The Guardian Life Insurance Company of America
7 Hanover Square
New York, NY 10004
April 28, 2005
VIA EDGAR
Mr. Barry Entos
Division of Investment Management
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549-0505
RE: THE PARK AVENUE PORTFOLIO (FILE NOS. 33-23966; 811-5641)
Dear Mr. Entos:
This letter is in response the comments you relayed to me in our
telephone conversation of April 13, 2005, with respect to the post-effective
amendment to the registration statement of The Park Avenue Portfolio (the
"Portfolio") filed with the Commission on Form N-1A on February 25, 2005 (the
"Amendment"). Each series of the Portfolio is referred to herein as a "Fund."
This letter sets forth each comment and our response.
Prospectus
1. Comment: With respect to The Guardian UBS Large Cap Value Fund, we
believe that companies that currently have the lowest market
capitalization within the Russell 1000 Value Index do not meet the
definition of large market capitalization. Please revise the
definition of what the Fund considers a large cap company.
Response: Agreed. The applicable disclosure has been revised by
deleting the second sentence of the first paragraph of the section
entitled "The Fund's principal investment strategies" and replacing
it with the following:
The Fund defines large market capitalization companies as
those companies in the market capitalization range of the
Fund's benchmark, the Russell 1000 Value Index. Under normal
market conditions, the Fund expects that its median market
capitalization will approximate the median market
capitalization of the index. As of March 31, 2005, the market
capitalization of companies represented in the Russell 1000
Value Index ranged between $511 million and $389 billion, and
the median market capitalization was $4.5 billion.
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2. Comment: In the 80% investment policy of The Guardian UBS Large Cap
Value Fund, please state that the calculation of the Fund's net
assets includes borrowings for investment purposes.
Response: Agreed. The applicable disclosure has been revised as
requested. In addition, conforming changes have been made to the
disclosure of The Guardian UBS Small Cap Value Fund. The Guardian
UBS Large Cap Value Fund and The Guardian UBS Small Cap Value Fund
are currently the only funds within the Portfolio subject to Rule
35d-1 under the Investment Company Act of 1940 that are permitted to
borrow for investment purposes.
3. Comment: Please state in the prospectus that information regarding
each Fund's portfolio holdings is available on the Fund's website.
Response: Agreed. The following disclosure has been added under the
section entitled "Risks and Special Investment Techniques - Special
Investment Techniques - Disclosure of Portfolio Holdings": "A link
to each Fund's portfolio holdings is accessible on the Funds'
website at www.guardianinvestor.com."
4. Comment: In the section entitled "Risks and Special Investment
Techniques," please change the heading "Diversification risk" to
"Asset allocation risk."
Response: Agreed.
5. Comment: As provided in Item 5(a)(2) of Form N-1A, please disclose
the name, title, length of service and business experience during
the past 5 years of each portfolio manager who is primarily
responsible for the day-to-day management of The Guardian UBS Large
Cap Value Fund and The Guardian UBS Small Cap Value Fund.
Response: Agreed. The applicable disclosure has been revised, as
indicated in Exhibit A hereto.
6. Comment: Please include the Funds' financial highlights information
in the Rule 485(b) filing.
Response: Agreed.
Statement of Additional Information
1. Comment: Please provide the disclosure required in Form N-1A on
portfolio managers.
Response: Agreed. The applicable disclosure has been added, as
indicated in Exhibit B hereto.
2. Comment: Please add a fundamental investment restriction stating
that The Guardian Park Avenue Fund may not issue senior securities.
Response: Agreed. A fundamental investment restriction has been
added, stating that the Fund may not "issue any senior securities
except as permitted by applicable law."
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3. Comment: Please describe the Funds' procedures for monitoring
compliance with the policies and procedures with respect to
disclosure of portfolio holdings information, and the procedures and
for monitoring potential conflicts of interest.
Response: The applicable disclosure has been revised in response to
this comment, and is attached hereto as Exhibit C.
4. Comment: Please state to whom portfolio holdings information is
selectively disclosed, the frequency of the time lag for disclosure
and the restrictions on the use of the holdings information.
Response: The applicable disclosure has been revised in response to
this comment. Please see Exhibit C.
5. Comment: Please disclose who may specifically authorize the
disclosure of Fund portfolio holdings information.
Response: The applicable disclosure has been revised in response to
this comment. Please see Exhibit C.
6. Comment: In the discussion of board approval of the continuation of
the Funds' investment advisory contracts, please state the factors
the board considered and how the investment adviser met each of
those factors.
Response: The applicable disclosure has been revised in response to
this comment, and is attached hereto as Exhibit D.
7. Comment: Please state how investors may obtain a copy of the Funds'
proxy voting records.
Response: Agreed. The following disclosure has been added under the
section entitled "Investment Advisers and Distributor - Proxy Voting
Policies and Procedures":
Information regarding how each Fund voted proxies relating to
the Fund's portfolio securities during the 12-month period
ended June 30, 2004 is available without charge upon request
on the Funds' website, www.guardianinvestor.com or the
Securities and Exchange Commission's website, www.sec.gov.
8. Comment: Please state that the Trustees of the Portfolio serve until
they resign, die or are removed from office.
Response: The requested disclosure is included under the heading
"Shareholder Rights" as follows:
Each trustee serves until the earlier of: (1) the next meeting
of shareholders, if any, called for the purpose of electing
trustees and until the election and qualification of his or
her successor; or (2) such trustee's death, resignation,
retirement or removal by a two-thirds vote
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of the trustees or by a majority vote of the outstanding
shares of the Portfolio.
Part C
Comment: Please file the Portfolio's amended Code of Ethics as an exhibit
to the registration statement filed under Rule 485(b).
Response: As indicated in Part C of the Portfolio's registration statement
filing under Rule 485(a) on February 25, 2005, the Portfolio's revised
Code of Ethics will be filed by amendment.
Representations
The Portfolio acknowledges that SEC staff comments or changes to the
disclosure in the registration statement reviewed by the staff do not foreclose
the Commission from taking any action with respect to the registration
statement. In addition, the Portfolio acknowledges that it is responsible for
the adequacy and accuracy of the disclosure in the registration statement. The
Portfolio further acknowledges that it may not assert staff comments as a
defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
* * * * *
Please do not hesitate to contact me at (212) 598-1297 if you have further
questions or comments, or if you require further information.
Sincerely,
Kathleen M. Moynihan
Assistant Counsel
EXHIBITS
Exhibit A
UBS LARGE CAP VALUE FUND AND UBS SMALL CAP VALUE FUND
Each Fund is managed by an investment management team at UBS Global AM. John
Leonard is the lead portfolio manager for the UBS Large Cap Value Fund. He works
with other members of the Fund's investment management team in managing the
Fund. Each member of the team is allocated a specific portion of the Fund's
portfolio, over which he or she has independent responsibility for research,
security selection, and portfolio construction. The team members also have
access to additional portfolio managers and analysts at UBS Global AM who
specialize in the various sectors and markets in which the Fund invests. Mr.
Leonard, as coordinator, has responsibility for allocating the Fund's portfolio
among the various managers and analysts, occasionally implementing trades on
behalf of analysts on the team and reviewing the overall composition of the
Fund's portfolio to ensure its compliance with its stated investment objective
and strategies. Mr. Leonard is a Managing Director of UBS Global AM, serves as
its Head of North American Equities and Deputy Global Head of Equities, and has
been with the company since 1995.
Wilfred Talbot is the lead portfolio manager for the UBS Small Cap Value Fund.
He and his team of analysts work exclusively on small cap core and small cap
value investing at UBS Global AM. Mr. Talbot oversees the research with respect
to the Fund, conducts research on industries assigned to him, and constructs the
Fund's portfolio. Mr. Talbot is a Managing Director of UBS Global AM and has
been with the company since 1997.
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Exhibit B
PORTFOLIO MANAGERS
As described in the prospectus, each Fund pays to GIS or GBG, as applicable, a
management fee based on a percentage of the Fund's average daily net assets. GIS
pays a portion of its management fee to UBS Global AM, and GBG pays a portion of
its management fee to BG Overseas, for sub-advisory services to certain Funds.
The portfolio managers are generally paid out of the resources, including the
management fees paid by the Fund, of the Fund's adviser or sub-adviser, and are
not paid from any assets of the Funds or any other managed account. In the case
of the Funds managed by GIS, portfolio managers are paid by Guardian Life, with
a portion of the total available compensation pool allocated to Guardian Life
and GIS, respectively, based on each of those company's assets under management.
A Fund's portfolio managers often manage multiple portfolios for multiple
clients. These accounts may include other mutual funds and accounts managed for
insurance companies and other institutions. In the case of UBS Global AM and BG
Overseas, these other accounts may also include assets for high net worth
individuals, pension funds, collective investment trusts, offshore funds, hedge
funds and other types of accounts. For portfolio managers of GIS, a significant
portion of their portfolio management responsibility is managing the assets of
Guardian Life's general account, a pool of mainly fixed income assets that
supports the death benefit, claims and other obligations underlying
Guardian-issued life, health, disability and other insurance policies (the
"Guardian Assets"). The simultaneous management of multiple portfolios
potentially could give rise to conflicts of interest, as discussed herein.
The discussion that follows includes: (i) a description of the compensation
structure applicable to the portfolio managers of GIS, UBS Global AM and BG
Overseas, respectively; (ii) information about each portfolio manager's
investment in the Fund(s) for which the manager has day-to-day responsibility;
(iii) other accounts managed by the portfolio managers; and (iv) a description
of potential conflicts of interest that may arise with respect to a portfolio
manager's management of the Funds.
Compensation Structure
Guardian Investor Services LLC. The compensation paid to portfolio
managers is comprised of both base salary and incentive compensation. The base
salary is generally a fixed amount based on the individual's experience and
expertise and is reviewed annually. The purpose of the incentive compensation
plan is to provide portfolio managers with incentive awards that are tied
directly to the performance of the mutual funds and portfolios for which they
are responsible. The incentive component can be a significant portion of their
total compensation. For the mutual funds, the incentive compensation rewards
favorable performance of the mutual funds when compared to peer funds and
positive excess return versus appropriate benchmark indices. For the other
portfolios, the incentive compensation rewards favorable performance relative to
customized benchmark indices.
The mutual fund performance criteria are generally tied to both a peer component
and an index component. The peer component is based on the Fund's performance
relative to the appropriate peer group in the universe of mutual funds as
determined by Lipper, Inc., an independent mutual fund rating and ranking
organization.
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For the fiscal year ended December 31, 2004, incentive compensation took into
account one-year performance; going forward, performance will be measured over
rolling one- and three-year periods, with a phase-in period. Generally,
incentive compensation for a portfolio manager is warranted for performance
better than the 60th percentile relative to the Lipper peer group. The index
component is based on whether the Fund's performance exceeds the performance of
its benchmark index (for example, the Park Avenue Fund's performance is measured
against the performance of the S&P 500 Index). The incentive compensation
calculation for a given portfolio manager is based on appropriate weightings
that reflect that manager's roles and responsibilities with respect to
management of the mutual funds and other portfolios. For equity assets,
management of the Funds accounts for substantially all of the calculation; for
fixed income assets, the calculation is divided between management of the
Guardian Assets and the Funds, respectively. Although under normal circumstances
the Guardian Assets substantially exceed those of the Funds, for purposes of the
calculation, management of the Funds accounts for approximately 50% or more of a
manager's incentive compensation. In determining the actual incentive award to
an individual portfolio manager, senior management may increase or decrease the
award in its discretion based on the manager's contribution to performance and
other factors.
Under the terms of a non-qualified deferred compensation plan (the "plan"),
portfolio managers must make a mandatory contribution to the plan of their
incentive compensation that exceeds a certain dollar amount. For fiscal year
2004, Guardian Life contributed an additional amount to this plan equal to a
percentage of the amount deferred. Portfolio managers may allocate the deferred
compensation among any of the Funds managed by GIS, which may or may not include
the Fund(s) the portfolio manager is responsible for. The deferred compensation
is notionally invested, meaning it is accounted for as though it were invested
in the designated Funds but is not actually so invested. The deferred
compensation vests after three years.
UBS Global AM. The portfolio managers receive a base salary and incentive
compensation based on their personal performance. Overall compensation can be
grouped into four categories:
- Base salary. Base salary is used to recognize the experience, skills
and knowledge that investment professionals bring to their roles.
Salary levels are monitored and adjusted periodically in order to
remain competitive within the investment management industry.
- Annual bonuses. Annual bonuses are correlated with performance. As
such, annual incentives can be highly variable, and are based on
three components: (1) the firm's overall business success; (2) the
performance of the respective asset class and/or investment mandate;
and (3) an individual's specific contribution to the firm's results.
UBS Global AM strongly believes that tying bonuses to both
longer-term (3-year) and shorter-term (1-year) portfolio performance
closely aligns its investment professionals' interests with those of
its clients.
- UBS AG equity. Many of the senior investment professionals receive a
portion of their annual performance-based incentive in the form of
deferred or restricted shares of UBS AG (the parent company of UBS
Global AM) or employee stock options. The equity shares typically
vest over a number of years.
- Partnership Incentive Program (PIP). PIP is a phantom-equity-like
program for key senior staff (approximately top 2%). By tying
compensation to overall firm performance over the mid-to
longer-term, the program offers significant compensation
opportunities for senior staff.
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Baillie Gifford Overseas Limited. Mr. Menzies and Mr. Hocknell are
partners of BG Overseas. As such, they each receive a base salary and a share of
the partnership profits. The profit share is calculated as a percentage of total
partnership profits based on seniority, role within BG Overseas and length of
service. The basis for the profit share is detailed in the Baillie Gifford
Partnership Agreement. The main staff benefits such as pension plans are not
available to partners, who provide for those benefits from their own personal
funds.
Other Accounts. The following table provides information about other accounts
managed by portfolio managers as of December 31, 2004:
Number of
accounts where Total assets in
advisory fee is accounts where
Total assets in based on advisory fee is
Type of # of accounts account based on account
Name account* accounts as of 12/31/04 performance performance
---- -------- -------- -------------- ----------- -----------
Howard a 2 $369.5 million 0 0
Chin b 5 $2.4 billion 0 0
Robert a 2 $369.5 million 0 0
Crimmins b 10 $8.8 billion 0 0
Alex Grant a 1 $295.9 million 0 0
b 2 $1.2 billion 0 0
Edward Hocknell a 1 $74.0 million 0 0
Jon Jankus a 2 $255.8 million 0 0
b 5 $918.5 million 0 0
Stewart a 2 $255.8 million 0 0
Johnson b 5 $918.5 million 0 0
John a 22 $84.6 million 0 0
Leonard b 10 $2.1 million 0 0
c 60++ $8.69 million 0 0
Peter Liebst a 1 $63.3 million 0 0
b 2 $611.5 billion 0 0
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Robin Menzies a 1 $189.8 million 0 0
Thomas Sorell a 1 $1.26 billion 0 0
Wilfred a 4 $394.2 million 0 0
Talbot b 4 $146 million 0 0
c 12++ $990 million 0 0
Gregory a 1 $305.7 million 0 0
Tuorto b 1 $1.5 million 0 0
Matthew a 2 $1.56 billion 0 0
Ziehl b 5 $520 million 0 0
*Key: (a) = Registered investment companies; (b) = Other pooled investment
vehicles+; (c) = Other accounts
+The portfolio managers of GIS serve as sector specialists with respect to
Guardian Assets.
++Approximate; also includes wrap model as one account.
Conflicts of Interest
Guardian Investor Services LLC. Portfolio managers for the Funds typically
manage other portfolios with investment objectives and strategies that are
similar to those of the Funds. In general, the other portfolios are managed
using the same investment models that are used in connection with the management
of the Funds. Accordingly, Fund portfolio managers often make investment
decisions and place trades for other accounts that are similar to those made for
the Funds due to the similarities in their investment objectives and strategies.
On the other hand, portfolio managers may purchase or sell securities for one
portfolio and not another, as appropriate, or may place transactions on behalf
of other accounts that are directly or indirectly contrary to investment
decisions made on behalf of a Fund. Depending on market conditions, any of these
actions could have a potential adverse impact on a Fund. Because the Funds'
portfolio managers manage assets for other accounts, the potential exists that a
portfolio manager could have an incentive to devote an unequal amount of time
and attention to the management of a Fund as compared to the time and attention
the manager spends on other accounts. GIS could also be perceived as having a
conflict of interest if GIS or any of its affiliates has an investment in an
account that is materially larger than its investment in a Fund. To address
these and other potential conflicts of interest, GIS has adopted trade
allocation policies and procedures, including procedures for allocation of
initial public offerings, and has monitoring procedures for compliance with each
Fund's investment policies and with the Code of Ethics of the Funds and GIS. In
addition, GIS periodically reviews each portfolio manager's overall
responsibilities to evaluate whether the manager has adequate resources to
effectively manage multiple portfolios in a manner that treats all clients
fairly.
UBS Global AM. The UBS portfolio management team manages accounts
utilizing a model portfolio approach that groups similar accounts within a model
portfolio. The number of model portfolios under management may change from time
to time. The team manages accounts to their respective models, including where
possible, those accounts that have specific investment restrictions. This
approach is designed to minimize the potential for conflicts of interest among
the accounts. Dispersion between accounts within a model portfolio is small due
to the use of models and the intention to aggregate transactions where possible.
The models developed by the
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portfolio managers may, from time to time, also be used by other managed asset
allocation or balanced accounts and funds to gain exposure to the asset class.
Baillie Gifford Overseas Limited. BG Overseas manages potential conflicts
between funds or with other types of accounts through allocation policies and
procedures, and internal review processes. BG Overseas has developed trade
allocation systems and controls to seek to ensure that no one client, regardless
of type, is intentionally favored at the expense of another. Allocation policies
are designed to address potential conflicts in situations where two or more
funds or accounts participate in investment decisions involving the same
securities.
Beneficial Ownership of Fund Shares. The portfolio managers may allocate their
personal investments among various Funds as appropriate given their own
investment needs. Certain portfolio managers beneficially own shares of the
Fund(s) for which the manager has primary day-to-day responsibility. The table
below shows the dollar range of Fund shares beneficially owned by the Fund(s)'
portfolio manager(s) as of December 31, 2004. If a portfolio manager's name is
not listed, the manager did not beneficially own any shares of the Fund(s) for
which the manager has primary day-to-day responsibility.
Portfolio Manager Fund Dollar Range of Ownership
- ----------------- ---- -------------------------
Alex Grant Tax-Exempt Fund $ 1-10,000
Stewart Johnson Asset Allocation Fund $ 1-10,000
Peter Liebst High Yield Bond Fund $ 10,001 - 50,000
Thomas Sorell Park Avenue Fund $ 50,001 - 100,000
Gregory Tuorto Park Avenue Small Cap Fund $ 1 - 10,000
Matthew Ziehl Park Avenue Fund $ 50,001 - 100,000
Park Avenue Small Cap Fund $ 50,001 - 100,000
Exhibit C
DISCLOSURE OF PORTFOLIO HOLDINGS
The Funds' Board of Trustees has adopted a policy for the Funds generally
prohibiting the release of portfolio holdings information to any person except
in limited circumstances or as required by law. Approximately 5 weeks following
the end of each quarter, each Fund provides a listing of its 10 largest
portfolio holdings, as well as other Fund information, on the Funds' website at
www.guardianinvestor.com. Once posted on the website, this information is also
available free of charge by calling 1-800-221-3253. In addition, the Funds file
their complete portfolio holdings with the SEC on a semi-annual basis on Form
N-CSR and within 60 days following the Funds' first and third fiscal quarters on
Form N-Q. A link to each Fund's portfolio holdings information is accessible on
the Fund's website. Portfolio holdings information is updated when the Fund
files its next report on Form N-CSR or Form N-Q.
Portfolio holdings information may be provided pursuant to regulatory request or
for other legitimate business purposes only with the prior authorization of the
Chief Compliance Officer. Third-party service providers and affiliated persons
of a Fund, such as the Fund's investment adviser or sub-adviser, transfer agent
and custodian, financial printers, auditors, proxy voting service providers and
pricing services, may be provided with the Fund's portfolio holdings information
only to the extent necessary to perform services under their agreements with the
Fund. If a Fund's portfolio holdings are released pursuant to an ongoing
arrangement with these parties or any other party, the Fund must have a
legitimate business purpose for doing so, and neither the Fund nor its
affiliates may receive any compensation in connection with an arrangement to
make available information about the Fund's portfolio holdings. In addition, the
receiving party must sign a written confidentiality agreement that provides that
the recipient may not: (1) disclose portfolio holdings information to third
parties; (2) trade on such information; and (3) use such information for any
purposes whatsoever other than for the purposes for which such information was
furnished. The party receiving such information also must have procedures in
place to prevent the disclosure or misuse of such information.
From time to time, a Fund may arrange to release portfolio holdings information
to certain organizations following the filing of the Fund's most recent Form
N-CSR or Form N-Q. The Funds have authorized State Street Bank and Trust
Company, the Funds' custodian, to transmit a list of each Fund's portfolio
holdings to the following independent statistical, rating and ranking
organizations: Standard and Poor's Ratings Group, Lipper Inc., Morningstar
and Thomson Financial. In addition, the following organizations may receive
portfolio holdings information from time to time in advance of the filing of
the Fund's Form N-CSR or Form N-Q, in order to perform services for the Funds:
(1) State Street Bank and Trust Company, custodian
(2) Ernst & Young LLP, independent registered public accounting firm
(3) Institutional Shareholder Services, Inc., proxy voting service
(4) FT Interactive Data, pricing service
(5) Bowne & Co., Inc., financial printer
(6) R.R. Donnelley & Sons, financial printer
(7) Hewitt Associates, 401(k) plan administrator
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If portfolio holdings information is to be released to these organizations or
any other third party prior to the filing of the Fund's Form N-CSR or Form N-Q,
the Fund must obtain a confidentiality agreement from that party prior to the
release of such information, as described above.
A Fund's portfolio holdings information may also be released to the Funds'
Trustees and to the law firm representing the Disinterested Trustees, in
conjunction with their review of the Fund's shareholder reports, approximately
5-7 business days prior to publication of the reports. In addition, aggregated
portfolio holdings information that does not specifically identify the Fund may
be provided to certain parties for statistical analysis and research purposes.
Employees having access to non-public portfolio holdings information must
acknowledge receipt of the Funds' policies and procedures with respect to
disclosure of portfolio holdings information and to certify annually that they
have (1) read the policies and procedures and (2) agree to comply with them. The
Funds' policies and procedures with respect to the release of non-public
portfolio holdings information are subject to periodic review by the Chief
Compliance Officer, including a review with the Board of any conflicts of
interest in the disclosures made in accordance with the policy and any
exceptions granted under the policy. Exceptions to the policy may not be made,
however, unless the Chief Compliance Officer, in consultation with the Board,
determines that providing the portfolio holdings information is consistent with
the best interests of shareholders.
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Exhibit D
Matters Considered By the Board. In approving the continuation of the investment
advisory agreements and the investment sub-advisory agreements, the Board
reviewed and discussed materials prepared by the GIS and a report furnished by
an independent mutual fund rating firm comparing each Fund's advisory fee rate
and overall expense ratio with those of comparable funds. The Board also
considered the size of the Funds and any economies of scale and fall-out
benefits, as well as the continuing subsidy by GIS of certain Funds. The Board
considered: (i) the nature, extent and quality of services provided to the Funds
by the investment adviser and sub-advisers and the overall positive cooperation
of management and concluded that the services provided were satisfactory; (ii)
the investment performance of the Funds and the adviser's and sub-advisers'
employment of knowledgeable personnel and determined that performance of certain
funds was satisfactory, and for those Funds where performance was less than
satisfactory, that management was working to address the performance issues;
(iii) the costs of the services provided and the profitability to the investment
adviser and concluded that the advisory fees were reasonable; and (iv) the
extent to which economies of scale could be realized and whether fee levels
reflect economies of scale. The Board also reviewed and relied upon comparisons
of advisory fees paid by other investment companies and other clients of the
adviser and sub-advisers. The Disinterested Trustees of the Funds were assisted
by independent legal counsel in their deliberations.