[Federal Register Volume 59, Number 190 (Monday, October 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24376]
[[Page Unknown]]
[Federal Register: October 3, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20584/812-9160
The Park Avenue Portfolio; Notice of Application
September 27, 1994.
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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applicant: The Park Avenue Portfolio (the ``Portfolio'').
Relevant Act sections: Order requested under section 17(b) of the Act
for an exemption from section 17(a), and under section 17(d) of the Act
and rule 17d-1 thereunder permitting certain joint transactions.
summary of application: Applicant requests an order to permit The
Guardian U.S. Government Securities Fund series (the ``Government
Fund'') of the Portfolio to merge with The Guardian Investment Quality
Bond Fund series (the ``Bond Fund'') of the Portfolio. Because of
certain affiliations, the two series may not rely on rule 17a-8 under
the Act.
filing date: The application was filed on August 12, 1994 and amended
on September 21, 1994.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on October 20,
1994, and should be accompanied by proof of service on applicant, 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 Fifth Street, NW., Washington, DC 20549.
Applicant, 201 Park Avenue South, New York, New York 10003.
for further information contact: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
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.
Applicant's Representations
1. The Portfolio is an open-end management investment company.
Prior to October 14, 1992, the Portfolio was known as The Guardian U.S.
Government Trust (the ``Trust''), and issued shares in a single series.
Effective October 14, 1992, the Trust changed its name to ``The Park
Avenue Portfolio'' and established six additional series within the
Portfolio. These series include the Government Fund and the Bond Fund,
as well as The Guardian Park Avenue Fund, The Guardian Baillie Gifford
International Fund (the ``International Fund''), The Guardian Asset
Allocation Fund, The Guardian Tax-Exempt Fund, and The Guardian Cash
Management Fund.
2. Guardian Investor Services Corporation (``GISC'') serves as the
distributor for all of the series and as investment adviser for all of
the series except the International Fund. GISC is a wholly-owned
subsidiary of The Guardian Insurance & Annuity Company, Inc., which in
turn is a wholly-owned subsidiary of Guardian Life Insurance Company of
America (``Guardian Life''). Guardian Life is a mutual life insurance
company organized in the State of New York.
3. GISC provided the initial capital for the Trust in 1989. As of
June 30, 1994, GISC owned 13.55% of the Government Fund and may be
considered to control the Fund. In January 1993, Guardian Life provided
the initial capital for the Bond Fund. As of June 30, 1994, Guardian
Life owned 50.24% of the Bond Fund and may be considered to control the
Fund. The investment objective of the Government Fund is to achieve a
high level of current return through a combination of interest income
and net capital gains consistent with prudent investment risk and
security of principal. The investment objective of the Bond Fund is to
secure a high level of current income and capital appreciation without
undue risk to principal.
4. At a meeting held on June 23, 1994, the board of trustees of the
Portfolio, including a majority of those trustees who are not
``interested persons'' as defined in the Act, approved an agreement and
plan of reorganization the ``Plan''). Pursuant to the Plan, on the
effective date of the transaction (the ``Closing Date''), the
Government Fund will transfer all of its assets and liabilities to the
Bond Fund in exchange for a number of shares of the Bond Fund having an
aggregate net asset value equal to the aggregate net assets of the
Government Fund exchanged. The Government Fund then will distribute
such Bond Fund shares to its shareholders on a pro rata basis. Each
Government Fund shareholder will have his or her Government Fund shares
exchanged for the number of full and fractional shares of the Bond Fund
which, when multiplied by the net asset value per share of Bond Fund,
will have an aggregate net asset value equal to the aggregate net asset
value of that holder's shares in the Government Fund on the Closing
Date. On July 29, 1994, the Portfolio registered the shares of the Bond
Fund to be issued pursuant to the Plan with the SEC on Form N-14.
5. While the Bond Fund ordinarily imposes in initial sales charge
in connection with the purchase of shares, the sales charge will not
apply to shares of the Bond Fund acquired pursuant to the proposed
reorganization. Neither Fund imposes a contingent deferred sales charge
or other fee in connection with the redemption of shares.
6. In evaluating whether to adopt the Plan and recommend its
approval by shareholders of the Government Fund, the board of trustees
has considered the following factors, among others: (a) The potential
benefits of the reorganization to shareholders; (b) the compatibility
of investment objectives, policies, restrictions and investment
holdings of the Government Fund and the Bond Fund; (c) the current
total net assets of the two Funds and the current and historical
expenses and performance of each Portfolio; (d) the terms and
conditions of the proposed reorganization and whether it would result
in dilution of any shareholder's interest; (e) the absence of any
direct or indirect costs to be incurred by either Fund or the
Portfolio; and (f) the tax-free nature of the reorganization.
7. The Portfolio will submit the proposed Plan to the shareholders
of the Government Fund for their approval at a meeting called for that
purpose on October 19, 1994. Shareholders of the Government Fund will
receive a notice of the special meeting of shareholders and a proxy
statement and prospectus containing all material disclosures, including
a description of all material aspects of the proposed reorganization
and a copy of the Plan. Consistent with the declaration of trust, a
majority of the outstanding shares of the Government Fund must approve
the reorganization. GISC will vote the shares it owns in the Government
Fund in favor of the Plan and will pay all the costs of the
reorganization. In addition to shareholders approval, the consummation
of the reorganization is conditioned upon receipt from the SEC of the
order requested herein.
Applicant's Legal Analysis
1. Section 17(a) of the Act, in pertinent part, prohibits an
affiliated person of a registered investment company, or any affiliated
person of such a person, acting as principal, from selling to or
purchasing from such registered company, any security or other
property. Section 2(a)(3) of the Act provides, in pertinent part, that
any person directly or indirectly owning, controlling, or holding with
power to vote 5% or more of the outstanding voting securities of any
other person is an affiliated person of that person.
2. Section 17(b) provides that the SEC may exempt a transaction
from section 17(a) if evidence establishes that the terms of the
proposed transaction, including the consideration to be paid, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, and that the proposed transaction is consistent with
the policy of the registered investment company concerned and with the
general purposes of the Act.
3. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers, consolidations, or purchases or sales of
substantially all the assets involving registered investment companies
that may be affiliated persons, or affiliated persons of an affiliated
person, solely by reason of having a common investment adviser, common
directors and/or common officers. The exemption provided by the rule is
conditioned upon a determination by a majority of the directors of each
such investment company (including a majority of the directors of each
company who are not interested persons of the participating registered
investment companies) that (a) participation in the transaction is in
the best interests of that registered investment company, and (b) the
interests of existing shareholders of that registered investment
company will not be diluted as a result of the transaction.
4. The proposed reorganization could rely on rule 17a-8, except for
the fact that the Government Fund and the Bond Fund may be affiliated
persons for reasons other than those set forth in the rule. Because
GISC, an indirect wholly-owned subsidiary of Guardian Life, directly
owns more than 5% of the outstanding voting securities of the
Government Fund, and Guardian Life directly owns more than 5% of the
outstanding voting securities of the Bond Fund, if the series funds are
treated as separate entities, the Portfolio may not rely upon rule 17a-
8 because the Bond Fund and the Government Fund may be affiliated
persons because of the ultimate ownership by a single shareholder.
5. The Portfolio believes that the terms of the proposed
reorganization meet the standards of section 17(b). The board of
trustees of the Portfolio, including a majority of the trustees who are
not ``interested persons,'' has reviewed and approved the terms of the
proposed reorganization as set forth in the Plan, including the
consideration to be paid or received by all parties. They have
independently determined for each of the Government Fund and the Bond
Fund, that the proposed reorganization will be in the best interests of
the shareholders of each Fund and that the consummation of the proposed
reorganization will not result in the dilution of the current interests
of the shareholders of the Funds. If effectuated according to the Plan,
the proposed reorganization will result in the Government Fund's assets
being managed together with the Bond Fund's assets in a combined
portfolio of substantially greater size. The investment objectives of
the Government Fund and the Bond Fund are substantially similar, to
provide positive total returns without undue risks. The proposed
transaction will comply with all the conditions that rule 17a-8
requires for the protection of investment companies and their
shareholders.
6. Section 17(d) prohibits any affiliated person of a registered
investment company, acting as principal, from effecting any transaction
in which such registered investment company is a joint participant with
such person in contravention of SEC rules and regulations. Rule 17d-1
provides that no joint enterprise or arrangement may be consummated
unless the SEC first approves the transaction.
7. The Funds may be affiliated persons of each other, and the
proposed transaction might be deemed to be a joint enterprise or other
joint arrangement. The Portfolio believes that the terms of the
proposed Plan meet the standards for relief under rule 17d-1, in that
the terms of the Plan are reasonable and fair to all parties, do not
involve overreaching and are consistent with the investment policies of
the Funds. The participation in the Plan by each Fund is also not on a
basis different from or less advantageous than that of the other
participants.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24376 Filed 9-30-94; 8:45 am]
BILLING CODE 8010-01-M
