[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