WARBURG PINCUS TAX FREE FUND
STATEMENT OF NET ASSETS
August 31, 1997
- --------------------------------------------------------------------------------
RATINGS(DOUBLE DAGGER)
PAR (MOODY'S/S&P) MATURITY RATE VALUE
- --- ------------- -------- ---- -----
MUNICIPAL BONDS (100.0%)
FLORIDA (5.8%)
200,000 Florida State Department of
Transportation Revenue
Bond Alligator Alley Project [Aaa, AAA] 07/01/07 6.250 $ 223,750
KANSAS (18.1%)
700,000 Kansas City, Kansas Industrial
Development Revenue Bond PQ
Corporation Project [Aa3, NR] 08/01/15 3.750 700,000
(DAGGER)
MARYLAND (21.2%)
400,000 Baltimore, Maryland Consolidated
Public Improvement
General Obligation Bond
Series C [Aaa, AAA] 10/15/09 7.500 496,000
300,000 Montgomery County, Maryland
Parking Authority
Revenue Bond Silver Spring
Parking Lot Series A
(Callable 06/01/02 @ $102) [Aaa, AAA] 06/01/07 6.250 327,000
---------
823,000
---------
MASSACHUSETTS (4.2%)
150,000 Massachusetts State General
Obligation Bond Series A [A1, A+] 11/01/06 6.000 163,312
NEW JERSEY (16.1%)
400,000 New Jersey State Turnpike
Authority Revenue Bond
Series C [Aaa, AAA] 01/01/16 6.500 459,500
150,000 Ocean County, New Jersey
Utilities Authority Wastewater
Revenue Bond [Aa2, NR] 01/01/07 6.000 164,250
---------
623,750
---------
NEW YORK (17.4%)
300,000 New York City General
Obligation Bond Series B [Aaa, AA+] 08/15/22 3.700 300,000
(DAGGER)
200,000 New York State Dormitory
Authority Revenue Bond
State University Educational
Facilities Series A [Baa1, BBB] 05/15/06 6.500 220,750
150,000 New York State Thruway
Authority Revenue Bond Series D
(Callable 01/01/07 @ $102) [Aa3, AA-] 01/01/15 5.500 152,250
---------
673,000
---------
1
<PAGE>
WARBURG PINCUS TAX FREE FUND
STATEMENT OF NET ASSETS
August 31, 1997
- --------------------------------------------------------------------------------
RATINGS(DOUBLE DAGGER)
PAR (MOODY'S/S&P) MATURITY RATE VALUE
- --- ------------- -------- ---- -----
MUNICIPAL BONDS (cont'd)
PENNSYLVANIA (5.8%)
200,000 Philadelphia, Pennsylvania
Water & Waste Water
Revenue Bond [Aaa, AAA] 08/01/09 6.250 $223,250
PUERTO RICO (11.4%)
250,000 Puerto Rico Commonwealth
General Obligation Bond [Aaa, AAA] 07/01/08 6.500 287,500
150,000 Puerto Rico Electric Power
Authority Revenue Bond
Series CC [Baa1, BBB+] 07/01/08 5.500 156,563
----------
444,063
----------
TOTAL MUNICIPAL BONDS 3,874,125
----------
TOTAL INVESTMENTS AT VALUE 3,874,125
LIABILITIES IN EXCESS OF OTHER ASSETS (1,817)
----------
NET ASSETS $3,872,308
----------
NET ASSET VALUE, $10.59
($3,872,308 / 365,672) =========
(DOUBLE DAGGER) Credit ratings given by Moody's Investors Service Inc. and
Standard & Poor's Ratings Group are unaudited.
(DAGGER) On instruments with variable rates, the interest rate shown reflects
the current rate as of August 31, 1997.
* Also cost for Federal income tax purposes. The gross appreciation
(depreciation) on a tax basis is as follows:
Gross Appreciation $199,489
Gross Depreciation (705)
--------
Net Appreciation $198,784
2
<PAGE>
WARBURG PINCUS TAX FREE FUND
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $251,196
--------
Total investment income 251,196
--------
EXPENSES:
Investment advisory 24,076
Administration Services 7,223
Audit 8,201
Custodian 12,154
Directors' 7,438
Distribution 12,038
Legal 32,711
Registration 20,575
Insurance 315
Printing 6,906
Miscellaneous 10,522
--------
142,159
Less: fees waived and expenses reimbursed (118,083)
--------
Total expenses 24,076
--------
Net investment income 227,120
--------
NET REALIZED AND UNREALIZED GAIN
FROM INVESTMENTS:
Net realized gain from security transactions 72,910
Net change in unrealized appreciation from investments 83,720
--------
Net realized and unrealized gain from investments 156,630
--------
Net increase in net assets resulting from operations $383,750
--------
3
<PAGE>
WARBURG PINCUS TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year For the Year
Ended Ended
August 31, 1997 August 31, 1996
--------------- ---------------
FROM OPERATIONS:
Net investment income $ 227,120 $210,818
Net realized gain from security
transactions 72,910 102,614
Net change in unrealized appreciation
(depreciation) from investments 83,720 (127,100)
---------- ----------
Net increase in net assets
resulting from operations 383,750 186,332
---------- ----------
FROM DISTRIBUTIONS:
Dividends from net investment income (227,120) (210,818)
Distributions from realized gains (51,586) 0
---------- ----------
TOTAL Net decrease in net assets
from distributions (278,706) (210,818)
---------- ----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 1,316,123 1,007,497
Reinvested dividends 189,616 129,529
Net asset value of shares redeemed (2,257,418) (720,710)
---------- ----------
Net increase (decrease) in
net assets from capital
share transactions (751,679) 416,316
---------- ----------
Net increase (decrease) in net
assets (646,635) 391,830
NET ASSETS:
Beginning of year 4,518,943 4,127,113
---------- ----------
End of year $3,872,308 $4,518,943
========== ==========
Undistributed net investment income $0 $0
========== ==========
4
<PAGE>
WARBURG PINCUS TAX FREE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended August 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.36 $10.41 $10.40 $11.53 $11.04
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATION
Net Investment Income 0.4975 0.5097 0.5426 0.6026 0.6385
Net Gain (Loss) on Securities (both
realized and unrealized) 0.3420 (0.0541) 0.3077 (0.6259) 0.8654
------ ------ ------ ------ ------
Total from Investment
Operations 0.8395 0.4556 0.8503 (0.0233) 1.5039
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (0.4975) (0.5056) (0.5426) (0.6092) (0.6725)
Distributions from Excess Net Income 0.0000 0.0000 0.0000 (0.0135) 0.0000
Distributions from Capital Gains (0.1120) 0.0000 (0.2977) (0.4886) (0.3414)
------ ------ ------ ------ ------
Total Distributions (0.6095) (0.5056) (0.8403) (1.1113) (1.0139)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $10.59 $10.36 $10.41 $10.40 $11.53
====== ====== ====== ====== ======
Total Returns 8.30% 4.42% 8.89% (0.30)% 14.45%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $3,872 $4,519 $4,127 $5,465 $6,631
Ratios of Expenses to Average Net Assets 0.50%(a) 0.50%(a) 0.48%(a) 0.15%(a) 0.17%(a)
Ratios of Net Investment Income to Average
Net Assets 4.72% 4.83% 5.53% 5.51% 5.71%
Portfolio Turnover Rate 95% 82% 38% 20% 70%
<FN>
(a) Without the waiver of advisory, adminstration and custody fees and
without the reimbursement of certain operating expenses to average net
assets for the Warburg Pincus Tax Free Fund would have been 2.95%,
3.17%, 2.12%, 1.84% and 1.76% for the years ended August 31, 1997,
1996, 1995, 1994, and 1993 respectively.
</FN>
</TABLE>
TAX STATUS OF 1997 DIVIDENDS (Unaudited)
Dividends paid by the Fund taxable as ordinary income amounted to
$0.4975 per share.
Because the Fund's fiscal year is not the calendar year, amounts to be
used by calendar year taxpayers on reflected on Form 1099-Div and will be mailed
in January 1998.
5
<PAGE>
WARBURG PINCUS TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Tax Free Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act" ), as a diversified,
open-end management investment company.
On May 3, 1996, pursuant to an Agreement and Plan of Reorganization, the
Fund (an "Acquiring Fund") acquired all of the assets of an investment series of
The RBB Fund, Inc., Warburg Pincus Tax Free Fund (the "Acquired Tax Free Fund").
The acquisitions were accomplished by a tax-free exchange of 422,797 Common
Shares of the Acquired Tax Free Fund, for the same amount of shares of the same
class of the Acquiring Fund. Shares were reissued to shareholders at the time of
the reorganization. The net assets of $4,343,839, including $99,263 of
unrealized appreciation, of the Acquiring Fund directly after the reorganization
was the same as the net assets of the Acquired Fund. The Acquiring Fund assumed
the prior operating history of the Acquired Tax Free Fund.
The net asset value of the Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. The Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investment are generally valued at the
mean between the last reported bid and asked prices. In the absence of market
quotations, investments are generally valued at fair value as determined by or
under the direction of the Funds' governing Board.
Short-term obligations that mature in 60 days or less are valued at
amortized cost, which approximates market value.
Security transactions are accounted for on the trade date basis. Interest
income is recorded on the accrual basis. The cost of investments sold is
determined by use of the specific identification method for both financial
reporting and income tax purposes.
Dividends from net investment income, if any, are declared daily and paid
monthly. Any net realized capital gains will be distributed at least annually.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
No provision is made for federal taxes as it is the Fund's intention to
continue to qualify for and elect the tax treatment applicable to a regulated
investment company under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
federal income and excise taxes.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund, along with other Warburg Funds transfers uninvested cash
balances to a Pooled Cash Account, which is invested in repurchase agreements
secured by U.S. government securities. Securities pledged as collateral for
repurchase agreements are held by the Funds' custodian bank until the agreements
mature. Each agreement requires that the market value of the collateral be
sufficient to cover payments of interest and principal; however, in the event of
default or bankruptcy by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.
6
<PAGE>
WARBURG PINCUS TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS (CONT'D)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONT=D)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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 these
estimates.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Asset Management, Inc. ("Warburg") serves as the Fund's
investment adviser. Warburg is indirectly controlled by Warburg, Pincus & Co.
For its advisory services, Warburg is entitled to receive a fee computed daily
and payable monthly at annual rate of .50% of the Fund's average daily net
assets. For the year ended August 31, 1997, Warburg earned and waived investment
advisory fees of $24,076 and reimbursed $90,520 of the Fund's expenses. An
amount of $25,755 was due from Warburg as of August 31, 1997.
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp.,
and Counsellors Fund Services, Inc. ("CFSI"), a wholly owned subsidiary of
Warburg, serve as co- administrators for the Fund. The co-administration fees
are computed daily and payable monthly at an annual rate of .05% of average
daily net assets for PFPC and .10% of average daily net assets for CFSI. For the
year ended August 31, 1997, CFSI earned co-administration fees of $4,815 and
PFPC earned and voluntarily waived co-administration fees of $2,408.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Counsellors Securities Inc. ("CSI"),
also a wholly owned subsidiary of Warburg, serves as the Fund's distributor. For
distribution services, CSI receives a fee at the annual rate of .25%, computed
daily and payable monthly, on average daily net assets. For the year ended
August 31, 1997, CSI earned distribution fees of $12,038 and waived distribution
fees of $1,079.
3. INVESTMENTS IN SECURITIES
For the year ended August 31, 1997, purchases and sales of investment
securities (excluding short-term investments) were $4,390,726 and $4,974,099
respectively.
7
<PAGE>
WARBURG PINCUS TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue three billion full and fractional shares of
capital stock, $.001 par value per share.
Transactions in capital shares for each year were as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31,1997 AUGUST 31,1996
-------------------------- -----------------------
SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C>
Shares sold 124,665 $ 1,316,123 96,011 $1,007,497
Shares issued in reinvestment of dividends 18,034 189,616 12,332 129, 529
Shares repurchased (213,284) (2,257,418) (68,556) (720,710)
-------- ----------- ------- ----------
Net increase (decrease) (70,585) $ ( 751,679) 39,787 $ 416,316
======== =========== ======= ===========
</TABLE>
5. LIABILITIES
At August 31, 1997, the Fund had the following liabilities:
Payable for Fund shares redeemed $ 24,163
Accrued expenses 17,137
Dividends payable 3,721
6. NET ASSETS
At August 31, 1997, net assets consisted of the following:
Capital paid-in $ 3,599,663
Undistributed net investment income 0
Accumulated net realized gain from
security transactions 72,894
Net unrealized appreciation from investments 199,751
-----------
$ 3,872,308
===========
7. SUBSEQUENT EVENTS - LIQUIDATION
On July 30, 1997, the Board of Directors approved a formal plan of
liquidation for the Fund. The plan of liquidation was voted on and approved by
the shareholders on October 6, 1997. Liquidation of the Fund is expected to
occur on October 17, 1997.
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of The Warburg Pincus Tax Free Fund:
We have audited the accompanying statements of net assets of Warburg Pincus Tax
Free Fund as of August 31, 1997, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of investments held as of August
31, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Warburg Pincus Tax Free Fund, as of August 31, 1997, and the results of
operations for the year then ended, the changes in net assets for each of the
two years in the period then ended, and financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 17, 1997
9
