,225) ----------- (400,225) ----------- Oil Services (2.6%) Amerada Hess Corp. (13,900) (630,713) Dynegy Inc. (4,500) (54,000) ----------- (684,713) ----------- Paper & Forest Products (4.4%) Georgia Pacific (14,400) (1,054,800) Kimberly-Clark Corp. (2,200) (103,950) ----------- (1,158,750) ----------- Pharmaceuticals (1.6%) Dura Pharmaceuticals (6,700) (94,219) Forest Laboratories, Inc. (4,500) (222,469) Monsanto Co. (2,200) (100,238) ----------- (416,926) ----------- Real Estate (2.2%) Archstone Communities Trust (5,400) (105,638) Vornado Realty Trust (13,700) (470,938) ----------- (576,576) ----------- Recreation (1.8%) Brunswick Corp. (22,000) (468,875) ----------- Retail (5.2%) Bausch & Lomb, Inc. (2,700) (162,844) Black & Decker Corp. (1,000) (48,750) Circuit City Stores (3,500) (189,875) Gap, Inc. (4,000) (258,750) General Nutrition (19,300) (258,138) Ikon Office Solutions (24,700) (348,888) Tele-Communications Liberty Media, Inc. Cl-A (2,200) (118,525) ----------- (1,385,770) ----------- See Accompanying Notes to Financial Statements. 11 Warburg Pincus Long-Short Market Neutral Fund Schedule of Investments (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value --------- --------- SECURITIES SOLD SHORT (cont'd) Telecommunications (5.8%) Andrew Corp. (3,600) $ (54,450) Cabletron Systems, Inc. (16,200) (131,625) Citizens Utilities Co. Cl. B (9,100) (69,388) Frontier Corp. (12,600) (452,813) MCI WorldCom, Inc. (800) (66,000) McLeodUSA, Inc. Class A (18,400) (708,400) Qwest Communications International, (900) (55,294) ----------- (1,537,970) ----------- Tobacco (0.4%) UST, Inc. (3,600) (106,425) ----------- Transportation (0.8%) FDX Corp. (900) (85,950) Wisconsin Central Transportation Co (9,000) (123,750) ----------- (209,700) ----------- Waste Management (2.0%) Republic Industries, Inc (43,600) (534,100) ----------- TOTAL SECURITIES SOLD SHORT (Proceeds $21,993,870) (22,876,328) ----------- TOTAL INVESTMENTS -- 0.9% (Cost $121,605*) $ 241,996 OTHER ASSETS IN EXCESS OF LIABILITIES -- 99.1% 26,423,257 ----------- TOTAL NET ASSETS -- 100.0% $26,665,253 =========== * Cost for Federal income tax purposes at February 28, 1999 is $381,079. The gross appreciation (depreciation) on a tax basis is as follows: Gross Appreciation - Investments $ 2,078,157 Gross Depreciation - Investments (1,282,845) Gross Appreciation - Short Sales 1,152,435 Gross Depreciation - Short Sales (2,086,830) ----------- Net Depreciation $ (139,083) =========== - ---------- ** Non-income producing securities. See Accompanying Notes to Financial Statements. 12 Warburg Pincus Long-Short Equity Fund Schedule of Investments February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number of Shares Value --------- --------- COMMON STOCK (2.1%) Miscellaneous (2.1%) Standard & Poor's Depositary Receipts (Spiders) 200 $ 24,737 ---------- (Cost $21,537) INVESTMENT COMPANIES (69.4%) Warburg Pincus Long-Short Market Neutral Fund, Institutional Shares 54,871 817,034 ---------- (Cost $834,014) TOTAL INVESTMENTS (71.5%) (Cost $855,551*) $ 841,771 ---------- OTHER ASSETS IN EXCESS OF LIABILITIES (28.5%) 335,430 ---------- TOTAL NET ASSETS (100.0%) $1,177,201 ========== - ---------- * Cost for Federal income tax purposes at February 28, 1999 is $856,961. The gross appreciation (depreciation) on a tax basis is as follows: Gross Appreciation $ 3,201 Gross Depreciation (18,391) --------- Net Depreciation $ (15,190) ========= See Accompanying Notes to Financial Statements. 13 Warburg Pincus Funds Statements of Assets and Liabilities February 28, 1999 (Unaudited) - --------------------------------------------------------------------------------
Long-Short Market Neutral Long-Short Fund Equity Fund -------------- ----------- Assets Investments, at value (cost - $22,115,475 and $855,551, respectively) $ 23,118,324 $ 841,771 Deposits with brokers and custodian bank for securities sold short or futures contracts 26,518,975 327,025 Receivable for Fund shares sold 13,616 -- Receivable from investment adviser -- 8,312 Dividends and interest receivable 72,355 1,596 Prepaid expenses and other assets -- 19,393 ------------ ----------- Total Assets 49,723,270 1,198,097 ------------ ----------- Liabilities Securities sold short (proceeds $21,993,870 for Long-Short Market Neutral Fund) 22,876,328 -- Payable for Fund shares repurchased 109,839 -- Payable on open futures contracts -- 4,455 Advisory fee payable 43,288 -- Distrubution fee payable (Common shares) 10,250 149 Accrued expenses payable 18,312 16,292 ------------ ----------- Total Liabilities 23,058,017 20,896 ------------ ----------- Net Assets Capital stock, $0.001 par value 1,798 70 Paid-in capital 27,072,963 1,085,840 Undistributed net investment income/(loss) 93,821 (3,583) Accumulated net realized gain/(loss) from investments, securities sold short, futures and foreign currency related transactions, if any (623,720) 78,280 Net unrealized appreciation/(depreciation) on investments and other, if any 120,391 16,594 ------------ ----------- Net Assets $ 26,665,253 $ 1,177,201 ============ =========== Institutional Shares Net assets $ 6,637,660 $ 122,539 ------------ ----------- Shares outstanding 445,644 7,310 ------------ ----------- Net asset value, offering price and redemption price per share $ 14.89 $ 16.76 ============ =========== Common Shares Net assets $ 20,027,593 $ 1,054,662 ------------ ----------- Shares outstanding 1,345,598 63,013 ------------ ----------- Net asset value, offering price and redemption price per share $ 14.88 $ 16.74 ============ ===========
See Accompanying Notes to Financial Statements. 14 Warburg Pincus Fund Statements of Operations For the six months ended February 28, 1999 (Unaudited) - --------------------------------------------------------------------------------
Long-Short Market Neutral Long-Short Fund Equity Fund* -------------- ------------ Investment Income Dividends $ 111,171 $ 114 Interest 332,609 12,738 --------- --------- Total Investment Income 443,780 12,852 --------- --------- Expenses Investment advisory fees 108,831 392 Administration fees 12,621 519 Custodian fees 28,418 7,120 Audit fees 279 -- Miscellaneous fees 1,946 170 Printing fees 1,237 2 Registration fees 5,951 5,491 Legal fees 391 1 Transfer agent fees 719 2 Insurance expense 103 2 Directors fees 6,447 5,949 Dividend expense 83,710 -- Distribution fees 10,250 148 --------- --------- 260,903 19,796 Less fees waived and reimbursed (22,169) (9,960) --------- --------- Total Expenses 238,734 9,836 --------- --------- Net Investment Income/(Loss) 205,046 3,016 --------- --------- Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency Transactions Net realized gain/(loss) from: Security transactions (714,707) (1,550) Futures tranactions -- 103,507 Securities sold short 409,917 -- --------- --------- (304,790) 101,957 --------- --------- Net change in unrealized appreciation/(depreciation): Investments (87,742) (13,780) Futures -- 30,337 --------- --------- (87,742) 16,557 --------- --------- Net Gain/(Loss) On Investments And Foreign Currency Transactions (392,532) 118,514 --------- --------- Net Increase/(Decrease) In Net Assets Resulting From Operations $(187,486) $ 121,530 ========= =========
- ---------- * Commenced operations on September 14, 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 Six Months For the Period For the Period Ended August 3, 1998* September 14, 1998* February 28, 1999 August 31, 1998 to February 28, 1999 ------------------ --------------- -------------------- (Unaudited) (Unaudited) Increase/(decrease) in net assets: Operations: Net investment income $ 205,046 $ 21,200 $ 3,016 Net gain/(loss) on investments (392,532) 89,659 118,514 ------------ ------------ ------------ Net increase/(decrease) in net assets resulting from operations (187,486) 110,859 121,530 ------------ ------------ ------------ Dividends and Distributions to shareholders: Dividends to shareholders from net investment income: Institutional shares (30,279) -- (6,444) Common shares (90,662) -- (155) Distributions to shareholders from net realized capital gains: Institutional shares (52,082) -- (23,069) Common shares (159,858) -- (571) ------------ ------------ ------------ Total distributions to shareholders (332,881) -- (30,239) ------------ ------------ ------------ Net capital share transactions 20,883,338 6,191,423 1,085,910 ------------ ------------ ------------ Total increase/(decrease) in net assets 20,362,971 6,302,282 1,177,201 Net Assets: Beginning of period 6,302,282 -- -- ------------ ------------ ------------ End of period $ 26,665,253 $ 6,302,282 $ 1,177,201 ============ ============ ============
- ---------- * Commenced operations on September 14, 1998. 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 Period For the Six For the Period September 9, Months Ended August 3, 1998* to February 28, 1998* February 28, 1999 to August 31, 1999 (Unaudited) 1998 (Unaudited) ------------- -------------- -------------- Net asset value, beginning of period $ 15.27 $ 15.00 $ 15.19 ------- ------- ------- Income from investment operations Net investment income (loss) 0.19 0.05 0.08 Net gain (loss) on investments and foreign currency transactions (both realized and unrealized) (0.37) 0.22 (0.19) ------- ------- ------- Total from investment operations (0.18) 0.27 (0.11) ------- ------- ------- 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 $ 14.89 $ 15.27 $ 14.88 ======= ======= ======= Total return (1.17)%(c) (1.80)%(c) (0.73)%(c) Ratios/Supplemental Data: Net assets, end of period (000s omitted) $6,638 $6,302 $20,029 Ratio of expenses to average net assets (including dividend expense) 3.20%(a)(b) 4.32%(a)(b) 3.36%(a)(b) Ratio of expenses to average net assets (excluding dividend expense) 1.99%(a)(b) 2.00%(a)(b) 2.25%(a)(b) Ratio of net investment income (loss) to average net assets 3.05%(b) 1.96%(b) 2.66%(b) Fund turnover rate 252%(c) 130%(c) 252%(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 2.22% (excluding dividend expense) and 3.45% (including dividend expense) annualized for the six months ended February 28, 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 2.62% (excluding dividend expense) and 3.72% (including dividend expense) annualized for the period ended February 28, 1999. (b) Annualized. (c) Not Annualized. * Commencement of operations. See Accompanying Notes to Financial Statements. 17 Warburg Pincus Funds Long-Short Market Equity Fund Financial Highlights (For a Share Outstanding Throughout Each Period) - --------------------------------------------------------------------------------
Institutional Common ---------------- -------------- For the Period For the Period September 14, November 2, 1998* 1998* to to February 28, February 28, 1999 1999 (Unaudited) (Unaudited) --------------- -------------- Net asset value, beginning of period $ 15.00 $ 15.27 --------- ---------- Income from investment operations Net investment income (loss) 0.05 0.05 Net gain (loss) on investments and foreign currency transactions (both realized and unrealized) 2.16 1.42 --------- ---------- Total from investment operations 2.21 1.47 --------- ---------- Less Distributions Dividends from net investment income (0.10) (0.10) Distributions from capital gains (0.35) (0.35) --------- ---------- Total distributions (0.45) (0.45) --------- ---------- Net asset value, end of period $ 16.76 $ 16.74 --------- ---------- Total return 14.72%(c) 9.32%(c) Ratios/Supplemental Data: Net assets, end of period (000s omitted) $ 6,638 $ 20,028 Ratio of expenses to average net assets 2.46%(a)(b) 2.72%(a)(b) Ratio of net investment income (loss) to average net assets 1.19%(b) (1.52)%(b) Fund turnover rate 22%(c) 22%(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 5.14% annualized for the period ended February 28, 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 4.76% annualized for the period ended February 28, 1999. (b) Annualized. (c) Not Annualized. * Commencement of operations. See Accompanying Notes to Financial Statements. 18 Warburg Pincus Funds Notes to Financial Statements February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 ("Long-Short Neutral") and Warburg Pincus Long-Short Equity Fund ("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 plan at an annual rate of .25% of the average daily net asset value of the Fund's outstanding Common shares. 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. (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 reorganizations. 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) The Funds may be 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 prospectuses and statement 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) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 1. Summary of Significant Accounting Policies -- (cont'd) 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. 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 maturities 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. 20 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 1. Summary of Significant Accounting Policies -- (cont'd) 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 securites for the applicable period less applicable expenses. Each of the Long-Short Neutral Fund and Long-Short Equity Funds will distribute substantially all of its net realized capital gains and all net investment income, if any, to its shareholders 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, mortgage-backed securities, passive foreign investment companies, and forward foreign currency contracts. 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. 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. Neither of the Funds had open repurchase agreements at February 28, 1999. 21 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 1. Summary of Significant Accounting Policies -- (cont'd) 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 value caused by changes in prevailing market interest rates or securities prices, or for other purposes. Certain Funds 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. As of February 28, 1999, Long-Short Equity held the following futures contracts: Futures Expiration Contract Contract Unrealized Contracts Date Amount Value Gain/Loss --------- ---------- -------- -------- ---------- S&P 500 Futures 03/18/99 896,288 $926,625 $30,337 I) 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, which 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. 22 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 1. Summary of Significant Accounting Policies -- (cont'd) J) 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. 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 February 28, 1999. K) 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 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 sold a security short, its potential loss is limited only by the maximum attainable price of the security (which at least theoretically is unlimited) 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 a Fund's net assets. L) OTHER -- Securities denominated in currencies other than the U.S. dollar 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 23 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 1. Summary of Significant Accounting Policies -- (cont'd) 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. 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 changes can be expected to result in increased volatility of market prices of lower-rated debt securities and (to the extent a Fund invests in junk bonds) the Fund's net asset value. Note 2. Transactions with Affiliates and Related Parties Pursuant to Investment Advisory Agreements, Credit Suisse Asset Management ("CSAM") an indirect, wholly-owned subsidiary of Credit Suisse Group, serves as investment adviser for the two Funds described herein. For its advisory services, CSAM is entitled to receive the following fees, computed daily and payable monthly on each Fund's average daily net assets: Fund Annual Rate ---- --------------------------------- Long-Short Neutral 1.50% of average daily net assets Long-Short Equity 0.10% of average daily net assets 24 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 2. Transactions with Affiliates and Related Parties -- (cont'd) CSAM may, at its discretion, voluntarily waive all or any portion of its advisory fee for any of the Funds. For the six months ended February 28, 1999, advisory fees and waivers for each of the twelve investment Funds were as follows: Gross Net Fund Advisory Fee Waiver Advisory Fee ------ ------------ --------- ------------ Long-Short Neutral $108,831 $(10,243) $98,588 Long-Short Equity 392 (392) -- CSAM reimbursed Long-Short Equity $9,565 for the six months ended February 28, 1999. State Street Bank and Trust Company ("State Street"), serves as each Fund's transfer and dividend disbursing 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 Warburg Pincus Asset Management, Inc., and PFPC Inc. ("PFPC"), an indirect, wholly-owned subsidiary of PNC Bank Corp., serve as each Fund's co-administrators. For administration services, each Fund pays CFSI a fee calculated at an annual rate of .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 Funds to CFSI for co-administration services for the Institutional shares. CSFI may, at its discretion, voluntarily waive all or any portion of its co-administration fees for any of the Funds. For the period October 23, 1998 to February 28, 1999, co-administration fees earned and waived by CFSI were as follows:
Gross Net Fund Administration Fee Waiver Administration Fee ------ ------------------- -------- ------------------ Long-Short Neutral $2,042 $(1,633) $409 Long-Short Equity 29 -- 29
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 the corresponding portfolios of the RBB Fund. 25 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 2. Transactions with Affiliates and Related Parties -- (cont'd) The administrative service agent may at its discretion voluntarily waive all or any portion of its administrative fee for any of the Funds. For the period ended 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 it administration fee for any of the Funds. For the six months ended February 28, 1999, co-administration fees earned and waived by PFPC were as follows:
Gross Administrative Net Administrative Fund Fee Waiver Fee ------ -------------------- -------- ------------------ Long-Short Neutral $9,069 $(9,069) $-- Long-Short Equity 487 -- 487
Counsellors Securities Inc. ("CSI"), also a wholly-owned subsidiary of Warburg Pincus Asset Management, Inc., 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 of .25% of the average daily net assets of the Common shares of each Fund. For the six months ended February 28, 1999, distribution fees earned by CSI were as follows: Fund Distribution Fee ------ ---------------- Long-Short Neutral $10,250 Long-Short Equity 148 Note 3. Purchases and Sales of Securities For the six months ended February 28, 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 $34,139,490 $7,284,002 $25,852,087 Long-Short Equity 1,010,865 155,626 --
26 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- Note 4. Capital Shares Transactions in capital shares for each period were as follows:
Long-Short Market Neutral Fund ----------------------------------------------------------------------------------------------------- Institutional Common ------------------------------------------------------------ --------------------------------- For the Six Months Ended For the Period September 9, 1998* February 28, 1999 For the Period August 3, 1998* Through February 28, 1999 (Unaudited) Through August 31, 1998 (Unaudited) ------------------------ ------------------------------ --------------------------------- Shares Value Shares Value Shares Value -------- ----------- ------- ---------- --------- ----------- Shares sold 295,597 $ 4,466,851 412,744 $6,191,423 1,467,167 $22,198,712 Shares issued in reinvestment of dividends 5,561 82,361 -- -- 16,915 250,336 Shares repurchased (268,258) (4,033,548) -- -- (138,484) (2,081,374) -------- ----------- ------- ---------- --------- ----------- Net increase 32,900 $ 515,664 412,744 $6,191,423 1,345,598 $20,367,674 ======== =========== ======= ========== ========= ===========
Long-Short Equity Fund -------------------------------------------------------------------- Institutional Common ----------------------------------- -------------------------------- For the Period September 14, 1998* For the Period November 2, 1998* Through February 28, 1999 Through February 28, 1999 (Unaudited) (Unaudited) ----------------------------------- -------------------------------- Shares Value Shares Value ------- ---------- ------ ---------- Shares sold 65,685 $ 1,010,030 64,503 $1,071,231 Shares issued in reinvestment of dividends 1,757 29,513 43 720 Shares repurchased (60,132) (1,000,000) (1,533) (25,584) ------- ----------- ------ ---------- Net increase 7,310 $ 39,543 63,013 $1,046,367 ======= =========== ====== ==========
- ---------- *Commencement of operations On February 28, 1999, one shareholder held approximately 95% of the outstanding shares of the Long-Short Neutral Common shares and one shareholder held approximately 96% of the outstanding shares of the Long-Short Equity Common shares. 27 Warburg Pincus Funds Notes to Financial Statements (cont'd) February 28, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 and 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. 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, a Fund could be exposed to risks if the counterparty to the contract is unable to meet the terms of the contract. During the six months ended February 28, 1999, neither Fund entered into forward foreign currency contracts. 28 [WARBURG PINCUS LOGO] P.O. BOX 9030, BOSTON, MA O2205-9030 800-WARBURG (800-927-2874) o www.warburg.com COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPLSF-3-0299 -----END PRIVACY-ENHANCED MESSAGE-----