[Federal Register Volume 62, Number 106 (Tuesday, June 3, 1997)]
[Notices]
[Pages 30360-30363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14354]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22683; 812-10442]
Warburg, Pincus Balanced Fund, Inc., et al.; Notice of
Application
May 27, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for Exemption Under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Warburg, Pincus Balanced Fund, Inc., Warburg, Pincus
Capital Appreciation Fund, Warburg, Pincus Cash Reserve Fund, Inc.,
Warburg, Pincus Emerging Growth Fund, Inc., Warburg, Pincus Emerging
Markets Fund, Inc., Warburg, Pincus Fixed Income Fund, Warburg, Pincus
Global Fixed Income Fund, Inc., Warburg, Pincus Global Post-Venture
Capital Fund, Inc., Warburg, Pincus Growth & Income Fund, Inc.,
Warburg, Pincus Health Sciences Fund, Inc., Warburg, Pincus
Institutional Fund, Inc., Warburg, Pincus Intermediate Maturity
Government Fund, Inc., Warburg, Pincus International Equity Fund, Inc.,
Warburg, Pincus Japan Growth Fund, Inc., Warburg, Pincus Japan OTC
Fund, Inc., Warburg, Pincus New York Intermediate Municipal Fund,
Warburg, Pincus New York Tax Exempt Fund, Inc., Warburg, Pincus Post-
Venture Capital Fund, Inc., Warburg, Pincus Small Company Growth Fund,
Inc., Warburg, Pincus Small Company Value Fund, Inc., Warburg, Pincus
Strategic Value Fund, Inc., Warburg, Pincus Tax Free Fund, Inc.,
Warburg, Pincus Trust, Warburg, Pincus Trust II (collectively, the
``Warburg Pincus Funds''), Warburg, Pincus Counsellors, Inc.
(``Warburg''), and any other registered investment companies that now
or in the future are advised by Warburg (together with the Warburg
Pincus Funds, the ``Funds'' and individually a ``Fund'').
RELEVANT ACT SECTION: Order requested under section 17(d) and rule 17d-
1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
investment companies to deposit their uninvested cash balances in one
or more joint accounts to be used to enter into repurchase agreements.
FILING DATES: The application was filed on November 21, 1996 and
amended on April 30, 1997.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 20, 1997,
and should be accompanied by proof of service on applicants in the form
of an affidavit or for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, Warburg, Pincus Counsellors, Inc., 466 Lexington Avenue,
New York, NY 10017-3147.
FOR FURTHER INFORMATION CONTACT: Suzanne Krudys, Senior Counsel, at
(202) 942-0641, or Mercer E. Bullard, Branch Chief, (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Warburg Pincus Funds, organized as either Maryland
corporations or Massachusetts business trusts, are registered under the
Act as open-end, single class or multi-class management investment
companies, some of which consist of the serious type. The Funds
currently consist of 28 investment companies or portfolios. All Funds
that currently intend to rely upon the requested order are named as
applicants.\1\
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\1\ Any future series of a Fund or any registered investment
company now or in the future advised by Warburg that intends to rely
upon the requested order in the future would, at that time, comply
with the terms and conditions contained in the application.
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2. Warburg, organized in 1970 as a Delaware corporation, is
registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. Warburg is a wholly-owned subsidiary of Warburg,
Pincus Counsellors G.P. Warburg supervises and directs the purchase and
sale of investment securities (or some portion thereof) for each of the
Funds, subject to the direction of the Fund's board of directors or
trustees and, in certain cases, subject to the supervision of another
investment adviser or manager. The term ``Warburg'' includes, in
addition to the corporation itself, any other entity controlling,
controlled by or under common control with Warburg
[[Page 30361]]
that acts in the future as an investment adviser for the Funds or other
investment companies.
3. Each of the Funds has its own separate investment objective or
objectives, policies and restrictions and segregated assets as
described in each Fund's currently effective registration statement.
All of the Funds currently are authorized to invest at least a portion
of their uninvested cash balances in short-term repurchase agreements.
4. The assets of the Funds are held by bank custodians. At the end
of each trading day, applicants expect that some or all of the Funds
will have uninvested cash balances in their respective custodian banks
that would not otherwise be invested in portfolio securities. The
amount of such cash balances on any given day is a function of, among
other things, the temporary unavailability or other delays in planned
purchases of securities, shareholder purchases and redemptions, and/or
unanticipated delays in settlement of trades. In order to provide
liquidity and to earn additional income for the Funds, Warburg may
invest such cash balances in repurchase agreements provided that (a) a
Fund will not invest in a repurchase agreement having a maturity in
excess of 7 days if such investment would cause the Fund to exceed its
limitation regarding investments in illiquid securities and (b) the
repurchase agreements are ``collateralized fully'' as defined in rule
2a-7 under the Act (``Short-Term Repurchase Agreements''), as
authorized by the investment policies of the Funds. Currently, Warburg
purchases repurchase agreements separately on behalf of each Fund.
5. Applicants propose to deposit some or all of the uninvested cash
balances of the Funds remaining at the end of the trading day into one
or more joint accounts (the ``Joint Accounts'') and to invest the daily
balance of the Joint Accounts into Short-Term Repurchase Agreements.
The Funds would invest through a Joint Account only in Short-Term
Repurchase Agreements that are consistent with the investment objective
or objectives, policies and restrictions of each participating Fund.
The existence of the Joint Accounts will not influence the extent to
which Funds will invest in Short-Term Repurchase Agreements. A Fund's
decision to use the Joint Accounts would be based on the same factors
as a Fund's decision to make any other short-term liquid investment.
Those factors would primarily be whether such Short-Term Repurchase
Agreements offer a competitive investment on the basis of yield,
creditworthiness and liquidity. The Joint Accounts would only be used
to aggregate what otherwise would be one or more daily individual
transactions necessary for the management of each Fund's daily
uninvested cash balance.
6. Warburg would not participate as an investor in the Joint
Accounts. Warburg also would not collect any additional fee for its
management of the Joint Accounts, but would continue to receive from
the Fund's primary adviser, as relevant, its asset-based advisory fees.
Warburg would be responsible for investing funds held by the Joint
Accounts, establishing accounting and control procedures, and ensuring
fair and equitable treatment of the Funds.
7. Warburg would manage investments in the Joint Accounts in
essentially the same manner as if it had invested in such instruments
on an individual basis for each Fund. Any joint repurchase agreement
transactions entered into through the proposed Joint Accounts would
comply with the standards and guidelines set forth in Investment
Company Act Release No. 13005 (February 2, 1983), and any other
existing and future positions taken by the Commission or its staff by
rule, release, letter or otherwise relating to repurchase agreement
transactions. Applicants acknowledge that they have a continuing
obligation to monitor the SEC's published statements on repurchase
agreements, and represent that repurchase agreement transactions will
comply with future positions of the SEC to the extent that such
positions set forth different or additional requirements regarding
repurchase agreements.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an
affiliated person of a registered investment company, or an affiliated
person of such a person, from participating in any joint enterprise or
arrangement in which such investment company is a participant, unless
the SEC has issued an order authorizing the arrangement.
2. Applicants believe that each Fund might be deemed to be an
``affiliated person'' of each other Fund under the definition set forth
in section 2(a)(3) of the Act if Warburg, as investment adviser, were
deemed to control each Fund. Applicants also believe that, because each
Warburg Pincus Fund has the same governing board as each other Warburg
Pincus Fund, the Warburg Pincus Funds could be deemed to be affiliated
persons of each other by virtue of being under common control, within
the meaning of subsection (C) of section 2(a)(3). Each Fund, by
participating in the Joint Accounts, and Warburg, by managing the Joint
Accounts, could be deemed to be a ``joint participant'' in a
``transaction'' within the meaning of section 17(d) of the Act.
3. Applicants believe that the Joint Accounts could result in
certain benefits to the Fund. Applicants state that the Funds would
save on yearly transaction fees because purchasing Short-Term
Repurchase Agreements through the Joint Accounts would require fewer
transactions than the Fund would otherwise engage in individually.
Applicants believe that the Funds may also earn a higher rate of return
on investments through the Joint Accounts relative to the rates they
could earn individually because under most market conditions, it is
possible to negotiate a rate of return on larger repurchase agreements
that is higher than the rate of return on smaller repurchase
agreements. Applicants contend that the Joint Accounts may reduce the
potential for error by reducing the number of trade tickets and cash
wires that must be processed by the sellers of Short-Term Repurchase
Agreements and by the Funds' custodians and accountants. Applicant also
submit that the Joint Accounts also may increase the number of dealers
willing to enter into Short-Term Repurchase Agreements with smaller
funds and may reduce the possibility that their cash balances remain
uninvested.
4. Applicants believe that no Fund will be in a less favorable
position as a result of the Joint Accounts. Applicants assert that a
Fund's investment in the Joint Accounts will not be subject to the
claims of creditors, whether bought in bankruptcy, insolvency or other
legal proceeding, of any other participant Fund in the Joint Accounts.
Applicants believe that each Fund's liability on any Short-Term
Repurchase Agreement will be limited to its interest in such
investment; no Fund will be jointly liable for the investments of any
other Fund. Finally, the assets of all Funds will continue to be held
under proper custodian procedures.
5. Applicants believe that the proposed operation of the Joint
Accounts will not result in any conflicts of interest between any of
the Funds and Warburg. Applicants state that, in making investments for
the Joint Accounts, Warburg will be obligated to consider each Fund's
investment objective or objectives, policies and restrictions; its
obligation to fairly allocate investment opportunities among the Funds;
and the need for diversification.
6. Applicants note that the board of directors of each Fund has
considered
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the proposed Joint Accounts and determined that the use of the Joint
Accounts would be fair, economically desirable and beneficial to the
Fund. Applicants also note that each board has determined that the
operation of the Joint Accounts would be free of any inherent bias
favoring one Fund over another, and the anticipated benefits flowing to
each Fund would fall within an acceptable range of fairness.
7. For the reasons set forth above, applicants believe that
granting the requested order is consistent with the provisions,
policies, and purposes of the Act and the Funds would participate in
the Joint Account on a basis no different from or less advantageous
than that of any other Participant.
Applicants' Conditions
Applicants would comply with the following as conditions to any
other granted by the SEC:
1. The Joint Accounts would consist of one or more separate cash
accounts established at a custodian bank. A Joint Account may be
established at more than one custodian bank and more than one Joint
Account may be established at any custodian bank. A Fund may transfer a
portion of its daily cash balances to more than one Joint Account.
After the calculation of its daily cash balance and at the direction of
Warburg, each Fund would transfer into one or more Joint Accounts the
cash it intends to invest through the Joint Accounts. Each Fund whose
regular custodian is a custodian other than the bank at which a
proposed Joint Account would be maintained and that wishes to
participate in the Joint Account would appoint the latter bank as sub-
custodian for the limited purpose of: (a) Receiving and disbursing
cash; (b) holding any Short-Term Repurchase Agreements; and (c) holding
collateral received from a transaction effected through the Joint
Account. All Funds that appoint such sub-custodians will have taken all
necessary actions to authorize such bank as their legal custodian,
including all actions required under the Act.
2. The Joint Accounts will not be distinguishable from any other
accounts maintained by the Funds at their custodians except that monies
from the Funds will be deposited in a Joint Account on a commingled
basis. The Joint Accounts will not have a separate existence and will
not have any indicia of a separate legal entity. The Joint Accounts
will only be used to aggregate individual transactions necessary for
the management of each fund's daily uninvested cash balance.
3. Cash in the Joint Accounts would be invested in one or more
repurchase agreements provided that (a) a Fund will not invest in a
repurchase agreement having a maturity in excess of 7 days if such
investment would cause the Fund to exceed its limitation regarding
investments in illiquid securities and (b) the repurchase agreements
are ``collateralized fully'' as defined in rule 2a-7 under the Act and
satisfy the uniform standards set by the Funds for such investments.
The securities subject to the repurchase agreement will be transferred
to a Joint Account, and they will not be held by the Fund's repurchase
counterparty or by an affiliated person of that counterparty.
4. Each Fund would participate in a Joint Account on the same basis
as every other Fund in conformity with its respective investment
objective or objectives, policies and restrictions. Any future Funds
that participate in a Joint Account would be required to do so on the
same terms and conditions as the existing funds.
5. Each Fund, through its investment adviser and/or custodian, will
maintain records (in conformity with Section 31 of the Act and the
rules thereunder) documenting for any given day its aggregate
investment in a Joint Account and its pro rata share of each Short-Term
Repurchase Agreement made through such Joint Account.
6. All assets held in the Joint Accounts would be valued on an
amortized cost basis to the extent permitted by applicable SEC
releases, rules or orders.
7. Each Fund valuing its net assets based on amortized cost in
reliance on rule 2a-7 under the Act will use the average maturity of
the instrument(s) in the Joint Accounts in which such Fund has an
interest (determined on a dollar-weighted basis) for the purpose of
computing its average portfolio maturity with respect to the portion of
its assets held in a Joint Account on that day.
8. Not every Fund participating in the Joint Accounts will
necessarily have its cash invested in every Short-Term Repurchase
Agreement. However, to the extent a Fund's cash is applied to a
particular Short-Term Repurchase Agreement, the Fund will participate
in and own its proportionate share of such Short-Term Repurchase
Agreement, and any income earned or accrued thereon, based upon the
percentage of such investment purchased with amounts contributed by
such Fund.
9. To assure that there will be no opportunity for one fund to use
any part of a balance of a Joint Account credited to another Fund, no
Fund will be allowed to create a negative balance in any Joint Account
for any reason. Each Fund would be permitted to draw down its entire
balance at any time, provided Warburg determines that such draw down
would have no significant adverse impact on any other Fund
participating in the Joint Account. Each Fund's decision to invest in a
Joint Account would be solely at its option, and no Fund will be
obligated either to invest in the Joint Accounts or to maintain any
minimum balance in the Joint Accounts. In addition, each Fund will
retain the sole rights of ownership to any of its assets, Including
interest payable on such assets, invested in the Joint Accounts.
10. Warburg will administer, manage and invest the cash balance in
the Joint Accounts in accordance with and as part of its duties under
the existing or any future investment advisory contract with each Fund.
Warburg will not collect any additional or separate fee for advising or
managing any Joint Account.
11. The administration of the Joint Accounts will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 thereunder.
12. The board of directors or trustees of the Funds participating
in the Joint Account will adopt procedures pursuant to which the Joint
Accounts will operate and which will be reasonably designed to provide
that the requirements set forth in the application are met. The
directors or trustees will make and approve such changes that they deem
necessary to ensure that such procedures are followed. In addition, the
directors or trustees will determine, no less frequently than annually,
that the Joint Accounts have been operated in accordance with the
proposed procedures, and will permit a Fund to continue to participate
therein only if it determines that there is a reasonable likelihood
that the Fund and its shareholders will benefit from the Fund's
continued participation.
13. Investments held in a Joint Account generally will not be sold
prior to maturity except: (a) If Warburg believes the investment no
longer presents minimal credit risks; (b) if, as a result of a credit
downgrading or otherwise, the investment no longer satisfies the
investment criteria of all Funds participating in the investment; or
(c) if the counterparty defaults. A Fund may, however, sell its
fractional portion of an investment in a Joint Account prior to
maturity of the investment in such Joint Account if the cost of such
transaction will be borne solely by the selling Fund and the
transaction would not adversely affect the other Funds participating in
that
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Joint Account. In no case would an early termination by less than all
participating Funds be permitted if it would reduce the principal
amount or yield received by other Funds participating in a particular
Joint Account or otherwise adversely affect the other participating
Funds. Each Fund participating in such Joint Account will be deemed to
have consented to such sale and partition of the investments in such
Joint Account.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14354 Filed 6-2-97; 8:45 am]
BILLING CODE 8010-01-M