[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

[[Page 30362]]

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