The Guardian Insurance & Annuity Company, Inc., et al., 36636-36641 [2019-15975]
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Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Notices
any Wholly-Owned Sub-Adviser; (b) the
aggregate fees paid to Non-Affiliated
Sub-Advisers; and (c) the fee paid to
each Affiliated Sub-Adviser
(collectively, ‘‘Aggregate Fee
Disclosure’’).
3. Applicants agree that any order
granting the requested relief will be
subject to the terms and conditions
stated in the application. Such terms
and conditions provide for, among other
safeguards, appropriate disclosure to
Sub-advised Series shareholders and
notification about sub-advisory changes
and enhanced Board oversight to protect
the interests of the Sub-advised Series’
shareholders.
4. Section 6(c) of the Act provides that
the Commission may exempt any
person, security, or transaction or any
class or classes of persons, securities, or
transactions from any provisions of the
Act, or any rule thereunder, if such
relief is necessary or appropriate in the
public interest and consistent with the
protection of investors and purposes
fairly intended by the policy and
provisions of the Act. Applicants
believe that the requested relief meets
this standard because, as further
explained in the application, the
Investment Management Agreements
will remain subject to shareholder
approval while the role of the SubAdvisers is substantially equivalent to
that of individual portfolio managers, so
that requiring shareholder approval of
Sub-Advisory Agreements would
impose unnecessary delays and
expenses on the Sub-advised Series.
Applicants believe that the requested
relief from the Disclosure Requirements
meets this standard because it will
improve the Adviser’s ability to
negotiate fees paid to the Sub-Advisers
that are more advantageous for the Subadvised Series.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–15954 Filed 7–26–19; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33566; File No. 812–14911]
The Guardian Insurance & Annuity
Company, Inc., et al.
July 23, 2019.
Securities and Exchange
Commission (‘‘Commission’’)
ACTION: Notice.
AGENCY:
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Notice of application for an order
approving the substitution of certain
securities pursuant to section 26(c) of
the Investment Company Act of 1940, as
amended (the ‘‘1940 Act’’) and an order
of exemption pursuant to section 17(b)
of the Act from section 17(a) of the 1940
Act.
APPLICANTS: The Guardian Insurance &
Annuity Company, Inc., (‘‘Guardian’’),
The Guardian Separate Account Q, and
The Guardian Separate Account R
(collectively, the ‘‘Separate Accounts’’
and together with Guardian, the
‘‘Section 26 Applicants’’); and the
Section 26 Applicants, Guardian
Variable Products Trust (the ‘‘Trust’’),
and Park Avenue Institutional Advisers
LLC (‘‘Park Avenue’’) (collectively, the
‘‘Section 17 Applicants’’). All applicants
to this Application may also be
collectively referred to herein as the
‘‘Applicants.’’
SUMMARY OF APPLICATION: Section 26
Applicants seek an order pursuant to
section 26(c) of the 1940 Act, approving
the substitution of shares issued by
certain investment portfolios of
registered investment companies (the
‘‘Existing Portfolios’’) for shares of
certain investment portfolios of the
Trust (the ‘‘Replacement Portfolios’’),
held by the Separate Accounts under
certain variable annuity contracts (the
‘‘Contracts’’). The Section 17 Applicants
seek an order pursuant to section 17(b)
of the Act exempting them from section
17(a) of the Act to the extent necessary
to permit them to engage in certain inkind transactions.
FILING DATE: The application was filed
on June 1, 2018 and was amended on
November 5, 2018 and April 1, 2019.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Secretary of the Commission and
serving the Applicants with a copy of
the request, personally or by mail.
Hearing requests should be received by
the Commission by 5:30 p.m. on August
19, 2019 and should be accompanied by
proof of service on the Applicants in the
form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the 1940 Act, hearing requests
should state the nature of the writer’s
interest, any facts bearing upon the
desirability of a hearing on the matter,
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
Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street NE,
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Washington, DC 20549–1090.
Applicants: Richard T. Potter, Senior
Vice President, Counsel and Assistant
Corporate Secretary, The Guardian
Insurance & Annuity Company, Inc., 7
Hanover Square, New York, New York
10004; Stephen E. Roth, Esq. and
Cynthia R. Beyea, Esq., Eversheds
Sutherland (US) LLP, 700 Sixth Street
NW, Suite 700, Washington, DC 20001–
3980.
Jill
Corrigan, Senior Counsel, at (202) 551–
8929, or Aaron Gilbride, Branch Chief at
(202) 551–6906 (Division of Investment
Management, Chief Counsel’s Office).
FOR FURTHER INFORMATION CONTACT:
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an Applicant using the
Company name box, at https://
www.sec.gov.search/search.htm, or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. Guardian is a Delaware stock life
insurance company licensed to conduct
insurance business in the District of
Columbia and all fifty states of the
United States. Guardian is whollyowned by The Guardian Life Insurance
Company of America (‘‘Guardian Life’’),
a mutual life insurance company.
2. Each Separate Account meets the
definition of ‘‘separate account,’’ as
defined in section 2(a)(37) of the 1940
Act and rule 0–1(e) thereunder. The
Separate Accounts are registered with
the Commission under the 1940 Act as
unit investment trusts. The assets of the
Separate Accounts support the
Contracts and interests in the Separate
Accounts offered through such
Contracts. Guardian is the legal owner
of the assets in the Separate Accounts.
The Separate Accounts are segmented
into subaccounts, and each subaccount
invests in an underlying registered
open-end management investment
company or series thereof.
3. The Contracts are each registered
under the Securities Act of 1933, as
amended (the ‘‘1933 Act’’) on Form N–
4. Each Contract has particular fees,
charges, and investment options, as
described in the Contracts’ respective
prospectuses.
4. The Contracts are individual
flexible or single premium deferred
variable annuity contracts. As set forth
in the prospectuses for the Contracts,
each Contract provides that Guardian
reserves the right to substitute shares of
the funds in which the Separate
Accounts invest for shares of any funds
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already held or to be held in the future
by the Separate Accounts.1
5. Guardian, on behalf of itself and the
Separate Accounts, proposes to exercise
Substitution
No.
1
2
3
4
5
6
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its contractual right to substitute shares
of theExisting Portfolios for shares of the
Replacement Portfolios
Existing portfolio
36637
(‘‘Substitutions’’), as shown in the table
below:
Replacement portfolio
Fidelity VIP Contrafund Portfolio (Service Class 2) ...................
AB Large Cap Growth Portfolio (Class B) ..................................
Franklin Rising Dividends VIP Fund (Class 2) ...........................
BlackRock Capital Appreciation V.I. Fund (Class III) .................
Invesco V.I. Small Cap Equity Fund (Series II) ..........................
Oppenheimer Main Street Small Cap Fund/VA (Service
Shares) 2.
MFS® Utilities Series (Service Class) ........................................
Franklin U.S. Government Securities VIP Fund (Class 2) .........
Invesco V.I. Government Securities Fund (Series II) .................
PIMCO Total Return Portfolio (Advisor Class) ...........................
Western Asset Core Plus VIT Portfolio (Class II) ......................
Oppenheimer Global Strategic Income Fund/VA (Service
Shares) 3.
Guardian
Guardian
Guardian
Guardian
Guardian
Guardian
Large Cap Disciplined Growth VIP Fund.
Large Cap Disciplined Growth VIP Fund.
Diversified Research VIP Fund.
Large Cap Fundamental Growth VIP Fund.
Small Cap Core VIP Fund.
Small Cap Core VIP Fund.
Guardian
Guardian
Guardian
Guardian
Guardian
Guardian
Global Utilities VIP Fund.
U.S. Government Securities VIP Fund.
U.S. Government Securities VIP Fund.
Total Return Bond VIP Fund.
Total Return Bond VIP Fund.
Multi-Sector Bond VIP Fund.
6. The Replacement Portfolios are
series of the Trust, a Delaware statutory
trust registered as an open-end
management investment company
under the 1940 Act (File No. 811–
23148) and whose shares are registered
under the 1933 Act (File No. 333–
210205). The Replacement Portfolios
that have begun operations are currently
available (or, in the case of the New
Replacement Portfolios) 4 only as
investment allocation options under
variable insurance contracts issued by
Guardian.
7. Park Avenue, an indirect whollyowned subsidiary of Guardian Life,
serves as the investment adviser of each
Replacement Portfolio. Park Avenue is a
Delaware limited liability company that
is registered as an investment adviser
under the Investment Advisers Act of
1940. Each Replacement Portfolio is
sub-advised by a registered investment
adviser that is unaffiliated with
Applicants, the Trust, or Park Avenue.
1 Certain Contracts make or made available
guaranteed living benefit riders (each, a ‘‘Living
Benefit Rider’’ and collectively, the ‘‘Living Benefit
Riders’’). The terms of certain Living Benefit Riders
include investment restrictions that limit the
available investment options to identified allocation
models consisting of a specified selection of
investment options. A Contract owner with a Living
Benefit Rider that has investment restrictions may
transfer Contract value by reallocating all of his
Contract value to a different allocation model under
the rider or, depending on the terms of the rider,
by reallocating his Contract value within the
parameters of the allocation model.
2 On October 18, 2018, Massachusetts Mutual Life
Insurance Company, an indirect corporate parent of
OppenheimerFunds, Inc. and certain of its
subsidiaries, announced that it has entered into an
agreement whereby Invesco Ltd. will acquire
OppenheimerFunds, Inc. (the ‘‘Transaction’’). In
connection with the Transaction, a proxy statement
has been submitted to shareholders of the
Oppenheimer Main Street Small Cap Fund/VA
(Service Shares) and the Oppenheimer Global
Strategic Income Fund/VA (Service Shares) (the
‘‘Target Funds’’). See AIM Variable Insurance
Funds (Invesco Variable Insurance Funds),
Definitive Materials (497) (Feb. 19, 2019) (File No.
333–229243). The proxy statement requests
shareholder approval to reorganize (i) the
Oppenheimer Main Street Small Cap Fund/VA
(Service Shares) into the Invesco Oppenheimer V.I.
Main Street® Small Cap Fund (Series II) and (ii) the
Oppenheimer Global Strategic Income Fund/VA
(Service Shares) into the Invesco Oppenheimer V.I.
Global Strategic Income Fund (Series II). As
described in the proxy statement, each of the
Invesco funds referenced above (the ‘‘Acquiring
Funds’’) is ‘‘a newly organized shell fund created
to acquire the assets and assume the accrued
liabilities of the corresponding [Target Fund],’’ and
no funds other than the Target Funds would be
acquired by the Acquiring Funds as part of the
Transaction. In that regard, each Acquiring Fund
does not currently have any operating or
performance history, and would be a continuation
of its Target Fund within a different fund complex
once it commences operations. Each Acquiring
Fund has the same investment objectives and
substantially similar principal investment strategies
and risks as its Target Fund. The fee structure
(including management and Rule 12b–1 fees) of
each Acquiring Fund is identical to its Target Fund.
As disclosed in the proxy statement and the
Acquiring Funds’ current prospectuses as of the
date of this Application, the net expense ratio of the
Invesco Oppenheimer V.I. Main Street® Small Cap
Fund (Series II) is identical to the Oppenheimer
Main Street Small Cap Fund/VA (Service Shares),
and the net expense ratio of the Invesco
Oppenheimer V.I. Global Strategic Income Fund
(Series II) is 0.02% lower than the net expense ratio
of the Oppenheimer Global Strategic Income Fund/
VA (Service Shares). The same portfolio
management team that manages each Target Fund
will manage the corresponding Acquired Fund. The
Acquiring Funds will not commence operations
unless and until the reorganizations occur, and
when the Acquiring Funds do commence
operations, they would continue the historical
performance information of their Target Funds. In
light of each Acquiring Fund being a continuation
of its Target Fund, if the reorganizations are
approved and occur prior to the Substitutions, the
Applicants intend to rely on the requested order of
approval to substitute the Acquiring Funds as if
they were Existing Funds under Substitution Nos.
6 and 12, and such substitutions would be
performed in accordance with the policies and
procedures and conditions set forth in this
Application. As of the date of the Application,
shareholders of the Target Funds had yet to vote on
the reorganizations.
3 Id.
4 The Replacement Portfolio that have begun
operations are: Guardian Large Cap Disciplined
Growth VIP Fund; Guardian Diversified Research
VIP Fund; Guardian Large Cap Fundamental
Growth VIP Fund; Guardian Small Cap Core VIP
Fund; Guardian Global Utilities VIP Fund;
Guardian U.S. Government Securities VIP Fund;
Guardian Total Return Bond VIP Fund; Guardian
Multi-Sector Bond VIP Fund. The New
Replacement Portfolios are: Guardian Small Cap
Core VIP Fund; Guardian Global Utilities VIP Fund;
Guardian Multi-Sector Bond VIP Fund; Guardian
Total Return Bond VIP Fund; and Guardian U.S.
Government Securities VIP Fund.
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8. The Section 26 Applicants state
that the proposed Substitutions are part
of a strategic business goal of Guardian
to improve the administrative efficiency
and cost-effectiveness of the Contracts,
as well as to make the Contracts more
attractive to Contract owners. The
Section 26 Applicants note that the
proposed Substitutions are intended to
improve portfolio manager selection 5
and simplify fund lineups while
reducing costs and maintaining a menu
of investment options that would offer
a similar diversity of investment options
after the proposed Substitutions as is
currently available under the Contracts.
The Section 26 Applicants believe that
the Replacement Portfolios have
investment objectives, principal
investment strategies, and principal
risks, as described in their prospectuses,
which are substantially similar to the
corresponding Existing Portfolios,
making those Replacement Portfolios
appropriate candidates as substitutes.
Information for each Existing Portfolio
and Replacement Portfolio, including
investment objectives, principal
investment strategies, principal risks,
and comparative performance history,
can be found in the application.
9. The Section 26 Applicants state
that for all the proposed Substitutions,
the net annual operating expenses of the
Replacement Portfolio will not exceed,
on an annualized basis, the net annual
operating expenses of any
corresponding Existing Portfolio for the
last fiscal year preceding the date of the
application (the ‘‘Expense Cap’’). The
Section 26 Applicants will cause Park
Avenue, as the investment adviser of
each Replacement Portfolio, to enter
into a written contract with the
Replacement Portfolio under which the
5 The Trust and Park Avenue may rely on an
order from the Commission that permits Park
Avenue, subject to certain conditions, including
approval of the Trust’s board of directors but
without the approval of shareholders, to select
certain wholly-owned and non-affiliated investment
sub-advisers to manage all or a portion of the assets
of each portfolio of the Trust pursuant to an
investment sub-advisory agreement with Park
Avenue, and to materially amend sub-advisory
agreements with Park Avenue. See Guardian
Variable Products Trust and Park Avenue
Institutional Advisers LLC, Investment Company
Act Release Nos. 32420 (Jan. 9, 2017) (notice) and
32468 (Feb. 6, 2017) (the ‘‘Manager of Managers
Order’’). After the Substitution Date (defined
below), Park Avenue will not change a Replacement
Portfolio’s sub-adviser, add a new sub-adviser, or
otherwise rely on the Manager of Managers Order
or any replacement order from the Commission
with respect to any Replacement Portfolio without
first obtaining shareholder approval of the change
in sub-adviser, the new sub-adviser, or the
Replacement Portfolio’s ability to rely on the
Manager of Managers Order or any replacement
order from the Commission, at a shareholder
meeting, the record date for which will be after the
proposed Substitution has been effected.
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net annual operating expenses of the
Replacement Portfolio will not exceed
the Expense Cap. The Expense Cap for
each proposed Substitution will remain
in place for a period of two years
following the implementation of the
proposed Substitution (the
‘‘Substitution Date’’), except that for
those proposed Substitutions for which
the sum of the current management fee
and rule 12b–1 fees of the Replacement
Portfolio is greater than that of the
corresponding Existing Portfolio, the
Expense Cap for that proposed
Substitution will extend for the life of
the affected Contracts following the
Substitution Date. Any amounts waived
or reimbursed by Park Avenue pursuant
to any Expense Cap will not be subject
to Park Avenue’s recoupment rights.
10. The Section 26 Applicants
represent that as of the Substitution
Date, the Separate Accounts will redeem
shares of the Existing Portfolios for cash
and/or in-kind. Redemption requests
and purchase orders will be placed
simultaneously so that Contract values
will remain fully invested at all times.
11. Each Substitution will be effected
at the relative net asset values of the
respective shares of the Replacement
Portfolios in conformity with section
22(c) of the 1940 Act and rule 22c–1
thereunder without the imposition of
any transfer or similar charges by the
Section 26 Applicants. The
Substitutions will be effected without
change in the amount or value of any
Contracts held by affected Contract
owners.6
12. Contract owners will not incur
any fees or charges as a result of the
proposed Substitutions. The obligations
of the Section 26 Applicants, and the
rights of the affected Contract owners,
under the Contracts of affected Contract
owners will not be altered in any way.
Guardian and/or its affiliates (other than
the Trust) will pay all expenses and
transaction costs of the Substitutions,
including legal and accounting
expenses, any applicable brokerage
expenses and other fees and expenses.
No fees or charges will be assessed to
6 The Section 26 Applicants state that, because
the Substitutions will occur at relative net asset
value, and the fees and charges under the Contracts
will not change as a result of the Substitutions, the
benefits offered by the guarantees under the
Contracts will be the same immediately before and
after the Substitutions. The Section 26 Applicants
also state that what effect the Substitutions may
have on the value of the benefits offered by the
Contract guarantees would depend, among other
things, on the relative future performance of the
Existing Portfolios and Replacement Portfolios,
which Applicants cannot predict. Nevertheless, the
Section 26 Applicants note that at the time of the
Substitutions, the Contracts will offer a comparable
variety of investment options with as broad a range
of risk/return characteristics.
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the affected Contract owners to effect
the Substitutions. The proposed
Substitutions will not cause the
Contract fees and charges currently
being paid by Contract owners to be
greater after the proposed Substitution
than before the proposed Substitution.
In addition, the Substitutions will in no
way alter the tax treatment of affected
Contract owners in connection with
their Contracts, and no tax liability will
arise for Contract owners as a result of
the Substitutions.
13. From the date of the PreSubstitution Notice (defined below)
through 30 days following the
Substitution Date, subject to the terms of
certain Living Benefit Riders, Contract
owners may make at least one transfer
of Contract value from the subaccount
investing in an Existing Portfolio (before
the Substitution) or the Replacement
Portfolio (after the Substitution) to any
other available subaccount under the
Contract without charge and without
imposing any transfer limitations.
Further, on the Substitution Date,
Contract values attributable to
investments in each Existing Portfolio
will be transferred to the corresponding
Replacement Portfolio without charge
and without being subject to any
transfer limitations. Moreover, except
with respect to market timing policies
and procedures and the terms of the
Living Benefit Riders, Guardian will not
exercise any rights reserved under the
Contracts to impose restrictions on
transfers between the subaccounts
under the Contracts for a period
beginning at least 30 days, including
limitations on the future number of
transfers, before the Substitution Date
through at least 30 days following the
Substitution Date.
14. At least 30 days prior to the
Substitution Date, Contract owners will
be notified via prospectus supplements
that the Section 26 Applicants received
or expect to receive Commission
approval of the applicable proposed
Substitutions and of the anticipated
Substitution Date (the ‘‘Pre-Substitution
Notice’’). Pre-Substitution Notices sent
to Contract owners will be filed with the
Commission pursuant to rule 497 under
the 1933 Act. The Pre-Substitution
Notice will advise Contract owners that
from the date of the Pre-Substitution
Notice through the date 30 days after the
Substitutions, subject to the terms of
certain Living Benefit Riders, Contract
owners may make at least one transfer
of Contract value from the subaccounts
investing in the Existing Portfolios
(before the Substitutions) or the
Replacement Portfolios (after the
Substitutions) to any other available
subaccount without charge and without
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imposing any transfer limitations.
Among other information, the PreSubstitution Notice will inform affected
Contract owners that, except with
respect to market timing policies and
procedures and limitations imposed by
Living Benefit Riders, Guardian will not
exercise any rights reserved under the
Contracts to impose additional
restrictions on transfers out of a
Replacement Portfolio subaccount from
the date of the Pre-Substitution Notice,
including limitations on the future
number of transfers, until at least 30
days after the Substitution Date.
Additionally, all affected Contract
owners will be sent prospectuses of the
applicable Replacement Portfolios at
least 30 days before the Substitution
Date.
15. In addition to the Supplements
distributed to the Contract owners,
within five business days after the
Substitution Date, Contract owners
whose assets are allocated to a
Replacement Portfolio as part of the
proposed Substitutions will be sent a
written notice (each, a ‘‘Confirmation’’)
informing them that the Substitutions
were carried out as previously notified.
The Confirmation also will restate the
information set forth in the PreSubstitution Notice. The Confirmation
will also reflect the values of the
Contract owner’s positions in the
Existing Portfolio before the
Substitution and the Replacement
Portfolio after the Substitution.
Legal Analysis
1. The Section 26 Applicants request
that the Commission issue an order
pursuant to section 26(c) of the 1940 Act
approving the proposed Substitutions.
Section 26(c) prohibits any depositor or
trustee of a unit investment trust that
invests exclusively in the securities of a
single issuer from substituting the
securities of another issuer without the
approval of the Commission. Section
26(c) provides that such approval shall
be granted by order from the
Commission if the evidence establishes
that the substitution is consistent with
the protection of investors and the
purposes of the Act.
2. The Section 26 Applicants submit
that the Substitutions meet the
standards set forth in section 26(c) and
that, if implemented, the Substitutions
would not raise any of the concerns that
Congress intended to address when the
1940 Act was amended to include this
provision. The Section 26 Applicants
state that each Substitution protects the
Contract owners who have Contract
value allocated to an Existing Portfolio
by providing Replacement Portfolios
with substantially similar investment
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objectives, strategies, and risks, and
providing Contract owners with
investment options that have net annual
operating expenses that will not exceed
the Expense Cap.
3. Guardian has reserved the right
under the Contracts to substitute shares
of another underlying fund for one of
the current funds offered as an
investment option under the Contracts.
The Contracts and the Contracts’
prospectuses disclose this right.
4. The Section 26 Applicants submit
that the ultimate effect of the proposed
Substitutions will be to simplify the
investment line-ups that are available to
Contract owners while reducing
expenses and continuing to provide
Contract owners with a wide array of
investment options. The Section 26
Applicants state that the proposed
Substitutions will not reduce in any
manner the nature or quality of the
available investment options and the
proposed Substitutions also will permit
Guardian to present information to its
Contract owners in a simpler and more
concise manner. The Section 26
Applicants also state it is anticipated
that after the proposed Substitutions,
Contract owners will be provided with
disclosure documents that contain a
simpler presentation of the available
investment options under the Contracts.
The Section 26 Applicants also assert
that the proposed Substitutions are not
of the type that section 26 was designed
to prevent because they will not result
in costly forced redemption, nor will
they affect other aspects of the
Contracts. In addition, the proposed
Substitutions will not adversely affect
any features or riders under the
Contracts. Accordingly, no Contract
owner will involuntarily lose his or her
features or riders as a result of any
proposed Substitution. Moreover,
Applicants will offer Contract owners
the opportunity to transfer amounts out
of the affected subaccounts without any
cost or other penalty (other than those
necessary to implement policies and
procedures designed to detect and deter
disruptive transfers and other ‘‘market
timing’’ activities and administer the
terms of the Living Benefit Riders) that
may otherwise have been imposed for a
period beginning on the date of the PreSubstitution Notice (which supplement
will be delivered to the Contract owners
at least 30 days before the Substitution
Date) and ending no earlier than 30 days
after the Substitution Date. The
proposed Substitutions are also unlike
the type of substitution that section
26(c) was designed to prevent in that the
Substitutions have no impact on other
aspects of the Contracts.
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5. The Section 17 Applicants request
an order under section 17(b) exempting
them from the provisions of section
17(a) to the extent necessary to permit
the Section 17 Applicants to carry out
some or all of the proposed
Substitutions. The Section 17
Applicants state that because the
proposed Substitutions may be effected,
in whole or in part, by means of in-kind
redemptions and purchases, the
proposed Substitutions may be deemed
to involve one or more purchases or
sales of securities or property between
affiliated persons.
6. Section 17(a)(1) of the 1940 Act, in
relevant part, prohibits any affiliated
person of a registered investment
company, or any affiliated person of
such person, acting as principal, from
knowingly selling any security or other
property to that company. Section
17(a)(2) of the 1940 Act generally
prohibits the persons described above,
acting as principals, from knowingly
purchasing any security or other
property from the registered investment
company.
7. The Section 17 Applicants state
that the proposed transactions may
involve a transfer of portfolio securities
by the Existing Portfolios to the Separate
Accounts. Immediately thereafter, the
Separate Accounts would purchase
shares of the Replacement Portfolios
with the portfolio securities received
from the Existing Portfolios.
Accordingly, the Section 17 Applicants
provide that to the extent that Guardian,
the Separate Accounts, the Trust, Park
Avenue, or the Replacement Portfolios,
are deemed to be affiliated persons of
one another under section 2(a)(3) or
section 2(a)(9) of the 1940 Act, it is
conceivable that this aspect of the
proposed Substitutions could be viewed
as being prohibited by section 17(a).
Accordingly, the Section 17 Applicants
have determined to seek relief from
section 17(a).
8. The Section 17 Applicants submit
that the terms of the proposed in-kind
purchases of shares of the Replacement
Portfolios by the Separate Accounts,
including the consideration to be paid
and received, as described in the
Application, are reasonable and fair and
do not involve overreaching on the part
of any person concerned. The Section
17 Applicants submit that the terms of
the proposed in-kind transactions,
including the consideration to be paid
by each Existing Portfolio and received
by each Replacement Portfolio involved,
are reasonable, fair and do not involve
overreaching principally because the
transactions will conform with all but
one of the conditions enumerated in
rule 17a–7 under the 1940 Act.
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9. The proposed transactions will take
place at relative net asset value in
conformity with the requirements of
section 22(c) of the 1940 Act and rule
22c–1 thereunder without the
imposition of any transfer or similar
charges by the Applicants. The
Substitutions will be effected without
change in the amount or value of any
Contract held by the affected Contract
owners. The Substitutions will in no
way alter the tax treatment of affected
Contract owners in connection with
their Contracts, and no tax liability will
arise for Contract owners as a result of
the Substitutions. The fees and charges
under the Contracts will not increase
because of the Substitutions. Even
though Guardian, the Separate
Accounts, the Trust, Park Avenue, and
the Replacement Portfolios may not rely
on rule 17a–7, the Section 17
Applicants believe that the rule’s
conditions outline the type of
safeguards that result in transactions
that are fair and reasonable to registered
investment company participants and
preclude overreaching in connection
with an investment company by its
affiliated persons.
10. The Section 17 Applicants also
submit that the proposed in-kind
purchases by the Separate Accounts are
consistent with the policies of the Trust
and the Replacement Portfolios, as
provided in the Trust’s current
registration statement and reports filed
under the 1940 Act. Finally, the Section
17 Applicants submit that the proposed
Substitutions are consistent with the
general purposes of the 1940 Act.
Applicants’ Conditions
The Section 26 Applicants agree that
any order granting the requested relief
will be subject to the following
conditions:
1. The Substitutions will not be
effected unless Guardian determines
that: (i) The Contracts allow the
substitution of shares of registered openend investment companies in the
manner contemplated by the
application; (ii) the Substitutions can be
consummated as described in the
application under applicable insurance
laws; and (iii) any regulatory
requirements in each jurisdiction where
the Contracts are qualified for sale have
been complied with to the extent
necessary to complete the Substitutions.
2. After the Substitution Date, Park
Avenue will not change a Replacement
Portfolio’s sub-adviser, add a new subadviser, or otherwise rely on the
Manager of Managers Order or any
replacement order from the Commission
with respect to any Replacement
Portfolio without first obtaining
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Jkt 247001
shareholder approval of the change in
sub-adviser, the new sub-adviser, or the
Replacement Portfolio’s ability to rely
on the Manager of Managers Order, or
any replacement order from the
Commission, at a shareholder meeting,
the record date for which shall be after
the proposed Substitution has been
effected.
3. Guardian or an affiliate thereof
(other than the Trust) will pay all
expenses and transaction costs of the
Substitutions, including legal and
accounting expenses, any applicable
brokerage expenses and other fees and
expenses. No fees or charges will be
assessed to the affected Contract owners
to effect the Substitutions. The proposed
Substitutions will not cause the
Contract fees and charges currently
being paid by Contract owners to be
greater after the proposed Substitution
than before the proposed Substitution.
4. The Substitutions will be effected
at the relative net asset values of the
respective shares of the Replacement
Portfolios in conformity with section
22(c) of the 1940 Act and rule 22c–1
thereunder without the imposition of
any transfer or similar charges by the
Applicants. The Substitutions will be
effected without change in the amount
or value of any Contracts held by
affected Contract owners.
5. The Substitutions will in no way
alter the tax treatment of affected
Contract owners in connection with
their Contracts, and no tax liability will
arise for Contract owners as a result of
the Substitutions.
6. The obligations of the Section 26
Applicants and the rights of the affected
Contract owners, under the Contracts of
affected Contract owners will not be
altered in any way.
7. Affected Contract owners will be
permitted to transfer Contract value
from the subaccount investing in the
Existing Portfolio (before the
Substitution Date) or the Replacement
Portfolio (after the Substitution Date) to
any other available investment option
under the Contract without charge for a
period beginning at least 30 days before
the Substitution Date through at least 30
days following the Substitution Date.
Contract owners with Living Benefit
Riders, as applicable, may transfer
Contract value from the subaccounts
investing in the Existing Portfolios
(before the Substitutions) or the
Replacement Portfolios (after the
Substitutions) to any other available
investment option available under their
respective riders without charge and
without imposing any transfer
limitations. Except as described in any
market timing/short-term trading
provisions of the relevant prospectus,
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
the Applicants will not exercise any
rights reserved under the Contracts to
impose restrictions on transfers between
the subaccounts under the Contracts,
transfers, including limitations on the
future number of transfers, for a period
beginning at least 30 days before the
Substitution Date through at least 30
days following the Substitution Date.
8. All affected Contract owners will be
notified via the Pre-Substitution Notice,
at least 30 days before the Substitution
Date, about: (i) The intended
Substitution of Existing Portfolios with
the Replacement Portfolios; (ii) the
intended Substitution Date; and (iii)
information with respect to transfers as
set forth in Condition 7 above. In
addition, the Section 26 Applicants will
also deliver to affected Contract owners,
at least 30 days before the Substitution
Date, a prospectus for each applicable
Replacement Portfolio.
9. The Section 26 Applicants will
deliver to each affected Contract owner
within five business days of the
Substitution Date a written confirmation
which will include: (i) A confirmation
that the Substitutions were carried out
as previously notified; (ii) a restatement
of the information set forth in the PreSubstitution Notice; and (iii) values of
the Contract owner’s positions in the
Existing Portfolio before the
Substitution and the Replacement
Portfolio after the Substitution.
10. Guardian will cause Park Avenue,
as the investment adviser of each
Replacement Portfolio, to enter into a
written contract with the Replacement
Portfolio whereby, for the applicable
time period, the net annual operating
expenses of the Replacement Portfolio
will not exceed, on an annualized basis,
the net annual operating expense of any
corresponding Existing Portfolio for the
last fiscal year preceding the date of this
Application. The written contract will
remain in place for a period of two years
following the Substitution Date, except
that for those proposed Substitutions for
which the sum of the current
management fee and rule 12b–1 Fee of
the Replacement Portfolio is greater
than that of the corresponding Existing
Portfolio, the written agreement will
extend for the life of the affected
Contracts following the Substitution
Date. Park Avenue will reimburse
expenses to the extent necessary under
each written agreement on the last
business day of each month. Any
amounts waived or reimbursed by Park
Avenue pursuant to this condition will
not be subject to recoupment rights. In
addition, the Section 26 Applicants will
not increase the Contract fees and
charges that would otherwise be
assessed under the terms of the
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Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Notices
Contracts for affected Contract owners
for a period of at least two years
following the Substitution Date.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–15975 Filed 7–26–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86444; File No. SR–BX–
2019–025]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Rules
Governing Give Ups on the BX Options
Market
July 23, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 9,
2019, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules governing the BX Options Market
(‘‘BX Options’’) to modify the give up of
a Clearing Participant 3 by a Participant 4
on BX Options transactions.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqbx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The term ‘‘Clearing Participant’’ means a
Participant that is self-clearing or a Participant that
clears BX Options Transactions for other
Participants of BX Options. See Chapter I, Section
1(a)(18).
4 The term ‘‘Participant’’ means a firm, or
organization that is registered with the Exchange
pursuant to Chapter II of the Exchange’s rules for
purposes of participating in options trading on BX
Options as a ‘‘BX Options Order Entry Firm’’ or
‘‘BX Options Market Maker.’’ See Chapter I, Section
1(a)(41).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
requirements in Chapter VI, Section 14
related to the give up of a Clearing
Participant by a Participant on BX
Options transactions. This proposed
rule change is substantially similar 5 to
a recently-approved rule change by the
Exchange’s affiliate, Nasdaq PHLX LLC
(‘‘Phlx’’),6 and serves to align the rules
of Phlx and the Exchange.7
By way of background, to enter
transactions on BX Options, a
Participant must either be a Clearing
Participant or must have a Clearing
Participant agree to accept financial
responsibility for all of its transactions.
In particular, Chapter VI, Section 14
currently provides that a Participant
must give up the name of the Clearing
Participant through which the
transaction will be cleared. Chapter VI,
Section 15(a) provides, in relevant part,
that every Clearing Participant shall be
responsible for the clearance of BX
Options transactions of such Clearing
Participant and of each Participant that
gives up such Clearing Participant’s
name pursuant to a letter of
authorization, letter of guarantee or
other authorization given by such
Clearing Participant to such Participant,
which authorization must be submitted
to the Exchange. Additionally Chapter
VII, Section 8 provides that no
1 15
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2 17
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5 Specifically, BX is not adopting section (c)(i) of
Phlx Rule 1037, which relates to how the Phlx
trading system will enforce unauthorized Give Ups
for floor trades.
6 See Securities Exchange Act Release No. 85136
(February 14, 2019) (SR–Phlx–2018–72) (Approval
Order).
7 The other Nasdaq, Inc.-owned options markets,
The Nasdaq Options Market, Nasdaq ISE, Nasdaq
GEMX, and Nasdaq MRX (collectively, ‘‘Nasdaq
HoldCo Exchanges’’), have already filed or will file
similar rule change proposals based on the Phlx
filing.
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
36641
Participant shall make any transactions
on BX Options unless a Letter of
Guarantee has been issued for such
Participant by a Clearing Participant and
filed with the Exchange.
Recently, certain Clearing
Participants, in conjunction with the
Securities Industry and Financial
Markets Association (‘‘SIFMA’’),
expressed concerns related to the
process by which executing brokers on
U.S. options exchanges (‘‘Exchanges’’)
are allowed to designate or ‘give up’ a
clearing firm for purposes of clearing
particular transactions. The SIFMAaffiliated Clearing Participants have
recently identified the current give up
process as a significant source of risk for
clearing firms, and subsequently
requested that the Exchanges alleviate
this risk by amending Exchange rules
governing the give up process.8
Proposed Rule Change
Based on the above, the Exchange
now seeks to amend its rules regarding
the current give up process in order to
allow a Clearing Participant to opt in, at
The Options Clearing Corporation
(‘‘OCC’’) clearing number level, to a
feature that, if enabled by the Clearing
Participant, will allow the Clearing
Participant to specify which
Participants are authorized to give up
that OCC clearing number. Accordingly,
Section 14 will be retitled as
‘‘Authorization to Give Up,’’ and the
current rule text will be replaced by
new language. Specifically, proposed
Section 14(a) will provide that for each
transaction in which a Participant
participates, the Participant may
indicate, through post trade allocation,
any OCC number of a Clearing
Participant through which a transaction
will be cleared (‘‘Give Up’’), provided
the Clearing Participant has not elected
to ‘‘Opt In,’’ as defined in paragraph (b)
of the proposed Rule, and restrict one or
more of its OCC number(s) (‘‘Restricted
OCC Number’’).9 A Participant may
Give Up a Restricted OCC Number
provided the Participant has written
authorization as described in paragraph
(b)(ii) (‘‘Authorized Participant’’).
Proposed Section 14(b) provides that
Clearing Participants may request the
Exchange restrict one or more of their
OCC clearing numbers (‘‘Opt In’’) as
8 See
note 6 above.
electronic trades need a valid mnemonic,
which is only set up if there is a clearing
arrangement already in place through a Letter of
Guarantee. As such, electronic trades automatically
clear through the guarantor associated with the
mnemonic at the time of the trade, so a member
organization may only amend its Give Up posttrade. As proposed, the Exchange will also restrict
the post-trade allocation portion of an electronic
trade systematically. See note 12 below.
9 Today,
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]]>Agencies
[Federal Register Volume 84, Number 145 (Monday, July 29, 2019)]
[Notices]
[Pages 36636-36641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15975]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33566; File No. 812-14911]
The Guardian Insurance & Annuity Company, Inc., et al.
July 23, 2019.
AGENCY: Securities and Exchange Commission (``Commission'')
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an order approving the substitution of
certain securities pursuant to section 26(c) of the Investment Company
Act of 1940, as amended (the ``1940 Act'') and an order of exemption
pursuant to section 17(b) of the Act from section 17(a) of the 1940
Act.
APPLICANTS: The Guardian Insurance & Annuity Company, Inc.,
(``Guardian''), The Guardian Separate Account Q, and The Guardian
Separate Account R (collectively, the ``Separate Accounts'' and
together with Guardian, the ``Section 26 Applicants''); and the Section
26 Applicants, Guardian Variable Products Trust (the ``Trust''), and
Park Avenue Institutional Advisers LLC (``Park Avenue'') (collectively,
the ``Section 17 Applicants''). All applicants to this Application may
also be collectively referred to herein as the ``Applicants.''
SUMMARY OF APPLICATION: Section 26 Applicants seek an order pursuant to
section 26(c) of the 1940 Act, approving the substitution of shares
issued by certain investment portfolios of registered investment
companies (the ``Existing Portfolios'') for shares of certain
investment portfolios of the Trust (the ``Replacement Portfolios''),
held by the Separate Accounts under certain variable annuity contracts
(the ``Contracts''). The Section 17 Applicants seek an order pursuant
to section 17(b) of the Act exempting them from section 17(a) of the
Act to the extent necessary to permit them to engage in certain in-kind
transactions.
FILING DATE: The application was filed on June 1, 2018 and was amended
on November 5, 2018 and April 1, 2019.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Secretary of
the Commission and serving the Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on August 19, 2019 and should be accompanied by
proof of service on the Applicants in the form of an affidavit or, for
lawyers, a certificate of service. Pursuant to rule 0-5 under the 1940
Act, hearing requests should state the nature of the writer's interest,
any facts bearing upon the desirability of a hearing on the matter, 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
Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090. Applicants: Richard T. Potter, Senior
Vice President, Counsel and Assistant Corporate Secretary, The Guardian
Insurance & Annuity Company, Inc., 7 Hanover Square, New York, New York
10004; Stephen E. Roth, Esq. and Cynthia R. Beyea, Esq., Eversheds
Sutherland (US) LLP, 700 Sixth Street NW, Suite 700, Washington, DC
20001-3980.
FOR FURTHER INFORMATION CONTACT: Jill Corrigan, Senior Counsel, at
(202) 551-8929, or Aaron Gilbride, Branch Chief at (202) 551-6906
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
Applicant using the Company name box, at https://www.sec.gov.search/search.htm, or by calling (202) 551-8090.
Applicants' Representations
1. Guardian is a Delaware stock life insurance company licensed to
conduct insurance business in the District of Columbia and all fifty
states of the United States. Guardian is wholly-owned by The Guardian
Life Insurance Company of America (``Guardian Life''), a mutual life
insurance company.
2. Each Separate Account meets the definition of ``separate
account,'' as defined in section 2(a)(37) of the 1940 Act and rule 0-
1(e) thereunder. The Separate Accounts are registered with the
Commission under the 1940 Act as unit investment trusts. The assets of
the Separate Accounts support the Contracts and interests in the
Separate Accounts offered through such Contracts. Guardian is the legal
owner of the assets in the Separate Accounts. The Separate Accounts are
segmented into subaccounts, and each subaccount invests in an
underlying registered open-end management investment company or series
thereof.
3. The Contracts are each registered under the Securities Act of
1933, as amended (the ``1933 Act'') on Form N-4. Each Contract has
particular fees, charges, and investment options, as described in the
Contracts' respective prospectuses.
4. The Contracts are individual flexible or single premium deferred
variable annuity contracts. As set forth in the prospectuses for the
Contracts, each Contract provides that Guardian reserves the right to
substitute shares of the funds in which the Separate Accounts invest
for shares of any funds
[[Page 36637]]
already held or to be held in the future by the Separate Accounts.\1\
---------------------------------------------------------------------------
\1\ Certain Contracts make or made available guaranteed living
benefit riders (each, a ``Living Benefit Rider'' and collectively,
the ``Living Benefit Riders''). The terms of certain Living Benefit
Riders include investment restrictions that limit the available
investment options to identified allocation models consisting of a
specified selection of investment options. A Contract owner with a
Living Benefit Rider that has investment restrictions may transfer
Contract value by reallocating all of his Contract value to a
different allocation model under the rider or, depending on the
terms of the rider, by reallocating his Contract value within the
parameters of the allocation model.
---------------------------------------------------------------------------
5. Guardian, on behalf of itself and the Separate Accounts,
proposes to exercise its contractual right to substitute shares of the
Existing Portfolios for shares of the Replacement Portfolios
(``Substitutions''), as shown in the table below:
---------------------------------------------------------------------------
\2\ On October 18, 2018, Massachusetts Mutual Life Insurance
Company, an indirect corporate parent of OppenheimerFunds, Inc. and
certain of its subsidiaries, announced that it has entered into an
agreement whereby Invesco Ltd. will acquire OppenheimerFunds, Inc.
(the ``Transaction''). In connection with the Transaction, a proxy
statement has been submitted to shareholders of the Oppenheimer Main
Street Small Cap Fund/VA (Service Shares) and the Oppenheimer Global
Strategic Income Fund/VA (Service Shares) (the ``Target Funds'').
See AIM Variable Insurance Funds (Invesco Variable Insurance Funds),
Definitive Materials (497) (Feb. 19, 2019) (File No. 333-229243).
The proxy statement requests shareholder approval to reorganize (i)
the Oppenheimer Main Street Small Cap Fund/VA (Service Shares) into
the Invesco Oppenheimer V.I. Main Street[supreg] Small Cap Fund
(Series II) and (ii) the Oppenheimer Global Strategic Income Fund/VA
(Service Shares) into the Invesco Oppenheimer V.I. Global Strategic
Income Fund (Series II). As described in the proxy statement, each
of the Invesco funds referenced above (the ``Acquiring Funds'') is
``a newly organized shell fund created to acquire the assets and
assume the accrued liabilities of the corresponding [Target Fund],''
and no funds other than the Target Funds would be acquired by the
Acquiring Funds as part of the Transaction. In that regard, each
Acquiring Fund does not currently have any operating or performance
history, and would be a continuation of its Target Fund within a
different fund complex once it commences operations. Each Acquiring
Fund has the same investment objectives and substantially similar
principal investment strategies and risks as its Target Fund. The
fee structure (including management and Rule 12b-1 fees) of each
Acquiring Fund is identical to its Target Fund. As disclosed in the
proxy statement and the Acquiring Funds' current prospectuses as of
the date of this Application, the net expense ratio of the Invesco
Oppenheimer V.I. Main Street[supreg] Small Cap Fund (Series II) is
identical to the Oppenheimer Main Street Small Cap Fund/VA (Service
Shares), and the net expense ratio of the Invesco Oppenheimer V.I.
Global Strategic Income Fund (Series II) is 0.02% lower than the net
expense ratio of the Oppenheimer Global Strategic Income Fund/VA
(Service Shares). The same portfolio management team that manages
each Target Fund will manage the corresponding Acquired Fund. The
Acquiring Funds will not commence operations unless and until the
reorganizations occur, and when the Acquiring Funds do commence
operations, they would continue the historical performance
information of their Target Funds. In light of each Acquiring Fund
being a continuation of its Target Fund, if the reorganizations are
approved and occur prior to the Substitutions, the Applicants intend
to rely on the requested order of approval to substitute the
Acquiring Funds as if they were Existing Funds under Substitution
Nos. 6 and 12, and such substitutions would be performed in
accordance with the policies and procedures and conditions set forth
in this Application. As of the date of the Application, shareholders
of the Target Funds had yet to vote on the reorganizations.
\3\ Id.
------------------------------------------------------------------------
Substitution No. Existing portfolio Replacement portfolio
------------------------------------------------------------------------
1................... Fidelity VIP Contrafund Guardian Large Cap
Portfolio (Service Disciplined Growth VIP
Class 2). Fund.
2................... AB Large Cap Growth Guardian Large Cap
Portfolio (Class B). Disciplined Growth VIP
Fund.
3................... Franklin Rising Guardian Diversified
Dividends VIP Fund Research VIP Fund.
(Class 2).
4................... BlackRock Capital Guardian Large Cap
Appreciation V.I. Fund Fundamental Growth VIP
(Class III). Fund.
5................... Invesco V.I. Small Cap Guardian Small Cap Core
Equity Fund (Series II). VIP Fund.
6................... Oppenheimer Main Street Guardian Small Cap Core
Small Cap Fund/VA VIP Fund.
(Service Shares) \2\.
7................... MFS[supreg] Utilities Guardian Global
Series (Service Class). Utilities VIP Fund.
8................... Franklin U.S. Government Guardian U.S. Government
Securities VIP Fund Securities VIP Fund.
(Class 2).
9................... Invesco V.I. Government Guardian U.S. Government
Securities Fund (Series Securities VIP Fund.
II).
10.................. PIMCO Total Return Guardian Total Return
Portfolio (Advisor Bond VIP Fund.
Class).
11.................. Western Asset Core Plus Guardian Total Return
VIT Portfolio (Class Bond VIP Fund.
II).
12.................. Oppenheimer Global Guardian Multi-Sector
Strategic Income Fund/ Bond VIP Fund.
VA (Service Shares) \3\.
------------------------------------------------------------------------
6. The Replacement Portfolios are series of the Trust, a Delaware
statutory trust registered as an open-end management investment company
under the 1940 Act (File No. 811-23148) and whose shares are registered
under the 1933 Act (File No. 333-210205). The Replacement Portfolios
that have begun operations are currently available (or, in the case of
the New Replacement Portfolios) \4\ only as investment allocation
options under variable insurance contracts issued by Guardian.
---------------------------------------------------------------------------
\4\ The Replacement Portfolio that have begun operations are:
Guardian Large Cap Disciplined Growth VIP Fund; Guardian Diversified
Research VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund;
Guardian Small Cap Core VIP Fund; Guardian Global Utilities VIP
Fund; Guardian U.S. Government Securities VIP Fund; Guardian Total
Return Bond VIP Fund; Guardian Multi-Sector Bond VIP Fund. The New
Replacement Portfolios are: Guardian Small Cap Core VIP Fund;
Guardian Global Utilities VIP Fund; Guardian Multi-Sector Bond VIP
Fund; Guardian Total Return Bond VIP Fund; and Guardian U.S.
Government Securities VIP Fund.
---------------------------------------------------------------------------
7. Park Avenue, an indirect wholly-owned subsidiary of Guardian
Life, serves as the investment adviser of each Replacement Portfolio.
Park Avenue is a Delaware limited liability company that is registered
as an investment adviser under the Investment Advisers Act of 1940.
Each Replacement Portfolio is sub-advised by a registered investment
adviser that is unaffiliated with Applicants, the Trust, or Park
Avenue.
[[Page 36638]]
8. The Section 26 Applicants state that the proposed Substitutions
are part of a strategic business goal of Guardian to improve the
administrative efficiency and cost-effectiveness of the Contracts, as
well as to make the Contracts more attractive to Contract owners. The
Section 26 Applicants note that the proposed Substitutions are intended
to improve portfolio manager selection \5\ and simplify fund lineups
while reducing costs and maintaining a menu of investment options that
would offer a similar diversity of investment options after the
proposed Substitutions as is currently available under the Contracts.
The Section 26 Applicants believe that the Replacement Portfolios have
investment objectives, principal investment strategies, and principal
risks, as described in their prospectuses, which are substantially
similar to the corresponding Existing Portfolios, making those
Replacement Portfolios appropriate candidates as substitutes.
Information for each Existing Portfolio and Replacement Portfolio,
including investment objectives, principal investment strategies,
principal risks, and comparative performance history, can be found in
the application.
---------------------------------------------------------------------------
\5\ The Trust and Park Avenue may rely on an order from the
Commission that permits Park Avenue, subject to certain conditions,
including approval of the Trust's board of directors but without the
approval of shareholders, to select certain wholly-owned and non-
affiliated investment sub-advisers to manage all or a portion of the
assets of each portfolio of the Trust pursuant to an investment sub-
advisory agreement with Park Avenue, and to materially amend sub-
advisory agreements with Park Avenue. See Guardian Variable Products
Trust and Park Avenue Institutional Advisers LLC, Investment Company
Act Release Nos. 32420 (Jan. 9, 2017) (notice) and 32468 (Feb. 6,
2017) (the ``Manager of Managers Order''). After the Substitution
Date (defined below), Park Avenue will not change a Replacement
Portfolio's sub-adviser, add a new sub-adviser, or otherwise rely on
the Manager of Managers Order or any replacement order from the
Commission with respect to any Replacement Portfolio without first
obtaining shareholder approval of the change in sub-adviser, the new
sub-adviser, or the Replacement Portfolio's ability to rely on the
Manager of Managers Order or any replacement order from the
Commission, at a shareholder meeting, the record date for which will
be after the proposed Substitution has been effected.
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9. The Section 26 Applicants state that for all the proposed
Substitutions, the net annual operating expenses of the Replacement
Portfolio will not exceed, on an annualized basis, the net annual
operating expenses of any corresponding Existing Portfolio for the last
fiscal year preceding the date of the application (the ``Expense
Cap''). The Section 26 Applicants will cause Park Avenue, as the
investment adviser of each Replacement Portfolio, to enter into a
written contract with the Replacement Portfolio under which the net
annual operating expenses of the Replacement Portfolio will not exceed
the Expense Cap. The Expense Cap for each proposed Substitution will
remain in place for a period of two years following the implementation
of the proposed Substitution (the ``Substitution Date''), except that
for those proposed Substitutions for which the sum of the current
management fee and rule 12b-1 fees of the Replacement Portfolio is
greater than that of the corresponding Existing Portfolio, the Expense
Cap for that proposed Substitution will extend for the life of the
affected Contracts following the Substitution Date. Any amounts waived
or reimbursed by Park Avenue pursuant to any Expense Cap will not be
subject to Park Avenue's recoupment rights.
10. The Section 26 Applicants represent that as of the Substitution
Date, the Separate Accounts will redeem shares of the Existing
Portfolios for cash and/or in-kind. Redemption requests and purchase
orders will be placed simultaneously so that Contract values will
remain fully invested at all times.
11. Each Substitution will be effected at the relative net asset
values of the respective shares of the Replacement Portfolios in
conformity with section 22(c) of the 1940 Act and rule 22c-1 thereunder
without the imposition of any transfer or similar charges by the
Section 26 Applicants. The Substitutions will be effected without
change in the amount or value of any Contracts held by affected
Contract owners.\6\
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\6\ The Section 26 Applicants state that, because the
Substitutions will occur at relative net asset value, and the fees
and charges under the Contracts will not change as a result of the
Substitutions, the benefits offered by the guarantees under the
Contracts will be the same immediately before and after the
Substitutions. The Section 26 Applicants also state that what effect
the Substitutions may have on the value of the benefits offered by
the Contract guarantees would depend, among other things, on the
relative future performance of the Existing Portfolios and
Replacement Portfolios, which Applicants cannot predict.
Nevertheless, the Section 26 Applicants note that at the time of the
Substitutions, the Contracts will offer a comparable variety of
investment options with as broad a range of risk/return
characteristics.
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12. Contract owners will not incur any fees or charges as a result
of the proposed Substitutions. The obligations of the Section 26
Applicants, and the rights of the affected Contract owners, under the
Contracts of affected Contract owners will not be altered in any way.
Guardian and/or its affiliates (other than the Trust) will pay all
expenses and transaction costs of the Substitutions, including legal
and accounting expenses, any applicable brokerage expenses and other
fees and expenses. No fees or charges will be assessed to the affected
Contract owners to effect the Substitutions. The proposed Substitutions
will not cause the Contract fees and charges currently being paid by
Contract owners to be greater after the proposed Substitution than
before the proposed Substitution. In addition, the Substitutions will
in no way alter the tax treatment of affected Contract owners in
connection with their Contracts, and no tax liability will arise for
Contract owners as a result of the Substitutions.
13. From the date of the Pre-Substitution Notice (defined below)
through 30 days following the Substitution Date, subject to the terms
of certain Living Benefit Riders, Contract owners may make at least one
transfer of Contract value from the subaccount investing in an Existing
Portfolio (before the Substitution) or the Replacement Portfolio (after
the Substitution) to any other available subaccount under the Contract
without charge and without imposing any transfer limitations. Further,
on the Substitution Date, Contract values attributable to investments
in each Existing Portfolio will be transferred to the corresponding
Replacement Portfolio without charge and without being subject to any
transfer limitations. Moreover, except with respect to market timing
policies and procedures and the terms of the Living Benefit Riders,
Guardian will not exercise any rights reserved under the Contracts to
impose restrictions on transfers between the subaccounts under the
Contracts for a period beginning at least 30 days, including
limitations on the future number of transfers, before the Substitution
Date through at least 30 days following the Substitution Date.
14. At least 30 days prior to the Substitution Date, Contract
owners will be notified via prospectus supplements that the Section 26
Applicants received or expect to receive Commission approval of the
applicable proposed Substitutions and of the anticipated Substitution
Date (the ``Pre-Substitution Notice''). Pre-Substitution Notices sent
to Contract owners will be filed with the Commission pursuant to rule
497 under the 1933 Act. The Pre-Substitution Notice will advise
Contract owners that from the date of the Pre-Substitution Notice
through the date 30 days after the Substitutions, subject to the terms
of certain Living Benefit Riders, Contract owners may make at least one
transfer of Contract value from the subaccounts investing in the
Existing Portfolios (before the Substitutions) or the Replacement
Portfolios (after the Substitutions) to any other available subaccount
without charge and without
[[Page 36639]]
imposing any transfer limitations. Among other information, the Pre-
Substitution Notice will inform affected Contract owners that, except
with respect to market timing policies and procedures and limitations
imposed by Living Benefit Riders, Guardian will not exercise any rights
reserved under the Contracts to impose additional restrictions on
transfers out of a Replacement Portfolio subaccount from the date of
the Pre-Substitution Notice, including limitations on the future number
of transfers, until at least 30 days after the Substitution Date.
Additionally, all affected Contract owners will be sent prospectuses of
the applicable Replacement Portfolios at least 30 days before the
Substitution Date.
15. In addition to the Supplements distributed to the Contract
owners, within five business days after the Substitution Date, Contract
owners whose assets are allocated to a Replacement Portfolio as part of
the proposed Substitutions will be sent a written notice (each, a
``Confirmation'') informing them that the Substitutions were carried
out as previously notified. The Confirmation also will restate the
information set forth in the Pre-Substitution Notice. The Confirmation
will also reflect the values of the Contract owner's positions in the
Existing Portfolio before the Substitution and the Replacement
Portfolio after the Substitution.
Legal Analysis
1. The Section 26 Applicants request that the Commission issue an
order pursuant to section 26(c) of the 1940 Act approving the proposed
Substitutions. Section 26(c) prohibits any depositor or trustee of a
unit investment trust that invests exclusively in the securities of a
single issuer from substituting the securities of another issuer
without the approval of the Commission. Section 26(c) provides that
such approval shall be granted by order from the Commission if the
evidence establishes that the substitution is consistent with the
protection of investors and the purposes of the Act.
2. The Section 26 Applicants submit that the Substitutions meet the
standards set forth in section 26(c) and that, if implemented, the
Substitutions would not raise any of the concerns that Congress
intended to address when the 1940 Act was amended to include this
provision. The Section 26 Applicants state that each Substitution
protects the Contract owners who have Contract value allocated to an
Existing Portfolio by providing Replacement Portfolios with
substantially similar investment objectives, strategies, and risks, and
providing Contract owners with investment options that have net annual
operating expenses that will not exceed the Expense Cap.
3. Guardian has reserved the right under the Contracts to
substitute shares of another underlying fund for one of the current
funds offered as an investment option under the Contracts. The
Contracts and the Contracts' prospectuses disclose this right.
4. The Section 26 Applicants submit that the ultimate effect of the
proposed Substitutions will be to simplify the investment line-ups that
are available to Contract owners while reducing expenses and continuing
to provide Contract owners with a wide array of investment options. The
Section 26 Applicants state that the proposed Substitutions will not
reduce in any manner the nature or quality of the available investment
options and the proposed Substitutions also will permit Guardian to
present information to its Contract owners in a simpler and more
concise manner. The Section 26 Applicants also state it is anticipated
that after the proposed Substitutions, Contract owners will be provided
with disclosure documents that contain a simpler presentation of the
available investment options under the Contracts. The Section 26
Applicants also assert that the proposed Substitutions are not of the
type that section 26 was designed to prevent because they will not
result in costly forced redemption, nor will they affect other aspects
of the Contracts. In addition, the proposed Substitutions will not
adversely affect any features or riders under the Contracts.
Accordingly, no Contract owner will involuntarily lose his or her
features or riders as a result of any proposed Substitution. Moreover,
Applicants will offer Contract owners the opportunity to transfer
amounts out of the affected subaccounts without any cost or other
penalty (other than those necessary to implement policies and
procedures designed to detect and deter disruptive transfers and other
``market timing'' activities and administer the terms of the Living
Benefit Riders) that may otherwise have been imposed for a period
beginning on the date of the Pre-Substitution Notice (which supplement
will be delivered to the Contract owners at least 30 days before the
Substitution Date) and ending no earlier than 30 days after the
Substitution Date. The proposed Substitutions are also unlike the type
of substitution that section 26(c) was designed to prevent in that the
Substitutions have no impact on other aspects of the Contracts.
5. The Section 17 Applicants request an order under section 17(b)
exempting them from the provisions of section 17(a) to the extent
necessary to permit the Section 17 Applicants to carry out some or all
of the proposed Substitutions. The Section 17 Applicants state that
because the proposed Substitutions may be effected, in whole or in
part, by means of in-kind redemptions and purchases, the proposed
Substitutions may be deemed to involve one or more purchases or sales
of securities or property between affiliated persons.
6. Section 17(a)(1) of the 1940 Act, in relevant part, prohibits
any affiliated person of a registered investment company, or any
affiliated person of such person, acting as principal, from knowingly
selling any security or other property to that company. Section
17(a)(2) of the 1940 Act generally prohibits the persons described
above, acting as principals, from knowingly purchasing any security or
other property from the registered investment company.
7. The Section 17 Applicants state that the proposed transactions
may involve a transfer of portfolio securities by the Existing
Portfolios to the Separate Accounts. Immediately thereafter, the
Separate Accounts would purchase shares of the Replacement Portfolios
with the portfolio securities received from the Existing Portfolios.
Accordingly, the Section 17 Applicants provide that to the extent that
Guardian, the Separate Accounts, the Trust, Park Avenue, or the
Replacement Portfolios, are deemed to be affiliated persons of one
another under section 2(a)(3) or section 2(a)(9) of the 1940 Act, it is
conceivable that this aspect of the proposed Substitutions could be
viewed as being prohibited by section 17(a). Accordingly, the Section
17 Applicants have determined to seek relief from section 17(a).
8. The Section 17 Applicants submit that the terms of the proposed
in-kind purchases of shares of the Replacement Portfolios by the
Separate Accounts, including the consideration to be paid and received,
as described in the Application, are reasonable and fair and do not
involve overreaching on the part of any person concerned. The Section
17 Applicants submit that the terms of the proposed in-kind
transactions, including the consideration to be paid by each Existing
Portfolio and received by each Replacement Portfolio involved, are
reasonable, fair and do not involve overreaching principally because
the transactions will conform with all but one of the conditions
enumerated in rule 17a-7 under the 1940 Act.
[[Page 36640]]
9. The proposed transactions will take place at relative net asset
value in conformity with the requirements of section 22(c) of the 1940
Act and rule 22c-1 thereunder without the imposition of any transfer or
similar charges by the Applicants. The Substitutions will be effected
without change in the amount or value of any Contract held by the
affected Contract owners. The Substitutions will in no way alter the
tax treatment of affected Contract owners in connection with their
Contracts, and no tax liability will arise for Contract owners as a
result of the Substitutions. The fees and charges under the Contracts
will not increase because of the Substitutions. Even though Guardian,
the Separate Accounts, the Trust, Park Avenue, and the Replacement
Portfolios may not rely on rule 17a-7, the Section 17 Applicants
believe that the rule's conditions outline the type of safeguards that
result in transactions that are fair and reasonable to registered
investment company participants and preclude overreaching in connection
with an investment company by its affiliated persons.
10. The Section 17 Applicants also submit that the proposed in-kind
purchases by the Separate Accounts are consistent with the policies of
the Trust and the Replacement Portfolios, as provided in the Trust's
current registration statement and reports filed under the 1940 Act.
Finally, the Section 17 Applicants submit that the proposed
Substitutions are consistent with the general purposes of the 1940 Act.
Applicants' Conditions
The Section 26 Applicants agree that any order granting the
requested relief will be subject to the following conditions:
1. The Substitutions will not be effected unless Guardian
determines that: (i) The Contracts allow the substitution of shares of
registered open-end investment companies in the manner contemplated by
the application; (ii) the Substitutions can be consummated as described
in the application under applicable insurance laws; and (iii) any
regulatory requirements in each jurisdiction where the Contracts are
qualified for sale have been complied with to the extent necessary to
complete the Substitutions.
2. After the Substitution Date, Park Avenue will not change a
Replacement Portfolio's sub-adviser, add a new sub-adviser, or
otherwise rely on the Manager of Managers Order or any replacement
order from the Commission with respect to any Replacement Portfolio
without first obtaining shareholder approval of the change in sub-
adviser, the new sub-adviser, or the Replacement Portfolio's ability to
rely on the Manager of Managers Order, or any replacement order from
the Commission, at a shareholder meeting, the record date for which
shall be after the proposed Substitution has been effected.
3. Guardian or an affiliate thereof (other than the Trust) will pay
all expenses and transaction costs of the Substitutions, including
legal and accounting expenses, any applicable brokerage expenses and
other fees and expenses. No fees or charges will be assessed to the
affected Contract owners to effect the Substitutions. The proposed
Substitutions will not cause the Contract fees and charges currently
being paid by Contract owners to be greater after the proposed
Substitution than before the proposed Substitution.
4. The Substitutions will be effected at the relative net asset
values of the respective shares of the Replacement Portfolios in
conformity with section 22(c) of the 1940 Act and rule 22c-1 thereunder
without the imposition of any transfer or similar charges by the
Applicants. The Substitutions will be effected without change in the
amount or value of any Contracts held by affected Contract owners.
5. The Substitutions will in no way alter the tax treatment of
affected Contract owners in connection with their Contracts, and no tax
liability will arise for Contract owners as a result of the
Substitutions.
6. The obligations of the Section 26 Applicants and the rights of
the affected Contract owners, under the Contracts of affected Contract
owners will not be altered in any way.
7. Affected Contract owners will be permitted to transfer Contract
value from the subaccount investing in the Existing Portfolio (before
the Substitution Date) or the Replacement Portfolio (after the
Substitution Date) to any other available investment option under the
Contract without charge for a period beginning at least 30 days before
the Substitution Date through at least 30 days following the
Substitution Date. Contract owners with Living Benefit Riders, as
applicable, may transfer Contract value from the subaccounts investing
in the Existing Portfolios (before the Substitutions) or the
Replacement Portfolios (after the Substitutions) to any other available
investment option available under their respective riders without
charge and without imposing any transfer limitations. Except as
described in any market timing/short-term trading provisions of the
relevant prospectus, the Applicants will not exercise any rights
reserved under the Contracts to impose restrictions on transfers
between the subaccounts under the Contracts, transfers, including
limitations on the future number of transfers, for a period beginning
at least 30 days before the Substitution Date through at least 30 days
following the Substitution Date.
8. All affected Contract owners will be notified via the Pre-
Substitution Notice, at least 30 days before the Substitution Date,
about: (i) The intended Substitution of Existing Portfolios with the
Replacement Portfolios; (ii) the intended Substitution Date; and (iii)
information with respect to transfers as set forth in Condition 7
above. In addition, the Section 26 Applicants will also deliver to
affected Contract owners, at least 30 days before the Substitution
Date, a prospectus for each applicable Replacement Portfolio.
9. The Section 26 Applicants will deliver to each affected Contract
owner within five business days of the Substitution Date a written
confirmation which will include: (i) A confirmation that the
Substitutions were carried out as previously notified; (ii) a
restatement of the information set forth in the Pre-Substitution
Notice; and (iii) values of the Contract owner's positions in the
Existing Portfolio before the Substitution and the Replacement
Portfolio after the Substitution.
10. Guardian will cause Park Avenue, as the investment adviser of
each Replacement Portfolio, to enter into a written contract with the
Replacement Portfolio whereby, for the applicable time period, the net
annual operating expenses of the Replacement Portfolio will not exceed,
on an annualized basis, the net annual operating expense of any
corresponding Existing Portfolio for the last fiscal year preceding the
date of this Application. The written contract will remain in place for
a period of two years following the Substitution Date, except that for
those proposed Substitutions for which the sum of the current
management fee and rule 12b-1 Fee of the Replacement Portfolio is
greater than that of the corresponding Existing Portfolio, the written
agreement will extend for the life of the affected Contracts following
the Substitution Date. Park Avenue will reimburse expenses to the
extent necessary under each written agreement on the last business day
of each month. Any amounts waived or reimbursed by Park Avenue pursuant
to this condition will not be subject to recoupment rights. In
addition, the Section 26 Applicants will not increase the Contract fees
and charges that would otherwise be assessed under the terms of the
[[Page 36641]]
Contracts for affected Contract owners for a period of at least two
years following the Substitution Date.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15975 Filed 7-26-19; 8:45 am]
BILLING CODE 8011-01-P
