Document ID: SEC-2016-0126-0001
Agency: sec
Document Type: Notice
Title: Applications: The Guardian Insurance and Annuity Company, Inc., et al.
Posted Date: 2016-01-22T05:00Z

[Federal Register Volume 81, Number 14 (Friday, January 22, 2016)]
[Notices]
[Pages 3847-3850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01230]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31958; File No. 812-14449]

The Guardian Insurance & Annuity Company, Inc., et al; Notice of 
Application

January 15, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: 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'').

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APPLICANTS: The Guardian Insurance & Annuity Company (the ``Company''), 
The Guardian Separate Account K, The Guardian Separate Account M, The 
Guardian Separate Account N (each, a ``Life Account'') and The Guardian 
Separate Account R (the ``Annuity Account'' and together with the Life 
Accounts, the ``Accounts'') (together, the ``Applicants'').

SUMMARY OF APPLICATION: The Applicants seek an order pursuant to 
Section 26(c) of the 1940 Act approving the substitution of shares 
issued by certain investment portfolios (the ``Existing Funds'') of 
registered investment companies with shares of certain investment 
portfolios (the ``Replacement Funds'') of registered investment 
companies, under certain variable life insurance policies and variable 
annuity contracts issued by the Company (the ``Contracts''), each 
funded through the Accounts.

FILING DATE: The application was filed on April 24, 2015, and amended 
on September 4, 2015, and November 10, 2015.

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 Commission's 
Secretary and serving 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 February 9, 2016, and should be accompanied by proof of 
service on 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, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: Richard T. Potter, 
The Guardian Insurance & Annuity Company, Inc., 7 Hanover Square, New 
York, New York 10004.

FOR FURTHER INFORMATION CONTACT: Elizabeth G. Miller, Senior Counsel, 
at (202) 551-8707, or Holly L. Hunter-Ceci, Branch Chief, at (202) 551-
6825 (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 Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Company is a stock life insurance company incorporated in 
the State of Delaware. The Company is wholly owned by The Guardian Life 
Insurance Company of America, a mutual life insurance company organized 
in the State of New York (``Guardian Life''). Guardian Life does not 
issue the Contracts and does not guarantee any benefits provided under 
the Contracts.
    2. Each Account is a ``separate account'' as defined in Rule 0-1(e) 
under the 1940 Act and is registered with the Commission as a unit 
investment trust under the 1940 Act. The interests in each Account 
offered through the Contracts have been registered under the Securities 
Act of 1933 on Form N-4 for the variable annuity Contracts offered 
under the Annuity Account, and on Form N-6 for the variable life 
insurance Contracts offered under the Life Accounts. The application 
sets forth the registration statement file numbers for the Accounts. 
Each Account was established by the board of directors of the Company 
under the laws of the State of Delaware as follows:

------------------------------------------------------------------------
           Separate account                     Date established
------------------------------------------------------------------------
The Guardian Separate Account K.......  November 18, 1993.
The Guardian Separate Account M.......  February 27, 1997.
The Guardian Separate Account N.......  September 23, 1999.
The Guardian Separate Account R.......  March 12, 2003.
------------------------------------------------------------------------

    3. Each Account supports certain Contracts issued by the Company. 
Each Account consists of investment divisions, each corresponding to a 
registered open-end management investment company or series of a 
registered open-end management investment company in which the Account 
invests. The assets of each Account equal to its reserves and other 
liabilities are not chargeable with the Company's obligations except 
those under Contracts issued through such Account. Income, gains and 
losses, whether or not realized, of each Account are kept separate from 
other income, gains or losses of the Company and other separate 
accounts. The income and capital gains or capital losses of each 
investment division, whether realized or unrealized, are credited to or 
charged against the assets held in that division according to the terms 
of the applicable Contract, without regard to the income, capital gains 
or capital losses of the other investment divisions of the Company.
    4. The Contracts are flexible premium or modified scheduled premium 
variable life insurance policies and variable annuity contracts. For so 
long as a variable life insurance Contract remains in force or a 
variable annuity Contract has not yet been annuitized, a Contract owner 
may transfer all or part of their accumulation values among the 
variable investment options under the

[[Page 3848]]

Contracts, subject to certain limits as described in the applicable 
Contract prospectus, or to a fixed or indexed account in the case of 
some of the Contracts. The terms and conditions, including charges and 
expenses, applicable to each Contract are described in the prospectus 
relating to such Contract.
    5. The Applicants state that under the Contracts, the Company 
reserves the right, subject to Commission approval and compliance with 
applicable law, to substitute shares of one registered open-end 
management investment company available as a variable investment option 
for shares of another registered open-end management investment 
company.
    6. The Applicants propose the substitution of shares of Existing 
Funds currently held by the Life Accounts and the Annuity Account to 
support variable life insurance policies and variable annuity contracts 
issued by the Company for shares of the Replacement Funds 
(``Substitutions''):

------------------------------------------------------------------------
       Substitution             Existing fund         Replacement fund
------------------------------------------------------------------------
1.........................  Pioneer Disciplined    AB VPS Growth and
                             Value VCT Portfolio--  Income Portfolio--
                             Class II Shares.       Class B Shares.
2.........................  Columbia Variable      Janus Aspen Series--
                             Portfolio--Seligman    Global Technology
                             Global Technology      Portfolio--Service
                             Fund--Class 2 Shares.  Shares.
3.........................  Dreyfus Variable       Putnam VT Investors
                             Investment Fund:       Fund--Class IB
                             Appreciation           Shares.
                             Portfolio--Service
                             Class Shares.
4.........................  AB VPS International   Templeton Foreign VIP
                             Value Portfolio--      Fund--Class 2
                             Class B Shares.        Shares.
------------------------------------------------------------------------

    7. Applicants represent that under the proposed Substitutions, each 
Existing Fund's shares will be redeemed for cash, and the cash from the 
redemption will be used to purchase shares of the respective 
Replacement Fund.
    8. The Applicants represent that the proposed Substitutions and the 
selection of the Replacement Funds were not motivated by any financial 
consideration paid or to be paid to the Company or its affiliates by 
the respective Replacement Fund, its adviser or underwriter, or their 
affiliates.
    9. The Applicants represent that each proposed Substitution is 
appropriate given the substantial similarity between the stated 
investment objectives and principal investment strategies of each 
Existing Fund as compared to each corresponding Replacement Fund, which 
would offer Contract owners continuity of their investment strategies 
and risks. The Applicants state that the proposed Substitutions are 
expected to provide competitive long-term returns as compared to the 
Existing Funds. Additional information for each Existing Fund and the 
corresponding Replacement Fund, including investment objectives, 
principal investment strategies, principal risks, and performance can 
be found in the application.
    10. The Applicants represent that the proposed Substitutions will 
be described to the applicable prospectuses for the Contracts filed 
with the Commission or in other supplemental disclosure documents for 
the Contracts (collectively, the ``Supplements''). The Supplements 
will: (a) Give Contract owners notice of the Company's intention to 
take the necessary actions to substitute shares of the Existing Funds 
on the Substitution Date (defined herein); (b) advise Contract owners 
of their pre- and post-Substitution transfer rights; (c) instruct 
Contract owners how to submit transfer requests in light of the 
proposed Substitutions; and (d) advise Contract owners that any 
Contract value remaining in an Existing Fund Subaccount on the 
Substitution Date will be transferred to a subaccount investing in the 
corresponding Replacement Fund, and that the Substitutions will take 
place at relative net asset value. From the date of the Supplements 
(which will be at least 30 days prior to the Substitution Date) until 
the Substitution Date, Contract owners will have a pre-Substitution 
transfer right, the specifics of which will be determined by whether 
they have selected an optional living benefit rider, as discussed in 
more detail in the application.\1\
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    \1\ Certain Contract owners have selected a Contract rider that 
provides a living benefit rider. The terms of the living benefit 
riders offered by the Company limit the available investment options 
to identified allocation models consisting of a specified selection 
of registered open-end management investment companies available as 
variable investment options under the applicable Contract. Each 
allocation model sets forth a specific allocation percentage for 
each variable investment option within the model. For Contract 
owners who have selected a living benefit rider, all transfers, 
including the transfers contemplated by condition 6 of this Notice, 
are limited to transfers of the entire Contract value to one of the 
other allocation models available under the applicable living 
benefit rider. On the Substitution Date, assets in a living benefit 
rider allocation model that are held in an Existing Fund Subaccount 
will be transferred to the applicable Replacement Fund Subaccount.
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    11. The Supplement will also inform Contract owners that, except as 
described in the market timing limitations section or limitations 
imposed by any living benefit riders of the relevant prospectus or 
disclosure document, the Company will not exercise any rights reserved 
by it under the Contracts to impose additional restrictions on 
transfers out of a Replacement Fund Subaccount from the date of the 
Supplements (which will be at least 30 days prior to the Substitution 
Date) until at least 30 days after the Substitution Date.
    12. The Company will send affected Contract owners a written 
confirmation of the completed proposed Substitutions in accordance with 
Rule 10b-10 under the Securities Exchange Act of 1934. The Company will 
deliver to each affected Contract owner within five business days of 
the date of the proposed Substitutions (the ``Substitution Date'') a 
written confirmation which will include: (a) A confirmation that the 
proposed Substitutions were carried out as previously notified; (b) a 
restatement of the information set forth in the Supplements; and (c) 
before and after account values. The confirmation statement will also 
include or be accompanied by a statement that reiterates the free 
transfer rights disclosed in the Supplements. The Company will also 
send each Contract owner a current prospectus for each Replacement Fund 
involved in the proposed Substitutions to the extent that such Contract 
owners have not previously received a copy.
    13. Each Substitution will take place at the relative net asset 
value determined on the Substitution Date pursuant to Section 22(c) of 
the 1940 Act and Rule 22c-1 thereunder, with no change in the amount of 
any Contract owner's Contract value or death benefit or in the dollar 
value of his or her investments in any of the subaccounts. The rights 
or obligations of the Company under the Contracts will not be altered 
in any way. The proposed Substitutions will take place with no change 
to the Contract owner's Contract value, cash value and accumulation 
value.

[[Page 3849]]

    14. Applicants will effectuate the Substitutions after the issuance 
of the requested order by the Commission. As of the Substitution Date, 
shares of the Existing Fund will be redeemed for cash. The Company, on 
behalf of the Accounts, will simultaneously place a redemption request 
with the Existing Fund and a purchase order with the Replacement Fund 
so that the purchase of the Replacement Fund shares will be for the 
exact amount of the redemption proceeds.
    15. The Company or its affiliates will pay all expenses and 
transaction costs of the proposed Substitutions, including legal and 
accounting expenses, any applicable brokerage expenses and other fees 
and expenses. No fees or charges will be assessed to the Contract 
owners to effect the proposed Substitutions. The proposed Substitutions 
will not result in an increase in Contract fees and expenses, including 
mortality and expense risk fees and administration and distribution 
fees charged by the Separate Accounts. The proposed Substitutions will 
not result in adverse tax consequences to Contract owners and will not 
alter any tax benefits associated with the Contracts. No costs of the 
proposed Substitutions will be borne directly or indirectly by Contract 
owners.
    16. Applicants will not receive, for three years from the 
Substitution Date any direct or indirect benefits from the applicable 
Replacement Fund, its adviser or underwriter (or their affiliates), in 
connection with assets attributable to Contracts affected by the 
proposed Substitutions, at a higher rate than they had received from 
the Existing Fund, its adviser or underwriter (or their affiliates), 
including without limitation 12b-1 fees, shareholder service, 
administrative or other service fees, revenue sharing, or other 
arrangements.

Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to Section 26(c) of the 1940 Act approving the proposed Substitution by 
the Company of shares of each Replacement Fund for shares of the 
corresponding Existing Fund. Section 26(c) of the 1940 Act requires the 
depositor of a registered unit investment trust holding securities of a 
single issuer to receive Commission approval before substituting the 
securities held by the trust. Section 26(c) provides that such approval 
shall be granted by order of the Commission if the evidence establishes 
that the substitution is consistent with the protection of investors 
and the purposes of the 1940 Act.
    2. The Applicants submit that the proposed 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. As described in the application, Applicants represent that 
each Replacement Fund and its corresponding Existing Fund have 
substantially similar investment objectives and principal investment 
strategies, which would offer Contract owners continuity of their 
investment strategies and risks, and that Existing Funds will have 
lower net operating expenses immediately after the proposed 
Substitutions.
    3. The Contracts will offer Contract owners the opportunity to make 
at least one transfer of Contract value from the subaccount investing 
in the Existing Fund (for at least 30 days before the Substitution 
Date), or the Replacement Fund (for at least 30 days after the 
Substitution Date) to any other available investment option under the 
Contract without any cost or limitation other than those disclosed in 
the applicable prospectuses previously provided to Contract owners.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The proposed Substitutions will not be effected unless the 
Company determines that: (a) The Contracts allow the substitution of 
shares of registered open-end investment companies in the manner 
contemplated by the application; (b) the proposed Substitutions can be 
consummated as described in the application under applicable insurance 
laws; and (c) any regulatory requirements in each jurisdiction where 
the Contracts are qualified for sale have been complied with to the 
extent necessary to complete the proposed Substitutions.
    2. The Company or its affiliates 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 Contract owners to 
effect the proposed Substitutions.
    3. The proposed Substitutions will be effected at the relative net 
asset values of the respective shares 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 Applicants. The proposed Substitutions 
will be effected without change in the amount or value of any Contracts 
held by affected Contract owners.
    4. The proposed 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 proposed Substitutions.
    5. The rights or obligations of the Company under the Contracts of 
affected Contract owners will not be altered in any way. The proposed 
Substitutions will not adversely affect any riders under the Contracts 
since each Replacement Fund is an allowable investment option for use 
with such riders.
    6. Affected Contract owners will be permitted to make at least one 
transfer of Contract value from the subaccount investing in the 
Existing Fund (before the Substitution Date) or the Replacement Fund 
(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. Except as described in any market timing/short-
term trading provisions of the relevant prospectus, the Company will 
not exercise any right it may have under the Contract to impose 
restrictions on transfers between the subaccounts under the Contracts, 
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.
    7. All affected Contract owners will be notified, at least 30 days 
before the Substitution Date about: (a) The intended substitution of 
the Existing Funds with the Replacement Funds; (b) The intended 
Substitution Date; and (c) information with respect to transfers as set 
forth in Condition 6 above. In addition, the Company will deliver to 
all affected Contract owners, at least 30 days before the Substitution 
Date, a prospectus for each applicable Replacement Fund.
    8. The Company will deliver to each affected Contract owner within 
five (5) business days of the Substitution Date a written confirmation 
which will include: (a) A confirmation that the proposed Substitutions 
were carried out as previously notified; (b) a restatement of the 
information set forth in the Supplements; and (c) before and after 
account values.
    9. Applicants will not receive, for three years from the 
Substitution Date, any direct or indirect benefits from the applicable 
Replacement Fund, its adviser or underwriter (or their

[[Page 3850]]

affiliates), in connection with assets attributable to Contracts 
affected by the proposed Substitutions, at a higher rate than they had 
received from the Existing Fund, its adviser or underwriter (or their 
affiliates), including without limitation 12b-1 fees, shareholder 
service, administrative or other service fees, revenue sharing, or 
other arrangements.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01230 Filed 1-21-16; 8:45 am]
 BILLING CODE 8011-01-P