As filed with the Securities and Exchange Commission on April 24, 1998
Registration Nos. 333-21975
811-08057
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT No. 1 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
POST-EFFECTIVE AMENDMENT No. 1 |X|
(Check appropriate box or boxes)
--------------------
THE GUARDIAN SEPARATE ACCOUNT E
(Exact Name of Registrant as Specified in Charter)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
201 Park Avenue South, New York, New York 10003
(Address of Principal Executive Offices)
Depositor's Telephone Number: (212) 598-8259
RICHARD T. POTTER, JR., Vice President and Counsel
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and address of agent for service)
Copy to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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------------
It is proposed that this filing will be effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 1998 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|_| on (date) pursuant to paragraph (a)(1) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
------------------------
The Registrant has registered an indefinite number of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such rule for the Registrant's most recent
fiscal year was filed on March 26, 1998.
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================================================================================
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT E
Cross Reference Sheet to Items In
Registration Statement on Form N-4
<TABLE>
<CAPTION>
Form N-4 Item No. Location
<S> <C> <C>
Part A
Item 1. Cover Page............................................................. Cover
Item 2. Definitions............................................................ Glossary of Special Terms Used in This
Prospectus
Item 3. Synopsis............................................................... Summary of the Contracts; Expense Table
Item 4. Condensed Financial Information........................................ Condensed Financial Information;
Performance Results
Item 5. General Description of Registrant, Depositor and Portfolio
Companies ........................................................... Descriptions of GIAC and the Separate
Account; Descriptions of the Variable
Investment Options; Description of the
Fixed-Rate Option; Voting Rights
Item 6. Deductions............................................................. Charges and Deductions; Distribution of
the Contracts
Item 7. General Description of Variable Annuity Contracts...................... Description of the Contracts
Item 8. Annuity Period......................................................... Annuity Period
Item 9. Death Benefit.......................................................... Death Benefits Prior to the Annuity
Commencement Date; Accumulation Period;
Annuity Period
Item 10. Purchases and Contract Value........................................... Description of the Contracts
Item 11. Redemptions............................................................ Surrenders and Partial Withdrawals
Item 12. Taxes.................................................................. Federal Tax Matters
Item 13. Legal Proceedings...................................................... Legal Proceedings
Item 14. Table of Contents of the Statement of Additional Information........... Additional Information
Part B
Item 15. Cover Page............................................................. Cover Page
Item 16. Table of Contents...................................................... Table of Contents
Item 17. General Information and History........................................ Not Applicable
Item 18. Services............................................................... Services to the Separate Account
Item 19. Purchase of Securities Being Offered................................... Valuation of Assets of the Separate
Account; Transferability Restrictions
Item 20. Underwriters........................................................... Services to the Separate Account
Item 21. Calculation of Performance Data........................................ Performance Data
Item 22. Annuity Payments....................................................... Annuity Payments
Item 23. Financial Statements................................................... Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
May 1, 1998
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
CONTRACT
Issued Through Separate Account E of
The Guardian Insurance & Annuity Company, Inc.
The Individual Flexible Premium Deferred Variable Annuity Contract
("Contract") described in this Prospectus is issued by The Guardian Insurance &
Annuity Company, Inc. ("GIAC"), and is designed to provide annuity benefits
under retirement programs entitled to Federal income tax benefits for individual
purchasers and other retirement plans which do not qualify for Federal tax
benefits under the Internal Revenue Code of 1986, as amended (the "Code").
The Contract described in this Prospectus is a Flexible Premium Payment
Contract. There is a minimum initial premium payment of $500. Annuity payments
will commence under one of the Annuity Payout Options provided in the Contract
on the Annuity Commencement Date selected by the Contractowner. The Contract
provides for a minimum pre-annuitization death benefit. Additionally,
Contractowners have the option of choosing an enhanced minimum pre-annuitization
death benefit.
Net premium payments for the Contracts may be allocated in up to six of the
allocation options underlying the Contract. Contract values will accumulate on
either a variable or fixed basis, depending on the options selected. These
options currently consist of the following: (1) shares of The Guardian Stock
Fund, Inc., The Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc., The
Guardian Small Cap Stock Fund, Baillie Gifford International Fund, Baillie
Gifford Emerging Markets Fund, Value Line Centurion Fund, Inc., Value Line
Strategic Asset Management Trust, Gabelli Capital Asset Fund and MFS Growth With
Income Series (collectively referred to as the "Funds" or the "Variable
Investment Options") and (2) the Fixed-Rate Option. Net premium payments and
Contract values allocated to any of the Variable Investment Options will vary in
accordance with the investment performance of such Variable Investment Options.
Net premium payments and Contract values allocated to the Fixed-Rate Option will
accumulate on a fixed basis. The Contractowner bears the investment risk of
growth or loss under the Contract, except to the extent that amounts are
allocated to the Fixed-Rate Option.
This Prospectus sets forth the information that a prospective Contractowner
should know before investing. A Statement of Additional Information concerning
the Contracts and The Guardian Separate Account E (the "Separate Account") is
available for free by writing to GIAC at its Customer Service Office, P.O. Box
26210, Lehigh Valley, Pennsylvania 18002 or by calling 1-800-221-3253. The
Statement of Additional Information, which is also dated May 1, 1998, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The table of contents for the Statement of Additional
Information appears at the end of this Prospectus.
- ------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS FOR
EACH OF THE FOLLOWING VARIABLE INVESTMENT OPTIONS: THE GUARDIAN STOCK FUND, THE
GUARDIAN BOND FUND, THE GUARDIAN CASH FUND, THE GUARDIAN SMALL CAP STOCK FUND,
BAILLIE GIFFORD INTERNATIONAL FUND, BAILLIE GIFFORD EMERGING MARKETS FUND, VALUE
LINE STRATEGIC ASSET MANAGEMENT TRUST, VALUE LINE CENTURION FUND, GABELLI
CAPITAL ASSET FUND AND MFS GROWTH WITH INCOME SERIES.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
1
<PAGE>
TABLE OF CONTENTS OF PROSPECTUS
Page
Glossary of Special Terms Used in this Prospectus ....................... 3
Summary of the Contract ................................................. 5
Expense Table ........................................................... 6
Descriptions of GIAC and the Separate Account ........................... 11
Descriptions of the Variable Investment Options ......................... 13
Description of the Fixed-Rate Option .................................... 15
Description of the Contract ............................................. 16
General Information ................................................ 16
Purchasing a Contract .............................................. 17
Charges and Deductions ............................................. 17
Death Benefits Prior to the Annuity Commencement Date .............. 19
Accumulation Period ................................................ 21
Annuity Period ..................................................... 22
Transfers of Contract Values ....................................... 24
Surrenders and Partial Withdrawals ................................. 25
Other Contract Features and Important Information .................. 26
Performance Results ..................................................... 27
Federal Tax Matters ..................................................... 29
Voting Rights ........................................................... 35
Distribution of the Contract ............................................ 35
Right to Cancel the Contract ............................................ 36
Year 2000 Compliance .................................................... 36
Legal Proceedings ....................................................... 36
Additional Information .................................................. 36
The Contract may not be available in all states.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUSES
FOR THE VARIABLE INVESTMENT OPTIONS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
2
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation Period: The period between the issue date of the Contract and the
Annuity Commencement Date.
Accumulation Unit: A unit of measure used to determine the value of a
Contractowner's interest under the Contract before the Annuity Commencement
Date. The Contract has two types of Accumulation Units: Variable Accumulation
Units and Fixed Accumulation Units.
Accumulation Value: The value of all the Accumulation Units in the Separate
Account and/or the Fixed-Rate Option which are credited to a Contract.
Annuitant: The person upon whose life the Annuity Payments are based and upon
whose death, prior to the Annuity Commencement Date, benefits under the Contract
are paid.
Annuity: A series of periodic payments made for the lifetime of the Annuitant,
with or without payments certain for a fixed period, or for the joint lifetimes
of the Annuitant and another person and thereafter during the lifetime of the
survivor.
Annuity Commencement Date: The date on which Annuity Payments under the Contract
commence.
Annuity Payments: Periodic payments, either variable or fixed in nature, made by
GIAC to the Contractowner at regular intervals after the Annuity Commencement
Date.
Annuity Unit: A unit of measure used to determine the amount of any variable
Annuity Payment.
Beneficiary: The person to whom benefits may be paid upon the Contractowner's or
the Annuitant's death. In the event a Beneficiary is not designated, the
Contractowner or the estate of the Contractowner is the Beneficiary.
Contract Anniversary Date: The annual anniversary measured from the issue date
of the Contract.
Contractowner: The person(s) or entity designated as the owner in the Contract.
Fixed-Rate Option: A deposit option to which Contractowners may allocate Net
Premium Payments and Accumulation Values for investment in the general account
of GIAC. GIAC guarantees that the amount deposited will not decline in value and
that interest will be added at a guaranteed rate declared periodically in
advance.
Funds: The ten diversified open-end management investment companies or series
thereof underlying the Contracts. Contractowners may allocate Net Premium
Payments and Accumulation Values to the Funds through the corresponding
Investment Divisions of the Separate Account. The Funds are: The Guardian Stock
Fund, The Guardian Bond Fund, The Guardian Cash Fund, The Guardian Small Cap
Stock Fund, Baillie Gifford International Fund, Baillie Gifford Emerging Markets
Fund, Value Line Strategic Asset Management Trust, Value Line Centurion Fund,
Gabelli Capital Asset Fund and MFS Growth With Income Series.
Good Order: Notice from any party authorized to initiate a transaction under
this Contract, received in a format satisfactory to GIAC at its Customer Service
Office, that contains all information required by GIAC to process that
transaction.
Investment Division: A division of the Separate Account, the assets of which
consist solely of shares of the corresponding Fund. Each Investment Division is
further divided into two subdivisions: one for funding Contracts with the
standard death benefit and the other for funding Contracts that have elected the
Enhanced Death Benefit Rider.
Net Premium Payment: A purchase payment or premium paid by the Contractowner to
GIAC in accordance with the Contract, less any applicable annuity taxes. The Net
Premium Payment is credited to the Investment Divisions of the Separate Account
and/or the Fixed-Rate Option, as selected by the Contractowner.
3
<PAGE>
Surrender Value: The amount payable to the Contractowner or other payee upon
termination of the Contract, other than by the Annuitant's or Contractowner's
death.
Valuation Period: The period of time from one determination of Accumulation Unit
and Annuity Unit values to the next subsequent determination of these values.
Variable Annuity: An Annuity providing for payments that vary in amount to
reflect the investment experience of the Variable Investment Options selected by
the Contractowner.
Variable Investment Options: The Funds constitute the Variable Investment
Options (as distinguished from the Fixed-Rate Option) available under the
Contract for allocations of Net Premium Payments and Accumulation Values.
4
<PAGE>
SUMMARY OF THE CONTRACT
The Contract described in this Prospectus is designed to provide annuity
benefits pursuant to the Annuity Payout Option selected and the retirement plan,
if any, under which a Contract has been issued. The Contract provides several
underlying allocation options among which the Contractowner may select to pursue
his or her investment objectives. If the Contractowner selects an Annuity Payout
Option that provides for monthly payments during the lifetime of the Annuitant,
GIAC promises to make Annuity Payments continuously for the life of the
Annuitant under the Contract even if such Annuitant outlives the life expectancy
used in computing the Annuity. While GIAC is obligated to make Annuity Payments
regardless of the longevity of the Annuitant, the amount of variable Annuity
Payments is not guaranteed. With respect to amounts attributable to the Variable
Investment Options, no assurance can be given that the value of the Contract
during the Accumulation Period, or the aggregate amount of Annuity Payments made
under the Contract, will equal or exceed the Net Premium Payments allocated to
the Variable Investment Options.
GIAC provides for variable and fixed accumulations and benefits under the
Contract by crediting the Net Premium Payments to as many as six of the Variable
Investment Options or five Variable Investment Options and the Fixed-Rate
Option, as selected by the Contractowner. (See "Descriptions of the Variable
Investment Options," page 13, and "Description of the Fixed-Rate Option," page
15.) To the extent the Contractowner has allocated values to one or more of the
Variable Investment Options, the Contract value prior to the Annuity
Commencement Date and the amount accumulated to provide Annuity Payments will
depend upon the investment performance of the Variable Investment Options.
Amounts allocated to the Fixed-Rate Option will accrue interest at a rate not
less than the guaranteed minimum interest rate specified in the Contract. (See
"Accumulation Period," page 21, and "Annuity Period," page 22.) The investment
risk of gain or loss under the Contract is borne by the Contractowner except to
the extent that Accumulation Values are allocated to the Fixed-Rate Option where
the investment risk is borne by GIAC.
Contract values may be transferred among the Investment Divisions of the
Separate Account before and after the Annuity Commencement Date, subject to
certain conditions and in accordance with any applicable retirement plan.
Certain restrictions apply to transfers out of the Fixed-Rate Option. (See
"Transfers of Contract Values," page 24.)
The Contract contains the following additional features which are described
in more detail in this Prospectus:
(1) No sales charges are deducted from premium payments. However, if
part or all of the Accumulation Value of the Contract is withdrawn during
certain periods of time following the payment of premiums, GIAC will deduct
from such Accumulation Value a contingent deferred sales charge ranging
from 7.0% to 1.0%. A federal income tax, including a penalty tax may be
imposed on such withdrawals. (See "Expense Table," page 6, "Charges and
Deductions," page 17, "Surrenders and Partial Withdrawals," page 25, and
"Federal Tax Matters," page 29.)
(2) Charges for the assumption by GIAC of the mortality and expense
risks, the administrative expenses incurred by GIAC and annuity taxes, if
any, are deducted from the Accumulation Value of the Contract. (See
"Charges and Deductions," page 17.) In addition, the Funds impose certain
charges against their respective assets. (See the applicable Fund
prospectus for information about these charges.)
(3) The Contractowner may cancel a Contract no later than ten (10)
days after receiving it by returning the Contract along with written notice
of cancellation to GIAC. Longer periods may apply in some states. (See
"Right to Cancel the Contract," page 36.)
The Contract offered under this prospectus is available: to retirement plans
which qualify either under Sections 401 or 403(b) of the Code; to individual
retirement accounts established under Section 408 or Section 408A of the Code;
and other deferred compensation arrangements and under other retirement plans
which may not qualify for similar tax advantages. (See "Federal Tax Matters,"
page 29.) As required by the Code, GIAC restricts withdrawals from Contracts
issued in connection with Section 403(b) qualified plans. (See "Federal Tax
Matters -- Qualified Contracts -- Section 403(b) Plans," page 32).
5
<PAGE>
CONTRACTOWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases: None
Exchange Fee: None
Contingent Deferred Sales Charge:
The following charges will be assessed upon amounts withdrawn that have been in
the Contract for less than seven Contract years
Number of Contract Years Contingent
Completed from Date of Deferred Sales Charge
the Premium Payment Percentage*
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
and thereafter
The maximum contingent sales charge will be equal to 7% of the lesser of (1) the
total of all premium payments made within 7 contract years (84 months) prior to
the date of request for withdrawal or surrender; or (2) the amount withdrawn or
surrendered.
Annual Contract Fee: $35.00**
<TABLE>
<CAPTION>
Separate Account Level Annual Expenses: For Contracts Without For Contracts With
(as a percentage of daily net asset value) Enhanced Death Benefit Enhanced Death Benefit
---------------------- ----------------------
<S> <C> <C>
Mortality and Expense Risk Charge 1.05% 1.05%
Administrative Charges and Expenses .20% .20%
Enhanced Death Benefit Charge 0% .20%
---- ----
Total Separate Account Annual Expenses 1.25% 1.45%
</TABLE>
Investment Division Level Annual Expenses:+
(as a percentage of average net assets
after expense reimbursements)
<TABLE>
<CAPTION>
Total Fund
Management Other Operating
Fees Expenses Expenses
<S> <C> <C> <C>
The Guardian Cash Fund .50% .04% .54%
The Guardian Bond Fund .50% .05% .55%
The Guardian Stock Fund .50% .02% .52%
The Guardian Small Cap Stock Fund .75% .21% .96%
Baillie Gifford International Fund .80% .17% .97%
Baillie Gifford Emerging Markets Fund 1.00% .40% 1.40%
Value Line Centurion Fund .50% .10% .60%
Value Line Strategic Asset Management Trust .50% .09% .59%
Gabelli Capital Asset Fund 1.00% .17% 1.17%
MFS Growth With Income Series++ .75% .25% 1.00%
</TABLE>
* After the first Contract year, the greater of excess of the Accumulation
Value on the date of withdrawal over the aggregate premium payments that have
not been previously withdrawn or 10% of the total premium payments made, minus
the aggregate amount of all prior partial withdrawals made in such Contract
year, can be withdrawn annually without charge. For Contracts issued in Section
1035 exchanges, trustee to trustee transfers, in certain IRA transfers or
rollovers, or to Charitable Remainder Trusts, this no-charge withdrawal
privilege may also be exercised in the first Contract year.
** Where required by state law, this fee may be lower.
+ These percentages reflect the actual fees and expenses incurred by each Fund
during the year ended December 31, 1997, except that the percentages for The
Guardian Small Cap Stock Fund are annualized since the Fund commenced
operations on April 2, 1997. The percentages for Value Line Centurion Fund and
Value Line Strategic Asset Management Trust reflect (as part of "Other Expenses"
and "Total Fund Operating Expenses") the effects of expense reimbursement
arrangements pursuant to which each of these Funds reimburses GIAC for certain
administrative and shareholder servicing expenses incurred by GIAC on their
behalf.
++ The Adviser of MFS Growth With Income Series has agreed to bear expenses
for the Series, subject to reimbursement by the Series, such that the Series'
"Other Expenses" shall not exceed 0.25% of the average daily net assets of the
Series during the current fiscal year. Otherwise, "Other Expenses" and "Total
Operating Expenses" for the Series would be .35% and 1.10%, respectively.
- --------------------------------------------------------------------------------
6
<PAGE>
The table on the preceding page is designed to assist the Contractowner in
understanding the various costs and expenses of the Separate Account and its
underlying Funds. (See "Charges and Deductions" and see the accompanying Fund
prospectuses for a more complete description of the various costs and expenses.)
Comparison of Contract Expenses Among Underlying Funds
(EDB = With Enhanced Death Benefit/BC- Basic Contract)
<TABLE>
<CAPTION>
If you surrender your contract at If you do not surrender or you
the end of the applicable time annuitize at the end of the
period: applicable time period:
You would pay the following You would pay the following
expenses on a $1,000 investment, expenses on a $1,000 investment,
assuming a 5% annual return on assuming a 5% annual return on
assets: assets:
1 Yr. 3 Yrs. 1 Yr. 3 Yrs.
EDB BC EDB BC EDB BC EDB BC
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN CASH FUND 91 89 116 109 21 19 66 59
- ----------------------------------------------------------------------------------------------------------
THE GUARDIAN BOND FUND 91 89 116 110 21 19 66 60
- ----------------------------------------------------------------------------------------------------------
THE GUARDIAN STOCK FUND 91 89 115 109 21 19 65 59
- ----------------------------------------------------------------------------------------------------------
THE GUARDIAN SMALL CAP STOCK
FUND 96 94 129 122 26 24 79 72
- ----------------------------------------------------------------------------------------------------------
BAILLIE GIFFORD INTERNATIONAL
FUND 96 94 129 123 26 24 79 73
- ----------------------------------------------------------------------------------------------------------
BAILLIE GIFFORD EMERGING
MARKETS FUND 100 98 142 136 30 28 92 86
- ----------------------------------------------------------------------------------------------------------
VALUE LINE CENTURION FUND 92 90 117 111 22 20 67 61
- ----------------------------------------------------------------------------------------------------------
VALUE LINE STRATEGIC ASSET
MANAGEMENT TRUST 92 90 117 111 22 20 67 61
- ----------------------------------------------------------------------------------------------------------
GABELLI CAPITAL ASSET FUND 98 96 135 129 28 26 85 79
- ----------------------------------------------------------------------------------------------------------
MFS GROWTH WITH
INCOME SERIES 96 94 130 124 26 24 80 74
</TABLE>
This expense comparison assumes that the expenses reported in the table on
the preceding page will be the expenses incurred during the periods shown above.
This comparison is not a representation of past or future expenses. Actual
expenses may be higher or lower than those shown. The effect of the annual
contract administration fee was calculated by: (1) dividing the total amount of
such fees for the year ended December 31, 1997 by the total average net assets
for such year; (2) adding this percentage to annual expenses; and (3)
calculating the dollar amounts. Annuity taxes ranging from approximately 0.50%
to 3.5% are currently imposed by certain states and municipalities on premium
payments made under the Contract. Where applicable, such taxes reduce the amount
of each premium payment available for allocation under the Contract. See
"Charges and Deductions -- Annuity Taxes."
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the
financial statements of the Separate Account, which were audited by Price
Waterhouse LLP, independent accountants, for the year ended December 31, 1997.
The data should be read in conjunction with the financial statements, related
notes and other financial information from the Separate Account's 1997 Annual
Report to Contractowners which are incorporated by reference into the Statement
of Additional Information. A copy of the 1997 Annual Report to Contractowners
and the Statement of Additional Information may be obtained by calling or
writing GIAC's Customer Service Office. The address and phone number appear on
the cover of this Prospectus.
Selected data for accumulation units of the Separate Account outstanding at
the end of the period:
TAX QUALIFIED AND NON-TAX QUALIFIED
(Basic Contract)
Variable Accumulation Unit Year Ended December 31,
Value at Beginning of Period*: 1997
- -------------------------------------- -------
The Guardian Cash Fund ............... $ 10.00
The Guardian Stock Fund .............. 10.00
The Guardian Bond Fund ............... 10.00
The Guardian Small Cap Stock Fund .... 10.00
Gabelli Capital Asset Fund ........... 10.00
Baillie Gifford International Fund ... 10.00
Baillie Gifford Emerging Markets Fund 10.00
Value Line Centurion Fund ............ 10.00
Value Line Strategic Asset Management 10.00
Trust ..............................
MFS Growth With Income Series ........ 10.00
Variable Accumulation Unit
Value at End of Period:
- --------------------------------------
The Guardian Cash Fund ............... $10.121184
The Guardian Stock Fund .............. 10.436872
The Guardian Bond Fund ............... 10.298674
The Guardian Small Cap Stock Fund .... 10.320078
Gabelli Capital Asset Fund ........... 11.002284
Baillie Gifford International Fund ... 9.687628
Baillie Gifford Emerging Markets Fund 8.430653
Value Line Centurion Fund ............ 9.680080
Value Line Strategic Asset Management
Trust .............................. 10.252672
MFS Growth With Income Series ........ 10.559985
TAX QUALIFIED
Number of Variable Accumulation Year Ended December 31,
Units Outstanding at End of Period: 1997
- -------------------------------------- -------
The Guardian Cash Fund ............... 117,109
The Guardian Stock Fund .............. 510,354
The Guardian Bond Fund ............... 31,534
The Guardian Small Cap Stock Fund .... 107,489
Gabelli Capital Asset Fund ........... 36,094
Baillie Gifford International Fund ... 32,078
Baillie Gifford Emerging Markets Fund 9,425
Value Line Centurion Fund ............ 26,187
Value Line Strategic Asset Management
Trust .............................. 113,253
MFS Growth With Income Series ........ 54,050
- ----------
* The Separate Account commenced operations on September 15, 1997.
8
<PAGE>
NON-TAX QUALIFIED
Number of Variable Accumulation Year Ended December 31,
Units Outstanding at End of Period: 1997
- -------------------------------------- -------
The Guardian Cash Fund ............... 119,085
The Guardian Stock Fund .............. 630,297
The Guardian Bond Fund ............... 49,464
The Guardian Small Cap Stock Fund .... 122,412
Gabelli Capital Asset Fund ........... 24,087
Baillie Gifford International Fund ... 30,500
Baillie Gifford Emerging Markets Fund 22,501
Value Line Centurion Fund ............ 38,898
Value Line Strategic Asset Management
Trust .............................. 127,877
MFS Growth With Income Series ........ 62,952
TAX QUALIFIED AND NON-TAX QUALIFIED
(Contract with Enhanced Death Benefit)
Variable Accumulation Unit Year Ended December 31,
Value at Beginning of Period*: 1997
- -------------------------------------- -------
The Guardian Cash Fund ............... $ 10.00
The Guardian Stock Fund .............. 10.00
The Guardian Bond Fund ............... 10.00
The Guardian Small Cap Stock Fund .... 10.00
Gabelli Capital Asset Fund ........... 10.00
Baillie Gifford International Fund ... 10.00
Baillie Gifford Emerging Markets Fund 10.00
Value Line Centurion Fund ............ 10.00
Value Line Strategic Asset Management 10.00
Trust .............................. 10.00
MFS Growth With Income Series ........ 10.00
Variable Accumulation Unit
Value at End of Period:
- --------------------------------------
The Guardian Cash Fund ............... $10.114859
The Guardian Stock Fund .............. 10.430349
The Guardian Bond Fund ............... 10.292235
The Guardian Small Cap Stock Fund .... 10.313630
Gabelli Capital Asset Fund ........... 10.995415
Baillie Gifford International Fund ... 9.681566
Baillie Gifford Emerging Markets Fund 8.425380
Value Line Centurion Fund ............ 9.674029
Value Line Strategic Asset Management
Trust .............................. 10.246260
MFS Growth With Income Series ........ 10.553390
TAX QUALIFIED
Number of Variable Accumulation Year Ended December 31,
Units Outstanding at End of Period: 1997
- -------------------------------------- -------
The Guardian Cash Fund ............... 158,925
The Guardian Stock Fund .............. 701,284
The Guardian Bond Fund ............... 31,666
The Guardian Small Cap Stock Fund .... 153,256
- ----------
* The Separate Account commenced operations on September 15, 1997.
9
<PAGE>
Gabelli Capital Asset Fund ........... 60,886
Baillie Gifford International Fund ... 54,339
Baillie Gifford Emerging Markets Fund 40,867
Value Line Centurion Fund ............ 38,125
Value Line Strategic Asset Management
Trust .............................. 155,638
MFS Growth With Income Series ........ 23,702
NON-TAX QUALIFIED
Number of Variable Accumulation Year Ended December 31,
Units Outstanding at End of Period: 1997
- -------------------------------------- -------
The Guardian Cash Fund ............... 92,588
The Guardian Stock Fund .............. 334,605
The Guardian Bond Fund ............... 13,542
The Guardian Small Cap Stock Fund .... 82,383
Gabelli Capital Asset Fund ........... 9,072
Baillie Gifford International Fund ... 18,732
Baillie Gifford Emerging Markets Fund 6,163
Value Line Centurion Fund ............ 7,955
Value Line Strategic Asset Management
Trust .............................. 62,852
MFS Growth With Income Series ........ 53,104
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<PAGE>
DESCRIPTIONS OF GIAC AND THE SEPARATE ACCOUNT
GIAC
The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a stock life
insurance company incorporated in the state of Delaware in 1970. GIAC is the
issuer of the Contracts offered under this Prospectus. GIAC is licensed to
conduct an insurance business in all 50 states of the United States and the
District of Columbia and had total assets (statutory basis) of over $7.9 billion
as of December 31, 1997. GIAC's Executive Office is located at 201 Park Avenue
South, New York, New York 10003. The mailing address of the GIAC Customer
Service Office which administers these Contracts is P.O. Box 26210, Lehigh
Valley, Pennsylvania 18002.
GIAC is wholly owned by The Guardian Life Insurance Company of America
("Guardian Life"), a mutual life insurance company organized in the State of New
York in 1860. As of December 31, 1997, Guardian Life had total assets (statutory
basis) in excess of $14.0 billion. Guardian Life is not the issuer of the
Contracts offered under this Prospectus and does not guarantee the benefits
provided therein.
GIAC's statutory basis financial statements appear in the Statement of
Additional Information.
The Separate Account
GIAC established the Separate Account on September 26, 1996. The Separate
Account is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act"), and meets the definition of "separate
account" under the Federal securities laws. The Separate Account receives and
invests payments from Contractowners and owners of certain group deferred
variable annuity contracts issued by GIAC. In addition, the Separate Account may
receive and invest payments for other variable annuity contracts offered by
GIAC.
There are ten Investment Divisions (which correspond to the ten Funds)
available for allocations of Net Premium Payments and Accumulation Values. Each
Investment Division invests in a specific underlying Fund, and thus reflects
that Fund's investment performance. GIAC is the record owner of all of the Fund
shares held by each Investment Division but passes through to the Contractowners
the voting rights in such shares. (See "Voting Rights.")
Each Investment Division is administered and accounted for as part of the
general business of GIAC. Under Delaware law, the income and capital gains or
capital losses of each Investment Division, realized or unrealized, are credited
to or charged against the assets held in that Division in accordance with the
terms of each Contract, without regard to other income, capital gains or capital
losses of the other Investment Divisions or GIAC. The obligations arising under
the Contracts are obligations of GIAC. Delaware insurance law provides that the
assets of the Separate Account are not chargeable with liabilities arising out
of any other business GIAC may conduct. (See "Federal Tax Matters.")
The Contractowner may allocate Net Premium Payments and Accumulation Values
among up to six of the Contract's allocation options at any one time. Selecting
the Fixed-Rate Option reduces the number of Funds which may be selected for
allocation. No sales charges are assessed against premium payments invested in
the Funds under the Contracts. Transfers among the Investment Divisions may
currently be effected without fee, penalty or other charge by notifying GIAC's
Customer Service Office in writing or by telephone. (See "Transfers of Contract
Values.")
All dividends and capital gains distributions received from a Fund are
reinvested in such Fund's shares at net asset value and retained as assets of
the Separate Account through allocation to the applicable Investment Division.
Fund shares will be redeemed by GIAC at their net asset value to the extent
necessary to make annuity or other payments under the Contract.
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<PAGE>
GIAC retains the right, when permitted by applicable law, and with any
notice or approval required by any applicable law or regulatory authority, to
(1) deregister the Separate Account under the 1940 Act; (2) operate the Separate
Account as a management investment company or any other form permitted by law;
(3) combine any two or more separate accounts or Investment Divisions; (4)
transfer the assets in an Investment Division into another separate account,
another Investment Division or into GIAC's general account; and (5) modify the
Contracts as necessary to preserve the favorable tax treatment accorded to them
under the Code, including modifications designed to prevent the Contractowner
from being considered the owner of the assets of the Separate Account or the
Fixed Rate Option and, consequently, to be subject to taxation. GIAC will
exercise such rights (i) when necessary to serve the best interests of the
Contractowner and the beneficiary and (ii) when appropriate to carry out the
purposes of the Contract.
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<PAGE>
DESCRIPTIONS OF THE VARIABLE INVESTMENT OPTIONS
The Funds
Each Fund has a different investment objective which it tries to achieve by
following specified investment policies. The objectives and policies of each
Fund will affect its potential returns and its risks. There is no guarantee that
a Fund will achieve its investment objective. The following chart states the
investment objectives and lists typical portfolio investments of each Fund
currently available through the Separate Account.
Each of the Funds is an open-end diversified management investment company
or a series thereof, and is registered with the SEC under the 1940 Act. Such
registration does not involve any supervision by the SEC of the investment
management or policies of the Funds. The Funds do not impose a sales charge or
"load" for buying and selling their shares, so GIAC buys and sells shares at net
asset value in response to Contractowner-requested and other Contract
transactions.
Certain of the Funds are available under other separate accounts supporting
certain GIAC variable annuity contracts and variable life insurance policies.
Although GIAC does not anticipate any inherent difficulties in offering these
Funds to more than one separate account, it is possible that certain conflicts
of interest may arise in connection with the use of the same Funds under both
variable life insurance policies and variable annuity contracts. While each
Fund's Board of Directors intends to monitor events in order to identify and, if
deemed necessary, act upon any material irreconcilable conflicts that may
possibly arise, GIAC may also take action to protect Contractowners. See the
accompanying prospectuses for the Funds for more information regarding such
possible conflicts of interest.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE(S) TYPICAL INVESTMENTS
<S> <C> <C>
The Guardian Stock Fund Long-term growth of capital U.S. common stocks and convertible securities
- ------------------------------------------------------------------------------------------------------------------------------------
The Guardian Small Cap Long-term growth of capital Common stocks and convertible securities issued by
Stock Fund companies with small market capitalization
- ------------------------------------------------------------------------------------------------------------------------------------
The Guardian Bond Fund Maximum income without undue risk of principal Investment grade debt obligations and U.S.
capital appreciation as a secondary objective government securities, including mortgage-backed
and asset-backed securities
- ------------------------------------------------------------------------------------------------------------------------------------
The Guardian Cash Fund High level of current income consistent with Money market instruments
liquidity and preservation of capital
- ------------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Long-term capital appreciation Common stocks and convertible securities issued by
International Fund foreign companies
- ------------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Emerging Long-term capital appreciation Common stocks and convertible securities issued by
Markets Fund companies that are organized in, generally operate
in, or which principally sell their securities in
emerging market countries
- ------------------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund Long-term growth of capital U.S. common stocks ranked 1 or 2 by the Value Line
Ranking System*
- ------------------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset High total investment return (current income and U.S. common stocks ranked 1 or 2 by the Value
Management Trust capital appreciation) consistent with reasonable Line Ranking System,* bonds and money market
risk instruments
- ------------------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund Growth of capital; current income as a secondary U.S. common stocks and convertible securities
objective
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth With Long-term growth of capital and income Common stocks and convertible securities issued
Income Series by U.S. and foreign companies
</TABLE>
Certain of the Funds may not be available in all States.
- -------------
* The Value Line Ranking System has been used substantially in its present
form since 1965. The System ranks stocks on a scale of 1 (highest) to 5
(lowest) for year-ahead relative performance (timeliness).
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<PAGE>
GIAC retains the right, when permitted by applicable law and with any
notice or approval required by applicable law or any regulatory authority, to
make additions to, deletions from, or substitutions for, the Investment Divsions
in the Separate Account or the Fund shares held by any Investment Division. GIAC
reserves the right to eliminate the shares of any of the Funds and to substitute
shares of another Fund, or of another registered open-end management investment
company or series thereof or other appropriate investment vehicle. GIAC reserves
the right to add to or to suspend the Contractowner's ability to make
allocations or transfers into any Variable Investment Option or the Fixed-Rate
Option. GIAC will exercise such rights (i) when necessary to serve the best
interests of the Contractowner and the beneficiary and (ii) when appropriate to
carry out the purposes of the Contract.
A more detailed description of the investment objectives, policies,
charges, and expenses of the Funds may be found in the accompanying prospectuses
for the Funds. Read the prospectuses carefully before investing.
THE FUNDS' INVESTMENT ADVISERS
The Guardian Stock Fund, The Guardian Bond Fund, The Guardian Cash Fund and
The Guardian Small Cap Stock Fund (the "Small Cap Fund") are advised by Guardian
Investor Services Corporation ("GISC"), with principal offices at 201 Park
Avenue South, New York, New York 10003. GISC is registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act"). GISC is
wholly owned by GIAC. Each of these Funds, except the Small Cap Fund, pays GISC
an investment advisory fee at an annual rate of 0.50% of the Fund's average
daily net assets for the services and facilities GISC provides to the fund. The
Small Cap Fund pays GISC an investment advisory fee at an annual rate of 0.75%
of the Small Cap Fund's average daily net assets. GISC also serves as the
manager of Gabelli Capital Asset Fund and as the investment adviser of eight of
the ten series comprising The Park Avenue Portfolio (a family of mutual funds).
Baillie Gifford International Fund (the "International Fund") and Baillie
Gifford Emerging Markets Fund (the "Emerging Markets Fund") are advised by
Guardian Baillie Gifford Limited ("GBG"), with principal offices at 1 Rutland
Court, Edinburgh, EH3 8EY, Scotland. GBG is registered as an investment adviser
under the Advisers Act and is a member of Great Britain's Investment Management
Regulatory Organization Limited ("IMRO"). GBG was incorporated in Scotland in
November 1990 and is wholly owned by GIAC (51%) and Baillie Gifford Overseas
Limited ("BG Overseas") (49%). GBG also serves as the investment adviser of two
of the ten series comprising The Park Avenue Portfolio. GBG receives an
investment advisory fee at an annual rate of 0.80% of the average daily net
assets of the International Fund and 1.00% of the average daily net assets of
the Emerging Markets Fund for the services and facilities GBG provides to the
Funds.
GBG has appointed BG Overseas to serve as sub-investment adviser to the
International Fund and the Emerging Markets Fund. Like GBG, BG Overseas has
principal offices at 1 Rutland Court, Edinburgh, EH3 8EY, Scotland. BG Overseas
is also registered under the Advisers Act and is a member of IMRO. BG Overseas
is wholly owned by Baillie Gifford & Co., which is currently one of the largest
investment management partnerships in the United Kingdom. BG Overseas advises
several institutional clients situated outside of the United Kingdom, and is
also the sub-investment adviser to the series of The Park Avenue Portfolio that
are advised by GBG. One half of the investment advisory fee paid by the Funds to
GBG is payable by GBG to BG Overseas for its services as these Funds'
sub-investment adviser. No separate or additional fee is paid by these Funds to
BG Overseas.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund
are advised by Value Line, Inc. ("Value Line"), with principal offices at 220
East 42nd Street, New York, New York 10017. Value Line is registered as an
investment adviser under the Advisers Act. Each of the Value Line Funds pays
Value Line an investment advisory fee at an annual rate of 0.50% of the Fund's
average daily net assets for the services and facilities Value Line provides to
these Funds. Each of the Value Line Funds
14
<PAGE>
reimburses GIAC for certain administrative and shareholder servicing expenses
incurred by GIAC on their behalf. Value Line also serves as the investment
adviser to its own family of mutual funds and publishes The Value Line
Investment Survey and The Value Line Mutual Fund Survey.
Gabelli Capital Asset Fund is managed by GISC, which has appointed Gabelli
Funds, Inc. ("GFI") as the investment adviser to the Fund. GFI has its principal
offices at One Corporate Center, Rye, New York 10580, and is registered as an
investment adviser under the Advisers Act. The Fund pays GISC a management fee
at an annual rate of 1.00% of its average daily net assets for services and
facilities which GISC provides to the Fund. For its services as investment
adviser, GISC pays GFI .75% of the management fee which GISC receives from the
Fund. No separate or additional fee is paid by the Fund to GFI. GFI also serves
as investment adviser to other open-end mutual funds and closed-end mutual
funds.
MFS Growth With Income Series is advised by Massachusetts Financial
Services Company ("MFS"), 500 Boylston St., Boston, MA. MFS is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act") and is a subsidiary of Sun Life of Canada (U.S.), which is itself an
indirect wholly owned subsidiary of Sun Life Assurance Company of Canada. MFS
provides advisory services to other open- and closed-end registered investment
companies, as well as private and institutional investors. As compensation for
its services to the Series, MFS receives a fee, payable monthly, at an annual
rate of .75% of the Series' average daily net assets.
DESCRIPTION OF THE FIXED-RATE OPTION
That portion of each Contract relating to the Fixed-Rate Option is not
registered under the Securities Act of 1933 ("1933 Act") and the Fixed-Rate
Option is not registered as an investment company under the 1940 Act.
Accordingly, neither the Fixed-Rate Option nor any interests therein are subject
to the provisions or restrictions of the 1933 Act or the 1940 Act. However, the
following disclosure about the Fixed-Rate Option may be subject to certain
generally applicable provisions of the federal securities laws regarding the
accuracy and completeness of statements not in prospectuses. The Fixed-Rate
Option may not be available for allocation in all states in which the Contracts
are available.
General Information
The Contract permits the owner to allocate all or a portion of any Net
Premium Payment and to transfer all or a portion of his or her Accumulation
Value under the Contract to the Fixed-Rate Option. GIAC guarantees that amounts
invested under the Fixed-Rate Option will accrue interest daily at an effective
annual rate of at least 3% (the "guaranteed minimum interest rate"). GIAC may
also credit interest at a rate in excess of 3% (the "excess interest rate"), but
is under no obligation to do so. Any excess interest rate will be determined at
the sole discretion of GIAC and may be changed by GIAC from time to time and
without notice. The Contractowner assumes the risk that interest credited on any
portion of the Accumulation Value in the Fixed-Rate Option may not exceed the
guaranteed minimum interest rate (3%) for any given year.
There is no specific formula for the determination of whether to credit
excess interest or the rate thereof. However, some of the factors that GIAC may
consider are general economic trends, rates of return currently available and
anticipated on GIAC's general account investments, regulatory and tax
requirements and competitive factors. GIAC is aware of no statutory limitations
on the maximum amount of interest it may credit, and the Board of Directors of
GIAC has set no limitations.
The amounts credited to the Fixed-Rate Option become part of the general
assets of GIAC and are segregated from those assets allocated to any separate
account of GIAC. GIAC invests the assets of the Fixed-Rate Option in those
assets chosen by GIAC and allowed by applicable law. The allocation of
15
<PAGE>
any amounts to the Fixed-Rate Option does not entitle a Contractowner to share
in the investment experience of those assets.
The interest rate initially credited to Net Premium Payments or transfers
of Accumulation Value allocated to the Fixed-Rate Option will be the rate in
effect on the date such amounts are so allocated. Each such payment or transfer
will continue to receive the rate of interest initially credited until the next
Contract Anniversary Date. On the Contract Anniversary Date, all payments and
transfers allocated to the Fixed-Rate Option during the prior Contract year,
together with all interest earnings and amounts previously allocated by the
Contractowner to the Fixed-Rate Option, will be credited with the rate of
interest in effect on that date (the "renewal rate"). Such renewal rate will be
guaranteed with respect to these amounts until the next Contract Anniversary
Date.
For a description of certain restrictions which apply to transfers to and
from the Fixed-Rate Option, see "Description of the Contracts -- Transfers of
Contract Values."
Renewal Rate and Bailout Provision
If the renewal rate set by GIAC on any Contract Anniverary Date falls below
the minimum bailout rate specified in the Contract (where approved by the
applicable state insurance departments), a Contractowner may withdraw all or a
portion of the amount which has been held in the Fixed-Rate Option for one year
or more without imposition of a contingent deferred sales charge. Such
withdrawal request must be in writing and received by GIAC at its Customer
Service Office within 60 days of the Contract Anniversary Date. (See "Surrenders
and Partial Withdrawals.")
DESCRIPTION OF THE CONTRACT
This section of the Prospectus highlights the more significant provisions
of the Contract. The information included in this section generally describes,
among other things, the benefits, charges, rights and privileges under the
Contract. These descriptions are qualified by reference to a specimen of the
Contract which has been filed as an exhibit to the registration statement for
the Separate Account. The provisions of the Contract may vary slightly from
state to state due to variations in state regulatory requirements.
General Information
The Contract is a Flexible Premium Payment Contract that is only offered on
the lives of individual Annuitants. The Contract is available to retirement
plans which qualify for special Federal income tax treatment ("qualified
Contracts") and those which do not qualify for such treatment ("non-qualified
Contracts"). (See "Federal Tax Matters.")
A minimum initial premium payment of $500 is required. Thereafter, the
minimum additional payment is $100. However, if a Contract is purchased by, or
in connection with, an employer payroll deduction plan, GIAC will accept
purchase payments below $100. GIAC will not accept an initial premium payment in
excess of $2,000,000 without prior permission from an authorized officer of
GIAC. The aggregate of flexible premium payments made in any Contract year after
the first may not exceed $1,000,000, without GIAC's written consent.
The variable annuity payments provided by the Contract are funded through
investments in the Separate Account. Information regarding the Separate Account
is contained in the sections entitled "Descriptions of GIAC and the Separate
Account" and "Descriptions of the Variable Investment Options."
16
<PAGE>
Purchasing a Contract
To purchase a Contract, a completed and signed application and initial
premium payment must be sent to: The Guardian Insurance & Annuity Company, Inc.,
Customer Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002-6210.
Certified, registered or express mail deliveries of such documents must be
addressed to: The Guardian Insurance & Annuity Company, Inc., Customer Service
Office, 3900 Burgess Place, Bethlehem, Pennsylvania 18017.
If the application is acceptable to GIAC in the form received, the initial
Net Premium Payment will be credited within two (2) business days after receipt.
Acceptance is subject to GIAC's administrative rules and GIAC reserves the right
to reject any application or initial premium payment for any reason. If the
initial Net Premium Payment cannot be credited within five (5) business days
after receipt by GIAC because the application is incomplete, GIAC will promptly
return the premium payment and application to the applicant.
After issuance of the Contract, Net Premium Payments received by GIAC at
its Customer Service Office prior to the close of GIAC's business day will
normally be credited to the Contract on that day. Net Premium Payments received
on a non-business day or following the close of GIAC's business day will be
credited at the next Accumulation Unit Value calculated on the first business
day following receipt.
Charges and Deductions
Charges and deductions under the Contract are made for GIAC's assumption of
mortality and expense risks, administrative expenses, any supplemental benefits
and any applicable state annuity taxes. The Separate Account does not incur any
operating expenses or account fees and expenses. Although no sales charges are
deducted from premium payments when made, a contingent deferred sales charge
will be assessed upon certain Contract surrenders or withdrawals. The amount of
this latter charge is based on the type of Contract involved. Each charge and
deduction under the Contract is described below:
Mortality and Expense Risk Charge: GIAC makes a daily charge against the
net assets of each Variable Investment Option in an amount equal to 1.05% on an
annual basis to compensate it for the assumption of mortality and expense risks.
The mortality risk assumed by GIAC arises from its promise to pay death benefit
proceeds and from its contractual obligation to continue to make Annuity
Payments (determined in accordance with the annuity tables and other provisions
of the Contract) to each Annuitant regardless of how long he or she lives and
regardless of how long all Annuitants as a group live. The expense risk
assumed by GIAC arises from the possibility that the amounts deducted for sales
and administrative expenses may be insufficient to cover the actual cost of such
items.
Variable Annuity Payments reflect the investment performance of the
Variable Investment Options, but are not affected by changes in actual mortality
experience or by expenses incurred by GIAC in excess of the expense deductions
provided for in each Contract.
Administrative Expenses: GIAC will also make a daily charge against the net
assets of each Variable Investment Option in an amount equal to .20% on an
annual basis for administrative expenses.
Contract Fee: On each Contract Anniversary Date on or before the Annuity
Commencement Date, GIAC deducts a contract fee of $35 from the Accumulation
Value of each Contract by cancelling the number of Accumulation Units equal in
value to the fee. This contract fee is deducted from the Variable Investment
Options and the Fixed-Rate Option on a pro-rata basis in the same proportion as
the percentage of the Contract's Accumulation Value attributable to each
Variable Investment Option and the Fixed-Rate Option. GIAC will deduct the
contract fee upon any surrender of a Contract which occurs before the Contract
Anniversary Date. GIAC will waive the contract fee if the Accumulation Value on
the Contract Anniversary Date or upon total surrender is $100,000 or more.
17
<PAGE>
Supplemental Benefit Expenses: If the Enhanced Death Benefit is chosen and
is in effect, GIAC will assess a daily charge at an annual rate of .20% of the
net asssets of each Variable Investment Option.
Annuity Taxes: Certain states and municipalities may impose Annuity taxes
when premium payments are made or when annuity payments begin. These taxes range
from approximately 0.5% to 3.5% of premium payments made for the Contract. For
those Contracts subject to annuity tax, GIAC deducts Annuity tax either from the
premium payment when made or on the Annuity Commencement Date, as determined in
accordance with applicable law. However, in those jurisdictions where the
annuity tax is required to be deducted at the time of premium payment, GIAC
reserves the right, if permitted by applicable law and with the consent of the
Contractowner, to pay the annuity tax on behalf of the Contractowner and deduct
the amount paid from the contract value at the first to occur of surrender,
death or the Annuity Commencement Date.
Contingent Deferred Sales Charge: GIAC does not deduct a separate sales
charge from premium payments when made. However, a contingent deferred sales
charge ("CDSC") is imposed by GIAC on certain surrenders or partial withdrawals
to cover certain expenses incurred in the sale of the Contracts, including
commissions to registered representatives and various promotional expenses.
For the purpose of calculating the CDSC, and in order to minimize the
applicable CDSC, all amounts withdrawn or surrendered are deemed to be taken out
on a first-in-first-out basis; that is, all amounts taken out are deemed to come
from the oldest premium paid first. If the owner makes a partial withdrawal or
surrenders the Contract, a CDSC will be incurred against amounts withdrawn or
surrendered that have been in the Contract less than seven (7) Contract years. A
CDSC will not apply to amounts withdrawn or surrendered that have been in the
Contract for seven (7) or more Contract years.
If the Contract is surrendered, GIAC will deduct, if applicable, a CDSC and
the contract fee from the amount otherwise payable. The amount of the CDSC, if
any, will be a percentage, as shown in the table below, of the amount withdrawn
or surrendered:
Number of Contract Years
Completed from the Date of CDSC
Premium Payment Charge
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and thereafter 0%
The maximum CDSC will be equal to 7% of the lesser of: (1) the total of all
premium payments made within seven (7) Contract years (84 months) prior to the
date of the request for withdrawal or surrender; or (2) the amount withdrawn or
surrendered.
After the first Contract year, a Contractowner can withdraw annually
without charge, an amount equal to the greater of the excess of the Accumulation
Value on the date of withdrawal over the aggregate Net Premium Payments that
have not been previously withdrawn or 10% of the total premium payments made,
minus the aggregate amount of all prior partial withdrawals made in such
Contract year. For Contracts issued in trustee to trustee transfers, Section
1035 exchanges or in IRA transfers or rollovers from annuity contracts, or to
Charitable Remainder Trusts this no-charge withdrawal privilege may also be
exercised in the first Contract year. Such withdrawals may, however, be subject
to penalty taxes and/or mandatory federal income tax withholding. (See "Federal
Tax Matters.")
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<PAGE>
To minimize the amount of the CDSC charged in any particular situation,
withdrawals from any Variable Investment Option or the Fixed Rate Option will be
made in the same order in which amounts were allocated to that Option, subject
to the cancellation ordering rules set forth in "Surrenders and Partial
Withdrawals."
No CDSC will be imposed on any contract purchased by: (1) Guardian Life,
its subsidiaries or any separate account thereof; (2) present or retired
directors, officers, employees, general agents, or field representatives of
Guardian Life or its subsidiaries; (3) present or retired directors or officers
of any Variable Investment Option offered under this Contract; (4) present and
retired directors, trustees, officers, partners, registered representatives and
employees of broker-dealer firms that have written sales agreements with GISC;
(5) the spouses, parents, siblings, children and grandchildren of the
individuals in (2), (3) or (4) above (based upon their status at the time the
Contract was purchased); (6) trustees or custodians of any employee benefit
plan, IRA, Keogh plan or trust established for the benefit of persons in (2) and
(3) above; and (7) broker-dealers, financial institutions and registered
investment advisors which have entered into an agreement with GIAC providing for
the sale of the Contract to clients of such entities participating in a "wrap
account" or similar program under which clients pay an account management fee or
transaction fee to such entity.
Other Charges Applicable to the Funds: The net asset value per share of
each of the Funds reflects investment management fees and certain general
operating expenses paid by the Funds. The investment management fees and other
expenses incurred by the Funds are more fully described in "Descriptions of the
Variable Investment Options-The Funds' Investment Advisers", and the
accompanying prospectuses for the Funds.
Death Benefits Prior to the Annuity Commencement Date
Death Benefits Generally: The following is a description of the death
benefits provided under the Contract when the Annuitant or Contractowner dies
prior to the Annuity Commencement Date. In addition to the death benefits
provided under the basic Contract, Contractowners may elect to purchase an
Enhanced Death Benefit Rider, which may provide greater death benefit proceeds
than the proceeds payable under the basic Contract. A more detailed description
of the Enhanced Death Benefit Rider follows the discussion of the basic
Contract's death benefits. The Enhanced Death Benefit Rider is available at the
time of the issuance of the Contract and an additional annual charge is imposed
while the Rider is in force. Although not currently anticipated, GIAC reserves
the right to offer the Enhanced Death Benefit to existing Contractowners during
limited periods of time in the future.
The death benefit will ordinarily be paid within seven (7) days of GIAC's
receipt of proof of death in Good Order. However, GIAC reserves the right to
defer payment of any Contract benefits, other than guaranteed death benefits,
under certain circumstances. (See "Surrenders and Partial Withdrawals").
Death of the Annuitant when Annuitant is Not a Contractowner:If the
Annuitant dies on or before the Annuity Commencement Date and the Annuitant is
not also the Contractowner, a death benefit becomes payable to the Beneficiary.
If the Beneficiary predeceases the Annuitant, the death benefit will be paid to
any contingent Beneficiary. If no contingent Beneficiary is designated, then the
death benefit will be paid to the Contractowner or, if the Contractowner is no
longer living, to the Contractowner's estate. GIAC will make such payment upon
receipt at its Customer Service Office of proof of death in Good Order.
The death benefit payable is the greater of (1) the Accumulation Value of
the Contract as of the end of the Valuation Period during which GIAC received
proof of death, less any applicable annuity taxes; or (2) the total amount of
premiums paid, less any partial withdrawals and any contingent deferred sales
charges paid thereon, and any applicable annuity taxes. For Contracts issued for
the benefit of
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<PAGE>
Annuitants who are age 75 or older on the Contract's issue date, the death
benefit will be the Accumulation Value as of the end of the Valuation Period
during which GIAC received proof of death in Good Order less any applicable
annuity taxes.
The death benefit will be paid in one lump sum unless (1) the Contractowner
has elected an annuity payout option for the death benefit which is received by
GIAC in Good Order at least three business days prior to the date the proceeds
are paid, or (2) the Contractowner has not otherwise elected an annuity payout
option and the Beneficiary has elected an annuity payout option for the death
benefit that it is received by GIAC in Good Order at least three business days
prior to the date the proceeds are paid and within one year of the Annuitant's
death.
Death of a Contractowner: If a Contractowner and the Annuitant are the same
person, and such person dies on or before the Annuity Commencement Date, then
the death benefit becomes payable to the beneficiary as described above, except
that the Contract's entire interest must be distributed in accordance with the
rules set forth in the "Special Requirements" section below. The Beneficiary
becomes the new Contractowner in these circumstances. If the Contractowner and
the Annuitant are not the same person and the Contractowner dies, then the joint
Contractowners, if any, become the new Contractowner. If no joint Contractowner
has been named, then the Beneficiary becomes the new Contractowner of the
Contract. In the event of any Contractowner's death, the Contract's entire
interest must be distributed in accordance with the rules set forth in the
"Special Requirements" section below.
Special Requirements: If the Beneficiary (or sole surviving joint
Contractowner) is not the Contractowner's spouse and the Contractowner dies
before the Annuity Commencement Date, then distribution of the Contractowner's
entire interest in the Contract must be made within five years of the
Contractowner's death. These distribution requirements shall be deemed satisfied
as to any portion of the deceased Contractowner's interest which (1) is payable
to or for the benefit of any new Contractowner; and (2) will be distributed over
the life of any such new Contractowner, or over a period not extending beyond
the life expectancy of any new Contractowner; provided that such distributions
begin within one year of the death of the deceased Contractowner. If the
Beneficiary (or sole surviving joint Contractowner) is the deceased
Contractowner's spouse, the spouse may continue the contract as the new
Contractowner. If the Contractowner is not an individual, the primary Annuitant,
as determined in accordance with Section 72(s) of the Internal Revenue Code
(i.e., the person the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the contract), will be
treated as the Contractowner for purposes of these distribution requirements,
and any change in the Annuitant will be treated as the death of the
Contractowner.
Enhanced Death Benefit Rider: At the time of purchase of the Contract, a
Contractowner may elect to purchase the Enhanced Death Benefit Rider. If the
Annuitant dies before the Annuity Commencement Date and the Rider is in force,
upon receipt of proof of death in Good Order, GIAC will pay the beneficiary a
death benefit equal to the greater of (1) the death benefit described above or
(2) the Enhanced Death Benefit. The Enhanced Death Benefit is equal to the
Accumulation Value of the Contract as of the end of the Reset Date immediately
preceding the annuitant's date of death, plus any premiums paid subsequent to
such Reset Date, less any partial withdrawals subsequent to such date, any
contingent deferred sales charges paid thereon, and any applicable annuity
taxes.
The first Reset Date occurs on the seventh Contract Anniversary Date of the
Contract. Thereafter, each Reset Date occurs on each subsequent seventh Contract
Anniversary Date. For so long as the Enhanced Death Benefit Rider remains in
effect, GIAC will assess an additional daily charge against the net assets of
each Variable Investment Option in an amount equal to .20% on an annual basis
for expenses related to the Enhanced Death Benefit. (See "Charges and
Deductions".)
The Enhanced Death Benefit Rider terminates on the earliest of (1) the date
the Enhanced Death
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Benefit is paid; (2) the date the Contract terminates; (3) the date of the
Annuitant's 85th birthday; (4) the Annuity Commencement Date; or (5) the date
GIAC receives the Contractowner's proper written request for termination in Good
Order. Once the Enhanced Death Benefit Rider is terminated, it may not be
reinstated.
Accumulation Period
Allocation of Net Premium Payment: The initial Net Premium Payment will be
used to purchase Accumulation Units in the Investment Divisions or the
Fixed-Rate Option as selected by the Contractowner at the unit values next
computed following receipt and acceptance of the payment by GIAC. Subsequent Net
Premium Payments will be allocated among the underlying Contract options as
initially selected for allocation or pursuant to new allocation instructions
requested by the Contractowner in writing. New allocation instructions will be
implemented by GIAC following their receipt at its Customer Service Office in
Good Order. However, the Contractowner may not be invested in more than six
allocation options at any given time.
Crediting Accumulation Units under the Contract: Variable Accumulation
Units represent the interests in the Variable Investment Options and Fixed
Accumulation Units represent the interests in the Fixed-Rate Option. The total
number of Accumulation Units to be credited to a Contractowner's account is the
sum of the portion of the Net Premium Payment allocated to each option divided
by the Accumulation Unit value of each such option as next computed following
receipt and acceptance of the payment by GIAC. The number of Accumulation Units
will not change because of a subsequent change in the value of the unit, but the
dollar value of Accumulation Units will vary based upon the investment
experience of the Variable Investment Options and interest credited to the
Fixed-Rate Option.
Accumulation Value: The value of the Contractowner's account within any
particular Variable Investment Option or the Fixed-Rate Option is determined by
multiplying the number of Accumulation Units of that particular option credited
to the account by the applicable current Accumulation Unit value.
Value of an Accumulation Unit: With respect to a Variable Investment
Option, the value of a Variable Accumulation Unit is determined by multiplying
the value of such Variable Accumulation Unit as of the end of the immediately
preceding Valuation Period by the net investment factor (described below) for
the current Valuation Period. With respect to the Fixed-Rate Option, the value
of a Fixed Accumulation Unit is determined by adding the interest credited on
such Fixed Accumulation Unit since the end of the immediately preceding
Valuation Period to the value of such unit as of the end of such Valuation
Period.
Net Investment Factor: The net investment factor is a measure of the
investment experience of each Variable Investment Option. For any particular
Valuation Period, the net investment factor is determined by:
(1) Adding the net asset value of a Fund share as determined at the
end of such Valuation Period to the per share amount of any dividends and
other distribution made by the Fund during the period, and
(2) Dividing by the net asset value of the particular Fund share
calculated as of the end of the immediately preceding Valuation Period, and
(3) Subtracting from the above result the sum of the daily charges for
(a) mortality and expense risks (b) administrative expenses and (c) if
applicable, the Enhanced Death Benefit Rider, plus any applicable annuity
taxes.
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Annuity Period
Annuity Commencement Date: Annuity Payments under the Contract will begin
on the Annuity Commencement Date, which is the first day of the calendar month
and year selected by the Contractowner. This date cannot be later than the
Annuitant's 90th birthday, except when otherwise agreed by GIAC. The Annuity
Commencement Date may also be determined by the retirement plan under which the
Contract is issued.
Annuity Payments: Annuity Payments are available on a fixed or variable
basis or a combination of both. Such payments will be determined on the basis
of: (1) the table specified in the Contract which reflects the nearest age of
the Annuitant; (2) the annuity payout option selected; and (3) the investment
experience of any Variable Investment Options selected. The number and amount of
Annuity Payments will not be affected by the longevity of Annuitants generally
or any increase in the expenses of GIAC in excess of the charges specified in
the Contract. The Annuitant receives the value of a fixed number of Variable
Units and a fixed dollar amount each month. For the Variable Investment Options,
the value of an Annuity Unit will reflect the investment experience of the
amounts allocated to the Variable Investment Options, and the amount of each
Annuity Payment will vary accordingly.
While the Annuitant is living, the Contractowner may name or change one or
more Beneficiaries who will be the payee or payees of an annuity payout
following the death of the Annuitant. Only individuals who are to receive
payments in his or her own behalf may be named as payees, unless GIAC agrees
otherwise.
The U.S. Supreme Court decision in Arizona Governing Committee v. Norris
can be interpreted to require all "employer-related plans" to use rate tables
that are gender-neutral in calculating annuity purchase rates. In order to
accommodate employer-related plans funded by the Contract, revised annuity rate
tables providing benefits on a gender-neutral basis have been developed and
filed in the states where GIAC is admitted to do business. Contracts that are
not purchased in connection with employer-related plans will continue to be
offered on the customary basis with gender-distinct annuity purchase rates,
unless prohibited by state law. The Contract offered by this Prospectus to
residents of such states will have Contract benefits which are based on
gender-neutral annuity rate tables.
Annuity Payout Options: The Contractowner may elect to have Annuity
Payments made under any one (or a combination) of the variable or fixed Annuity
Payout Options specified in the Contract and described below. A change of
Annuity Payout Option is permitted only prior to the Annuity Commencement Date.
In the absence of an election, Annuity Payments will be made in accordance with
the Annuity Payout Option known as "Option V-2 -- Life Annuity with 10-Year
Guaranteed Period" (see below). Annuity Payments will be made monthly except
that: (1) proceeds of less than $2,000 will be paid in a single sum; and (2)
GIAC may change the schedule of installment payments to avoid payments of less
than $20. The Annuity Payout Options currently available for both variable and
fixed Annuity Payments under the Contract are as follows (options designated
with the letter "V" are variable options, those designated with the letter "F"
are fixed options):
Variable Annuity Payout Options
The amount of any variable annuity payments after the first will increase
or decrease according to the value of the variable Annuity Units, which reflect
the investment experience of the Variable Investment Option(s) chosen.
Option V-1 -- Life Annuity without Guaranteed Period: Under this
option, a Variable Annuity Payment will be made monthly during the lifetime
of the Annuitant ending with the payment preceding the Annuitant's death.
Option V-1 offers the maximum level of variable monthly payments, since
there is no guarantee of a minimum number of variable payments or provision
for
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a death benefit for Beneficiaries. It would be possible under Option V-1
for the Annuitant to receive only one Variable Annuity Payment if he or she
died before the due date of the second Variable Annuity Payment, two such
payments if he or she died before the third Variable Annuity Payment date,
and so on.
Option V-2 -- Life Annuity with 10-Year Guaranteed Period: Under this
option, a Variable Annuity Payment will be made monthly during the lifetime
of the Annuitant with the provision that if, at the Annuitant's death, such
payments have been made for less than 10 years (120 months), Variable
Annuity Payments will be continued during the remainder of such period to
the Beneficiary. The Beneficiary at any time may elect to redeem in whole
or in part the commuted value of the current dollar amount of the then
remaining number of Variable Annuity Payments. If the Beneficiary dies
while receiving Variable Annuity Payments, the commuted value of the
current dollar amount of the remaining number of Variable Annuity Payments
shall be paid in one sum to the estate of the Beneficiary.
Option V-3 -- Joint and Survivor Annuity: Under this option, a
Variable Annuity Payment will be made monthly during the joint lifetimes of
the Annuitant and a designated second person (joint annuitant) and will
continue during the lifetime of the survivor in a reduced amount which
reflects two-thirds of the number of Variable Annuity Units in effect while
both persons were living. It would be possible under Option V-3 for the
joint Annuitants to receive only one Variable Annuity Payment if both died
before the date of the second Variable Annuity Payment, two such payments
if both died before the third Variable Annuity Payment date, and so on.
Fixed Annuity Payout Options
Option F-1 -- Life Annuity without Guaranteed Period: Under this
option, a Fixed Annuity Payment will be made monthly during the lifetime of
the Annuitant ending with the payment preceding the Annuitant's death.
Option F-1 offers the maximum level of fixed monthly payments, since there
is no guarantee of a minimum number of fixed monthly payments or provision
for a death benefit for Beneficiaries. It would be possible under Option
F-1 for the Annuitant to receive only one Fixed Annuity Payment if he or
she died before the due date of the second Fixed Annuity Payment, two such
payments if he or she died before the third Fixed Annuity Payment date, and
so on.
Option F-2 -- Life Annuity with 10-Year Guaranteed Period: Under this
option, a Fixed Annuity Payment will be made monthly during the lifetime of
the Annuitant with the provision that if, at the Annuitant's death, such
payments have been made for less than 10 years (120 months), Fixed Annuity
Payments will be continued during the remainder of such period to the
Beneficiary. The Beneficiary at any time may elect to redeem in whole or in
part the commuted value of the current dollar amount of the then remaining
number of Fixed Annuity Payments. If the Beneficiary dies while receiving
Fixed Annuity Payments, the commuted value of the current dollar amount of
the remaining number of Fixed Annuity Payments shall be paid in one sum to
the estate of the Beneficiary.
Option F-3 -- Joint and Survivor Annuity: Under this option, a Fixed
Annuity Payment will be made monthly during the joint lifetimes of the
Annuitant and a designated second person (joint annuitant) and will
continue during the lifetime of the survivor in a reduced amount which
reflects two-thirds of the number of Fixed Annuity Units in effect while
both persons were living. It would be possible under Option F-3 for the
joint Annuitants to receive only one Fixed Annuity Payment if both died
before the date of the second Fixed Annuity Payment, two such payments if
both died before the third Fixed Annuity Payment date, and so on.
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Transfers of Contract Values
General Information: Subject to the conditions described below and to the
terms of any applicable retirement plan, transfers among the Contract's Variable
Investment Options are permitted both before and after the Annuity Commencement
Date. Transfers to and from the Fixed-Rate Option are only permitted before the
Annuity Commencement Date. Contractowners may be invested in a maximum of six
Variable Investment Options or in the Fixed-Rate Option and five Variable
Investment Options under the Contract at any given time. Annuitants receiving
payments pursuant to a variable Annuity Payout Option may be invested in a
maximum of six Variable Investment Options at any given time. Contractowners and
Annuitants who contemplate requesting a transfer should carefully consider their
own objectives and the investment objectives, risks and restrictions pertaining
to each Variable Investment Option and the Fixed-Rate Option involved in the
proposed transfer before making the request. Frequent transfers may be
inconsistent with the long-term objectives of the Contract.
GIAC will implement transfers pursuant to written or telephone instructions
received in Good Order at its Customer Service Office. Requests received by GIAC
at its Customer Service Office prior to 3:30 p.m. (Eastern time) on a given
business day will normally be implemented as of the end of that day. GIAC
reserves the right to limit the frequency of transfers to not more than once
every 30 days. Currently, no charge is made by GIAC for effecting any transfer.
GIAC reserves the right, however, to impose such a charge in the future (up to a
maximum charge of $25 per transfer). GIAC will deduct any transfer charge on a
pro rata basis from the options from which the amounts are transferred.
Telephone Transfers: GIAC will not honor telephone transfer instructions
unless proper authorization has been provided either in the completed
application for the Contract or in GIAC's telephone transfer authorization form.
If the proper authorization is on file at GIAC's Customer Service Office,
telephone transfer instructions may be given by calling 1-800-533-0099 between
9:00 a.m. and 3:30 p.m. (Eastern time) on days when GIAC is open for business.
Each telephone transfer instruction must include a precise identification of the
owner's Contract and the Contractowner's Personal Security Code. GIAC may accept
telephone transfer instructions from any caller who properly identifies the
correct Contract number and Personal Security Code. GIAC, GISC and the Funds
shall not be liable for any loss, damage, cost or expense resulting from
following telephone transfer instructions which any of them reasonably believed
to be genuine. Thus, Contractowners risk possible loss of interest, capital
appreciation and principal in the event of an unauthorized or fraudulent
telephone transfer. All or part of any telephone conversation relating to
transfer instructions may be recorded by GIAC without prior disclosure to the
caller.
Telephone transfer instructions apply only to allocations of previously
invested monies. Such instructions may not be used to change the allocation
instructions for any future premiums paid under the Contract. See "Allocation of
Net Premium Payment" for information about changing allocation instructions for
future premiums.
During periods of drastic economic or market changes, it may be difficult
to contact GIAC to request a telephone transfer. At such times, transfer
requests may be made by regular or express mail and will be processed at the
next Accumulation Unit Value calculated after their receipt pursuant to the
terms and restrictions described in this "Transfers of Contract Values" section.
GIAC reserves the right to modify, suspend or discontinue the telephone transfer
privilege at any time and without prior notice.
Transfer Rules During the Accumulation Period: During the Accumulation
Period up until 30 days prior to the Annuity Commencement Date, the
Contractowner may transfer all or part of the Accumulation Value among the
Contract options, subject to the following:
(1) Transfers from the Fixed-Rate Option to any Variable Investment
Option are permitted
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only once per Contract year during the 30-day period beginning on the
Contract Anniversary Date, except as permitted pursuant to the Dollar Cost
Averaging feature described below. Amounts will be transferred from the
Fixed-Rate Option to any Variable Investment Option in the same order such
amounts were allocated to the Fixed-Rate Option. This means that amounts on
deposit in the Fixed-Rate Option for the longest period of time will be the
first amounts so transferred. The maximum amount which may currently be
transferred out of the Fixed-Rate Option each year is the greater of: (1)
33 1/3% of the amount in the Fixed-Rate Option as of the applicable
Contract Anniversary Date, or (2) $10,000 or (3) the product of the total
dollar amount transferred from the Fixed-Rate Option in the previous
Contract year, multiplied by a factor of 1.15.
(2) Each transfer involving the Contract's Variable Investment Options
will be based upon the next Accumulation Unit value calculated after proper
transfer instructions are received by GIAC at its Customer Service Office.
Transfer Rules After the Annuity Commencement Date: After the Annuity
Commencement Date, a Contractowner may also transfer all or part of the Annuity
Value among the Variable Investment Options. However, such transfers may be made
only once each calendar year. No transfers into or out of the Fixed-Rate Option
are currently permitted after the Annuity Commencement Date.
Surrenders and Partial Withdrawals
During the Accumulation Period and while the Annuitant and all
Contractowners are living, the Contractowner may redeem the Contract in whole
(known as a "surrender") or in part (known as a "partial withdrawal").
Surrenders and partial withdrawals must be requested in writing in Good Order. A
surrender request must be accompanied by the Contract (or an acceptable
affidavit of loss) to be deemed in Good Order. GIAC will not process a surrender
request prior to receipt of the Contract (or an acceptable affidavit of loss) at
its Customer Service Office. GIAC will not honor a request for a surrender or
partial withdrawal after the Annuity Commencement Date.
If a surrender or partial withdrawal is made, a contingent deferred sales
charge will be imposed, if applicable. (See "Charges and Deductions --
Contingent Deferred Sales Charge.")
A surrender or partial withdrawal is effected by cancelling Accumulation
Units which have an aggregate value equal to the dollar amount of the requested
surrender or partial withdrawal as next calculated following receipt by GIAC at
its Customer Service Office of a proper written request for the surrender or
partial withdrawal. If applicable, any Contract charges and any contingent
deferred sales charges will be deducted from the surrender proceeds or, in the
case of a partial withdrawal, from the remaining Accumulation Value by the
cancellation of additional Accumulation Units. If the Accumulation Value
remaining after a partial withdrawal is less than $500, GIAC reserves the right
to redeem the total Accumulation Value and pay it to the Contractowner in
cancellation of the Contract. Such an involuntary surrender is subject to any
then applicable Contract administrative charge or contingent deferred sales
charge. (See "Charges and Deductions -- Contingent Deferred Sales Charge".)
Except as noted below, Accumulation Units will be cancelled in the
following order: First, GIAC will cancel all the Variable Accumulation Units
attributable to the Investment Divisions. Cancellation of the Variable
Accumulation Units attributable to the Investment Divisions will be on a pro
rata basis, reflecting the existing distribution of the Variable Accumulation
Units unless the Contractowner instructs otherwise. Second, GIAC will cancel all
Fixed Accumulation Units attributable to the Fixed-Rate Option.
No contingent deferred sales charge will be imposed and the above ordering
rules will not apply if amounts are withdrawn directly from the Fixed-Rate
Option in accordance with the bailout provision
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described in the section entitled "Description of the Fixed-Rate Option."
Payment of a surrender or partial withdrawal will ordinarily be made within
seven (7) days after the date GIAC receives the written request in Good Order at
its Customer Service Office. GIAC can delay the payment if the Contract is being
contested and may postpone the calculation or payment of any partial withdrawals
or surrender proceeds or transfer of amounts based on investment performance of
the Investment Divisions if: (1) the New York Stock Exchange is closed for
trading or trading has been suspended; or (2) the Securities and Exchange
Commission restricts trading or determines that a state of emergency exists
which may make payment or transfer impracticable.
NOTE: Withdrawals from Contracts issued in connection with Section 403(b)
qualified plans are restricted under the Code. See "Federal Tax Matters --
Qualified Contracts -- Section 403(b) Plans" for information about the
circumstances under which withdrawals may be made from such Contracts.
Questions regarding GIAC's surrender or withdrawal procedures should be
directed to a customer service representative by calling toll-free
1-800-221-3253.
Other Contract Features and Important Information
Dollar Cost Averaging: Contractowners may elect to systematically transfer
specified level dollar amounts from the Cash Fund Investment Division or the
Fixed-Rate Option to other Variable Investment Options and/or the Fixed-Rate
Option at regular intervals. By transferring specific amounts on a regularly
scheduled basis, as opposed to allocating the total amount at one particular
time, a Contractowner may be less susceptible to the impact of market
fluctuations. There is no guarantee, however, that such an investment method
will result in profits or prevent losses.
To take advantage of this program, a Contractowner predesignates a dollar
amount to be automatically transferred from either the Cash Fund Investment
Division or the Fixed-Rate Option to one or more of the other Variable
Investment Options and/or the Fixed-Rate Option, provided that Accumulation
Values may only be allocated among a maximum of six Contract options, including
the Cash Fund Investment Division or the Fixed-Rate Option, at any given time. A
Contractowner may elect this program at the time the Contract is purchased or
anytime thereafter by properly completing a Dollar Cost Averaging election form
and returning it to GIAC at its Customer Service Office at least three (3)
business days prior to the Monthly Anniversary Date (the monthly anniversary
measured from the issue date of the Contract or the last day of that calendar
month, if earlier) on which the first transfer will be made. Transfers will then
be made monthly for the period elected by the Contractowner. Contractowners
participating in this program may not elect to Dollar Cost Average from both the
Cash Fund Investment Division and the Fixed Rate Option concurrently.
Dollar Cost Averaging from the Cash Fund Investment Division may be
selected for 12, 24 or 36 month periods. Dollar Cost Averaging from the Fixed
Rate Option may only be selected for a 36 month period. The total Accumulation
Value at the time it is elected must be at least $10,000 for transfers over a 12
month period and $20,000 for transfers over a 24 or 36 month period. Transfers
will be made in the amounts designated by the Contractowner and must be at least
$100 per receiving Contract Option. When a Contractowner elects to participate
in this program, the Accumulation Value attributable to the Cash Fund Investment
Division or the Fixed Rate Option must be at least equal to the amount
designated to be transferred on each Monthly Anniversary Date multiplied by the
applicable monthly duration.
Dollar Cost Averaging will terminate when any one of the following events
occurs: (1) the number of designated monthly transfers has been completed; (2)
the Accumulation Value attributable to the Cash Fund Investment Division or the
Fixed Rate Option is insufficient to complete the next transfer; (3) the
Contractowner requests termination in a writing received by GIAC at its Customer
Service Office at least three (3) business days prior to the next Monthly
Anniversary Date; (4) the Contract is
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surrendered; or (5) the Annuity Commencement Date occurs. Upon termination of
Dollar Cost Averaging from the Fixed Rate Option, any further transfers from the
Fixed Rate Option will be subject to the restrictions otherwise applicable to
Fixed Rate Option. See "Description of the Contracts- Transfers of Contract
Values".
A Contractowner may reinstate Dollar Cost Averaging or change existing
Dollar Cost Averaging terms by properly completing a new election form. Such
requests received by GIAC at its Customer Service Office at least three (3)
business days prior to the next Monthly Anniversary Date will be effective for
such Monthly Anniversary Date.
When utilizing Dollar Cost Averaging, a Contractowner must be invested in
the Cash Fund Investment Division or the Fixed Rate Option, as applicable.
Including these Contract options, the Contractowner may not be invested in more
than a maximum of six Contract allocation options. The Dollar Cost Averaging
program may not be elected after the Annuity Commencement Date.
Portfolio Rebalancing: Under a Portfolio Rebalancing program, the
Contractowner may maintain a specific percentage allocation of the Accumulation
Value among the Variable Investment Options at a pre-designated level. The
performance of the underlying options may cause the holdings in the applicable
underlying options to shift beyond their designated allocation percentages. If
the Contractowner participates in this program, GIAC will automatically transfer
amounts among Variable Investment Options in order to return to the designated
percentages. GIAC will process these transfers quarterly. The minimum
Accumulation Value required to elect this program is $10,000. Modifications to
percentage allocations or termination of participation in the program by the
Contractowner must be made in writing. Any portion of the Contractowner's
Accumulation Value allocated to the Fixed Rate Option will not be subject to
asset rebalancing.
GIAC reserves the right to modify or discontinue the Portfolio Rebalancing
program upon written notice. Currently, no charge is made by GIAC for this
service. GIAC reserves the right, however, to impose a fee for this program in
the future.
Assignment: Assignment of the Contractowner's interest in the Contract is
prohibited when the Contract is used in connection with any retirement plan
contemplated by Sections 401(a), 403(b) or 408 of the Code and any corporate
retirement plan unless the Contractowner is not the Annuitant or the Annuitant's
employer. An assignment of the Contract may be treated as a taxable distribution
to the Contractowner. (See "Federal Tax Matters".)
Reports: GIAC will send to each Contractowner, at least semi-annually, a
report containing such financial information pertaining to the Separate Account
as may be required by applicable laws, rules and regulations. In addition, a
statement will be provided to each Contractowner at least annually which reports
the number of Contract Accumulation Units and the value of such Accumulation
Units under the Contract.
Contractowner Inquiries: A Contractowner may direct inquiries to the
individual who sold him or her the Contract or may call GIAC at 1-800-221-3253
or write directly to: The Guardian Insurance & Annuity Company, Inc., Customer
Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002.
PERFORMANCE RESULTS
From time to time, performance information for the Account's Investment
Divisions may be provided in advertisements, sales literature or materials
furnished to existing or prospective Contractowners. All such information is
based upon historical information and is not necessarily representative of
future performance. More detailed information about the calculation of such
historical performance information appears in the Statement of Additional
Information.
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Total Returns: "Average annual total return," "total return" and "change in
Accumulation Unit value" all reflect the change in the value of an investment in
an Investment Division over a specified period, assuming the reinvestment of all
income dividends and capital gains distributions. Average annual total returns
show the average annual percentage change in value over a specified period.
Total returns and changes in Accumulation Unit values, which are not annualized,
show the total percentage change in value over a specified period.
Promotional materials relating to an Investment Division's investment
performance will always at least provide the average annual total returns for
one, five and ten years, or the life of the Division's corresponding Fund, if
shorter. Such required average annual total returns will reflect the effects of
all charges, both recurring and non-recurring, incurred by the Fund, as well as
all charges deducted under the terms of the Contract . However, promotional
materials may also show average annual total returns which assume that a
Contract continues in force after the end of the specified period. Such returns
will not reflect the effects of the Contract's contingent deferred sales charge.
Total returns and changes in Accumulation Unit values may not reflect certain
specified charges deducted under the terms of the Contract .
Yields: "Yield" figures may be quoted for the Investment Divisions which
invest in shares of the Cash Fund and the Bond Fund. Current yield is a measure
of the net investment income earned on a hypothetical investment over a
specified base period of seven days for the Cash Fund Investment Division and 30
days (or one month) for the Bond Fund Investment Division. Yield is expressed as
a percentage of the value of an Accumulation Unit at the beginning of the base
period. Yields are annualized, which means that they assume that an Investment
Division will generate the same level of net investment income over a one-year
period. However, yields actually fluctuate daily.
The Cash Fund Investment Division may also quote its "effective yield,"
which assumes that the net investment income earned during a base period will be
earned and reinvested for a year. The effective yield will be slightly higher
than the Cash Fund Investment Division's current yield due to the compounding
effect created by assuming reinvestment of the Division's net investment income.
Distribution Rates: On occasion, the Bond Fund Investment Division may
quote historical or annualized distribution rates. A distribution rate is simply
a measure of the level of income dividends and short-term capital gains
distributed for a specified period. A distribution rate is not a complete
measure of performance and may be higher than yield for certain periods.
Comparative and Other Information: Advertisements and sales literature for
the Separate Account's Investment Divisions may compare a Fund's performance to
that of other investment vehicles or other mutual funds having similar
investment objectives or programs which are offered through the separate
accounts of other insurance companies. Promotional materials may also compare a
Fund's performance to one or more indices of the types of securities which the
Fund buys and sells for its portfolio, and be illustrated by tables, graphs or
charts. Promotional materials may additionally contain references to types and
characteristics of certain securities; features of a Fund's portfolio; financial
markets; or historical, current or perceived economic trends within the United
States or overseas. Topics of general investor interest, such as personal
financial planning, may also be discussed.
In addition, advertisements and sales literature may refer to or reprint
all or portions of articles, reports, or independent rankings or ratings which
relate to the Investment Division specifically, or to other comparable mutual
funds or investment vehicles. None of the contents of such materials will be
used to indicate future performance.
Further information about each Investment Division's performance is
contained in their respective Annual Report, which may be obtained from GISC
free of charge.
Advertisements and sales literature about the Contract and the Separate
Account may also refer to
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ratings given to GIAC by insurance company rating organizations, such as Moody's
Investors Service, Inc., Standard & Poor's Ratings Group, A.M. Best & Co. and
Duff & Phelps. Such ratings relate only to GIAC's ability to meet its
obligations under the Contract's Fixed-Rate Option and to pay the death benefits
provided under the Contract.
FEDERAL TAX MATTERS
General Information
The operations of the Separate Account form a part of, and are taxed with
GIAC's operations under the Code. Investment income and realized net capital
gains on the assets of the Separate Account are reinvested and taken into
account in determining the Accumulation and Annuity Unit values. Thus,
investment income and realized net capital gains are automatically applied to
increase reserves under the Contract. GIAC believes that investment income and
capital gains attributable to the Separate Account are taxed under existing
Federal income tax law but are offset by deductible reserve increases.
Accordingly, GIAC does not anticipate that it will incur any Federal income tax
liability attributable to the Separate Account and, therefore, GIAC does not
currently make provisions for any such taxes. However, if changes in the Federal
tax laws, or interpretations thereof, result in GIAC incurring a tax liability
on income or gains attributable to the Separate Account or certain types of
variable annuity contracts, then GIAC may impose a charge against the Separate
Account (with respect to some or all Contracts) to pay such taxes.
Non-Qualified Contracts
Diversification: Section 817(h) of the Code provides that variable annuity
contracts will not be treated as annuities unless the underlying investments are
"adequately diversified" in accordance with regulations prescribed by the
Secretary of the Treasury. Such regulations require, among other things, that
the Funds invest no more than 55% of the value of their respective assets in one
investment; 70% in two investments; 80% in three investments; and 90% in four
investments. GIAC intends that the Funds underlying the Contracts will be
managed by the applicable investment managers so as to comply with these
diversification requirements. If the diversification requirements are not met by
each and every Variable Investment Option, the Contract could lose its overall
tax status as an annuity, resulting in current taxation of the excess of
Contract value over the "investment in the Contract." A Contractowner's
"investment in the Contract" generally equals: (1) the aggregate amount of
premium payments or other consideration paid for the Contract minus (2) the
aggregate amount received under the Contract, to the extent such amount was not
excluded from gross income.
Owner Control: In certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal income tax purposes, of the
assets of the separate accounts used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable contractowner's gross income. The IRS has stated that
a variable contractowner will be considered the owner of separate account assets
if the contractowner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. To date, no
regulations or rulings have been issued regarding the circumstances under which
a contractowner's ability to control investments through premium allocation and
transfer privileges would cause him or her to be treated as the owner of the
assets in an insurance company's separate account. GIAC does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue to provide guidance in this
area. Accordingly, GIAC reserves the right to modify the Contract as necessary
to attempt to prevent the Contractowner from being considered the owner of the
assets of the Separate Account or otherwise to maintain favorable tax treatment
of the Contracts.
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Distribution of Benefits: Non-qualified Contracts will not be treated as
annuity contracts for purposes of Section 72 of the Code unless the Contract
provides that: (1) if any Contractowner dies on or after the Annuity
Commencement Date, but prior to the time the entire interest in the Contract has
been distributed, the remaining portion of such interest will be distributed at
least as rapidly as under the method of distribution in effect when the
Contractowner died; and (2) if any Contractowner dies prior to the Annuity
Commencement Date, the entire interest will be distributed within five years of
the Contractowner's death. These requirements will be considered satisfied if
that portion of the Contractowner's interest which is payable to or for the
benefit of a "designated beneficiary," will be distributed over the life or life
expectancy of any new owner and such distributions begin within one year of the
Contractowner's death. The Contract's "new owner" is the person designated by
the Contractowner as Beneficiary and to whom ownership of the Contract passes by
reason of death. For this purpose, the Beneficiary must be a natural person. If
the Beneficiary is the Contractowner's surviving spouse, the Contract may be
continued with the surviving spouse as the new Contractowner. Non-qualified
Contracts contain provisions intended to comply with Section 72(s) of the Code.
However, regulations interpreting these requirements of the Code have not yet
been issued. Accordingly, the provisions contained in such Contracts will be
reviewed and may be modified to assure compliance with the Code's requirements
when clarified by regulations or otherwise.
Note: The remaining discussion concerning non-qualified Contracts assumes
that the Contracts will be treated as annuities under Section 72 of the Code,
that the underlying investments of the Contracts are "adequately diversified"
under Section 817(h) of the Code, and that the Contract is not issued in
connection with a retirement plan qualifying for favorable tax treatment under
the Code.
A Contractowner who is a natural person is generally not taxed on increases
in the value of a Contract until distribution, either as a lump sum payment
received by surrender or partial withdrawal, or as annuity payments. The
assignment or pledge of any portion of the Contract value may be treated as a
distribution. The taxed portion of a distribution (whether in the form of a lump
sum payment or an annuity) is taxed as ordinary income.
Contractowners who are not natural persons generally must include in income
any increase in the excess of the Contract's Accumulation Value over the
"investment in the Contract" during the taxable year, whether or not such
increase is distributed. There are some exceptions to this rule and a
prospective owner that is not a natural person may wish to discuss these with a
competent tax adviser.
The following discussion applies to Contracts owned by natural persons.
Generally, amounts received by surrender or partial withdrawal are first
treated as taxable income to the extent that the Contract's Accumulation Value
immediately before the surrender/withdrawal exceeds the "investment in the
contract." Any additional amount withdrawn is not taxable.
Although the tax consequences may vary depending on the form of Annuity
Payout Option selected, the recipient of an Annuity Payment generally is taxed
on the portion of such payment that exceeds the "investment in the contract."
For variable annuity payments, the taxable portion is determined by a formula
that establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the "investment in the contract" by the
total number of expected periodic payments. The entire distribution will be
fully taxable once the recipient has recovered the dollar amount of the
"investment in the contract."
A penalty tax on surrenders or withdrawals equal to 10% of the amount
treated as taxable income may be imposed unless such surrender or withdrawal is:
(1) made on or after age 59 1/2; (2) made as a result of death or disability; or
(3) received in substantially equal installments as a life annuity (subject to
special "recapture" rules if the series of payments is subsequently modified).
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Annuity distributions are generally subject to withholding for the
recipient's income tax liability. The withholding rates vary according to the
type of the distribution and the recipient's tax status. Recipients generally
may elect not to have tax withheld from distributions. Redemption requests that
do not indicate a preference regarding withholding will be delayed in processing
until a preference form has been properly completed and received at GIAC's
Customer Service Office. Withholding on taxable distributions is generally
required if the recipient fails to provide GIAC with his or her correct Social
Security number or if the recipient is a U.S. citizen or expatriate living
abroad.
Amounts may be distributed from a Contract because of the death of a
Contractowner or the Annuitant. Generally, such amounts are includable in the
income of the recipient as follows: (1) if distributed in a lump sum they are
taxed in the same manner as a full surrender of the Contract as described above;
or (2) if distributed under an annuity option, they are taxed in the same manner
as annuity payments as described above. For these purposes, the investment in
the contract is not affected by the Contractowner's or Annuitant's death. That
is, the investment in the contract remains the amount of any purchase payments
paid which were not excluded from gross income.
All non-qualified deferred annuity contracts that are issued by GIAC or its
affiliates to the same Contractowner during any calendar year are to be
aggregated for purposes of determining the amount includable in the
Contractowner's gross income under Section 72(e) of the Code. Thus, the proceeds
of a partial withdrawal, surrender or assignment of one or more non-qualified
deferred annuity contracts entered into during the same calendar year will be
includable in the Contractowner's income to the extent of the aggregate excess
of the accumulation values over the investment in all such contracts
("investment in the contract" is defined above). Potential purchasers of more
than one non-qualified annuity contract should seek advice from legal or tax
counsel as to the possible implications of these rules on the contracts they
intend to purchase.
Transferring the ownership of a Contract, or designating an Annuitant,
payee or other Beneficiary who is not also the Contractowner, the selection of
certain Annuity Commencement Dates, or the assignment or exchange of a Contract,
may result in certain income or gift tax consequences to the Contractowner that
are beyond the scope of this discussion. A Contractowner contemplating any such
transfer, designation, selection, assignment or exchange of a Contract should
contact a competent tax adviser about the potential tax effects of such a
transaction.
Possible Tax Changes: Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of the
Contracts could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the Contracts. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax adviser should be consulted with respect to legislative
developments and their effect on the Contract.
Qualified Contracts
Generally, increases in the value of amounts under a Contract purchased in
connection with a retirement plan qualifying for favorable tax treatment under
the Code are not taxable until benefits are received. However, the rules
governing the tax treatment of contributions and distributions under qualified
plans, as set forth in the Code and applicable rulings and regulations, are
complex and subject to change. These rules also vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, this Prospectus
does not attempt to provide more than general information about the use of the
Contracts with these various types of plans. Contractowners, Annuitants, and
Beneficiaries under qualified plans should be aware that the rights of any
person to any benefits under such plans may be subject to the terms and
conditions of the plans, regardless of the terms and conditions of the Contracts
issued in connection with such plans. Some retirement plans are subject to
distribution and other requirements that are not incorporated into GIAC's
Contract administration procedures.
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Contractowners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances. Purchasers of Contracts for use with any retirement plan should
consult their legal counsel and tax adviser regarding the suitability of the
Contract.
For qualified plans under Section 401(a), the Code requires that
distributions generally must commence no later than the later of April 1 of the
calendar year following the calendar year in which the Contractowner (or plan
participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year following the calendar year in which the Contractowner (or
plan participant) reaches age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than the later of April 1 of the
calendar year following the calendar year in which the Contractowner (or plan
participant) reaches age 70 1/2.
Following are brief descriptions of the various types of plans with which
the Contracts described in this Prospectus may be used:
Section 403(b) Plans: The Code permits public schools and employers
specified in Section 501(c)(3) of the Code to purchase annuity contracts
under Section 403(b)(1) and mutual fund shares through a Section 403(b)(7)
custodial account on behalf of their employees. Subject to certain
limitations, the purchase payments for such contracts or mutual fund shares
are excluded from the employees' gross income for tax purposes. However,
these payments may be subject to FICA (Social Security) taxes. These
annuity contracts are commonly referred to as "tax-sheltered annuities."
Distributions from tax-sheltered annuities are restricted unless the
employee is age 59 1/2, separates from service, dies, becomes disabled, or
incurs a hardship. Before one of these events occurs, the employee may not
surrender amounts attributable to either: (1) salary reduction
contributions made in years beginning after December 31, 1988; (2) income
attributable to salary reduction contributions made in years beginning
after December 31, 1988; or (3) income in years beginning after December
31, 1988 on salary reduction accumulations held as of December 31, 1988.
Hardship withdrawals are further limited to salary reduction contributions
only, and may not include income earned thereon. Hardship withdrawals are
generally subject to tax penalties and contingent deferred sales charges.
If a Contract is purchased as a tax-sheltered annuity under Section
403(b) of the Code, it is subject to the restrictions on redemption
described above. These restrictions on redemption are imposed by the
Separate Account and GIAC in full compliance with and in reliance upon the
terms and conditions of a no-action letter on this subject issued by the
staff of the Securities and Exchange Commission.
The Contract includes a death benefit that in some cases may exceed
the greater of the Purchase Payments or the Contract Value. The death
benefit could be characterized as an incidental benefit, the amount of
which is limited in any tax-sheltered annuity under section 403(b).
Prospective purchasers of the Contracts as tax-sheltered annuities
should seek advice from legal or tax counsel about their eligibility to
purchase a tax-sheltered annuity, limitations on permissible amounts of
purchase payments, distribution restrictions, the Contract's death benefit
provision, and tax consequences of distribution.
Individual Retirement Accounts: Sections 219 and 408 of the Code
permit individuals to
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contribute to an individual retirement program known as an "Individual
Retirement Account" or "IRA." IRA contributions are generally limited each
year to the lesser of $2,000 or 100% of the Contractowner's adjusted gross
income and may be deductible in whole or in part depending on the
individual's income. Distributions from certain other types of qualified
plans, however, may be "rolled over" on a tax-deferred basis into an IRA
without regard to this limit. Earnings in an IRA are not taxed while held
in the IRA. All amounts in the IRA (other than nondeductible contributions)
are taxed when distributed from the IRA. Distributions prior to age 59 1/2
(unless certain exceptions apply) are also subject to a 10% penalty tax.
Individuals who purchase Contracts for use with an IRA will receive, in
addition to this Prospectus and a copy of the Contract, a brochure
containing information about eligibility, contribution limits, tax
consequences and other particulars concerning IRAs. The Internal Revenue
Service has not reviewed the Contract for qualification as an IRA, and has
not addressed in a ruling of general applicability whether a death benefit
provision such as the provision in the Contract comports with IRA
qualification requirements.
SIMPLE IRAs: Beginning January 1, 1997, certain small employers may
establish SIMPLE plans as provided by Section 408(p) of the Code, under
which employees may elect to defer to a SIMPLE IRA a percentage of
compensation up to $6,000 (as increased for cost of living adjustments).
The sponsoring employer is required to make matching or non-elective
contributions on behalf of employees. Distributions from SIMPLE IRAs are
subject to the same restrictions that apply to IRA distributions and are
taxed as ordinary income. Subject to certain exceptions, premature
distributions prior to age 59 1/2 are subject to a 10% penalty tax, which
is increased to 25% if the distribution occurs within the first two years
after the commencement of the employee's participation in the plan.
Roth IRAs: Section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which
are subject to certain limitations, are not deductible and must be made in
cash or as a rollover or transfer from another Roth IRA or other IRA. A
rollover from or conversion of an IRA to a Roth IRA may be subject to tax
and other special rules may apply. You should consult a tax adviser before
combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. Distributions
from a Roth IRA generally are not taxed, except that, once aggregate
distributions exceed contributions to the Roth IRA, income tax and a 10%
penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with
the year in which the first contribution is made to the Roth IRA.
Corporate Pension and Profit-Sharing Plans: Section 401(a) of the Code
permits corporate employers to establish various types of retirement plans
for employees, and self-employed individuals to establish qualified plans
for themselves and their employees. These retirement plans may permit the
purchase of the Contracts to accumulate retirement savings under the plans.
Adverse tax or other legal consequences to the plan, to the participant or
to both may result if this Contract is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan complies
with all legal requirements applicable to such benefits prior to transfer
of the Contract. The Contract includes a death benefit that in some cases
may exceed the greater of the Purchase Payments or the Contract Value. The
death benefit could be characterized as an incidental benefit, the amount
of which is limited in any pension or profit-sharing plan. Because the
death benefit may exceed this limitation, employers using the Contract in
connection with such plans should consult their tax adviser.
The following rules generally apply to distributions from Contracts
purchased in connection with the plans discussed above:
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That portion of any contribution under a Contract made by or on behalf of
an individual (typically an employee) which is not excluded or deductible from
his or her gross income (generally, the individual's own nondeductible
contribution) constitutes his or her "investment in the contract." If a
distribution is made in the form of annuity payments, the investment in the
contract (adjusted for certain refund provisions) divided by the Annuitant's
life expectancy (or other period for which annuity payments are expected to be
made) constitutes a tax-free return of capital each year. The entire
distribution will be fully taxable once the Annuitant (or other appropriate
payee) is deemed to have recovered the dollar amount of the investment in the
Contract. The dollar amount of annuity payments received in any year in excess
of such return is taxable as ordinary income. Depending upon the nature and
structure of the arrangement in connection with which a Contract is issued, an
individual's investment in the Contract can be zero.
If a surrender of or partial withdrawal from a Contract held in connection
with a Section 401(a) plan is effected and a distribution is made in a single
payment, the proceeds may qualify for special "lump-sum distribution" treatment.
Otherwise, the amount by which the payment exceeds the "investment in the
contract" (adjusted for any prior partial withdrawal) will generally be taxed as
ordinary income in the year of receipt, unless it is validly "rolled over" into
an IRA or another qualified plan.
A penalty tax of 10% will be imposed on the taxable portion of surrenders
or partial withdrawals from all qualified Contracts, except under circumstances
similar to those relating to non-qualified Contracts (see above). Other adverse
tax consequences may result if distributions do not conform to specified
commencement and minimum distribution rules, and in other circumstances.
The taxation of benefits payable upon an employee's death to his or her
Beneficiary generally follows these same principles, subject to a variety of
special rules. In particular, the tax on death benefits to be paid as a lump sum
under a non-qualified contract may be deferred if, within 60 days after the lump
sum becomes payable, the Beneficiary instead elects to receive annuity payments.
Distributions from Contracts generally are subject to withholding for the
Contractowner's federal income tax liability. The withholding rate varies
according to the type of distribution and the Contractowner's tax status. The
Contractowner will be provided the opportunity to elect not to have tax withheld
from distributions. "Eligible rollover distributions" from section 401(a) plans
and section 403(b) tax-sheltered annuities are subject to a mandatory federal
income tax withholding of 20%. An eligible rollover distribution is the taxable
portion of any distribution from such a plan, except certain distributions such
as distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the Contractowner chooses
a "direct rollover" from the plan to another tax-qualified plan or IRA.
Restrictions under Qualified Contracts: Other restrictions with respect to
the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
Other Considerations
Presently, GIAC makes no charge to the Separate Account for any Federal,
state or local taxes (other than state annuity taxes) that it incurs which may
be attributable to the Separate Account or to the Contracts. GIAC, however,
reserves the right to make a charge for any such taxes or other economic burden
which may result from the application of the tax laws and that GIAC determines
to be attributable to the Separate Account or to the Contracts. If any tax
charges are made in the future, they will be accumulated daily and transferred
from the Separate Account to GIAC's general account.
Because of the complexity of the Federal tax law, and the fact that tax
results will vary according to the factual status of the entity or individual
involved, tax advice may be needed by anyone contemplating the purchase of a
Contract or the exercise of the various elections under the
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Contract. It should be understood that this Prospectus' discussion of the
Federal income tax consequences of owning a Contract is not an exhaustive
discussion of all tax questions that might arise under the Contract and that
special rules exist in the Code with respect to situations not discussed here.
No representation is made regarding the likelihood of the continuation of
current Federal tax laws or interpretations thereof by the Internal Revenue
Service. No attempt has been made to consider any applicable state, local or
other tax laws, except with respect to the imposition of any annuity taxes.
GIAC does not make any guarantee regarding the tax status of any Contract
and the above tax discussion is not intended as tax advice.
VOTING RIGHTS
To the extent required by applicable law, GIAC will vote the Fund shares
that it owns through the Separate Account according to instructions received
from Contractowners having an interest in such Fund's shares. GIAC will vote
shares for which no instructions are received in the same proportion as it votes
shares for which it has received instructions. GIAC will typically vote any Fund
shares that it is entitled to vote directly due to amounts it has contributed or
accumulated in the applicable Investment Division FOR proposals presented by
Fund Management. If the applicable law or interpretations thereof change so as
to permit GIAC to vote a Fund's shares in GIAC's own right or to restrict
Contractowner voting, GIAC reserves the right to do so.
GIAC will seek voting instructions from Contractowners for the number of
shares attributable to their Contracts. Contractowners are entitled to provide
instructions if, on the applicable record date, they have allocated values to
the Investment Division which corresponds to the Fund for which a shareholder
meeting is called.
Prior to the Annuity Commencement Date, the Contractowner has the voting
interest under a Contract. The number of shares held in an Investment Division
which are attributable to a Contract is determined by dividing the
Contractowner's Accumulation Value in that Investment Division by the net asset
value per share of the applicable Fund.
After the Annuity Commencement Date, the person then entitled to receive
Annuity Payments has the voting interest. This voting interest will generally
decrease with the gradual reduction of the Contract value during the annuity
payout period. The number of shares held in an Investment Division which are
attributable to an annuitized Contract is determined by dividing the reserve for
such Contract by the net asset value per share of the applicable Fund.
There are no voting rights with respect to the Fixed-Rate Option.
DISTRIBUTION OF THE CONTRACT
The Contract is sold by insurance agents who are licensed by GIAC and who
are either registered representatives of GISC or of broker-dealer firms which
have entered into sales agreements with GISC and GIAC. GISC and such other
broker-dealers are members of the National Association of Securities Dealers,
Inc. In connection with the sale of the Contracts, GIAC will generally pay sales
commissions to these individuals or entities which may vary but, in the
aggregate, are not anticipated to exceed an amount equal to 7% of each Contract
premium payment. GIAC also reserves the right to pay additional sales
compensation of up to .13% of the value of the Contract annually in connection
with those Contracts which have an Enhanced Death Benefit Rider in force. Where
permitted by state law, GIAC reserves the right to pay additional sales or
service compensation while a contract is in force based on the value of a
Contract. Additional amounts may also be paid in connection with special
promotional incentives. The principal underwriter of the Contracts is GISC,
located at 201 Park Avenue South, New York, New York 10003.
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RIGHT TO CANCEL THE CONTRACT
The Contractowner has the right to examine the Contract and return it for
cancellation by returning the Contract to GIAC's Customer Services Office, or to
the registered representative through whom it was purchased, within 10 days of
receipt of the Contract. Longer periods may apply in some states. The Contract
and a cancellation notice must be delivered or mailed to cancel this Contract.
Any notice given by mail is effective upon being postmarked, properly addressed
and postage paid. The Contractowner will then receive from GIAC an amount equal
to the sum of (i) the difference between the premiums paid (including any
Contract fees, annuity taxes or other charges) and the amounts allocated to any
Variable Investment Options and the Fixed-Rate Option under the Contract, and
(ii) the Accumulation Value of the Contract on the date GIAC receives the
surrendered Contract at its Customer Service Office. In the event that state law
so requires, the Contractowner will instead receive the total premium paid for
the Contract.
YEAR 2000 COMPLIANCE
Like other financial and business organizations around the world, GIAC
could be adversely affected if the computer systems it uses internally, the
systems of its service providers, and related computer systems do not properly
process and calculate date-related information and data beginning on January 1,
2000. Many computer systems today cannot distinguish the year 2000 from the year
1900 because of the way dates were encoded and calculated in these systems. GIAC
has been actively working to deal with this problem, and expects that its
systems and others upon which it is reliant will be adapted before January 1,
2000. However, there can be no assurance that these preparations will be
successful.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Separate
Account or GIAC is a party.
ADDITIONAL INFORMATION
The Statement of Additional Information contains more details about the
Contract described by this Prospectus and is available in accordance with the
directions on page one of this Prospectus. The contents of that document are
detailed below:
Statement of Additional Information
Table of Contents
Page
Services to the Separate Account B-2
Annuity Payments B-2
Performance Data B-3
Valuation of Assets of the Separate Account B-7
Transferability Restrictions B-8
Experts B-8
Financial Statements B-8
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Issued Through
THE GUARDIAN SEPARATE ACCOUNT E
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1998
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectus for The Guardian Separate
Account E (marketed under the name "The Guardian Investor Retirement Asset
Manager") dated May 1, 1998.
A free Prospectus is available upon request by writing or calling:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
P.O. Box 26210 Lehigh Valley, Pennsylvania 18002
1-800-221-3253
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the Prospectus.
TABLE OF CONTENTS
Page
Services to the Separate Account B-2
Annuity Payments B-2
Performance Data B-3
Valuation of Assets of the Separate Account B-7
Transferability Restrictions B-8
Experts B-8
Financial Statements B-8
B-1
<PAGE>
SERVICES TO THE SEPARATE ACCOUNT
The Guardian Insurance & Annuity Company, Inc. ("GIAC") maintains the books
and records of The Guardian Separate Account E (the "Separate Account"). GIAC, a
wholly owned subsidiary of The Guardian Life Insurance Company of America, acts
as custodian of the assets of the Separate Account. GIAC bears all expenses
incurred in the operations of the Separate Account, except the mortality and
expense risk charge and the administrative charge (as described in the
Prospectus), which are borne by the Contractowner.
The firm of Price Waterhouse LLP, 1177 Avenue of the Americas, New York,
New York 10036 currently serves as independent accountants for GIAC and the
Separate Account.
Guardian Investor Services Corporation ("GISC"), a wholly owned subsidiary
of GIAC, serves as principal underwriter for the Separate Account pursuant to a
distribution and service agreement between GIAC and GISC. The Contracts are
offered continuously and are sold by GIAC insurance agents who are registered
representatives of either GISC or of other broker-dealers which have selling
agreements with GISC and GIAC. In the years 1997, 1996 and 1995, GISC received
underwriting commissions from GIAC with respect to the sales of variable annuity
contracts in the amount of $1,979,926, $1,851,468 and $1,409,708, respectively.
ANNUITY PAYMENTS
The objective of the Contracts is to provide benefit payments which will
increase at a rate sufficient to maintain purchasing power at a constant level.
For this to occur, the actual net investment rate must exceed the assumed
investment rate of 4% by an amount equal to the rate of inflation. Of course, no
assurance can be made that this objective will be met. If the assumed interest
rate were to be increased, benefit payments would start at a higher level but
would increase more slowly or decrease more rapidly. Likewise, a lower assumed
interest rate would provide a lower initial payment with greater increases or
lesser decreases in subsequent Annuity Payments.
Value of an Annuity Unit: The value of an Annuity Unit is determined
independently for each of the Variable Investment Options. For any Valuation
Period, the value of an Annuity Unit is equal to the value for the immediately
preceding Valuation Period multiplied by the annuity change factor for the
current Valuation Period. The Annuity Unit value for a Valuation Period is the
value determined as of the end of such period. The annuity change factor is
equal to the net investment factor for the same Valuation Period adjusted to
neutralize the assumed investment return used in determining the Annuity
Payments. The net investment factor is reduced by (a) the mortality and expense
risk charges, (b) administrative expenses and (c) if applicable, the Enhanced
Death Benefit Rider charge on an annual basis during the life of the Contract.
The dollar amount of any monthly payment due after the first monthly payment
under a Variable Investment Option will be determined by multiplying the number
of Annuity Units by the value of an Annuity Unit for the Valuation Period ending
ten (10) days prior to the Valuation Period in which the monthly payment is due.
Determination of the First Monthly Annuity Payment: At the time Annuity
Payments begin, the value of the Contractowner's account is determined by
multiplying the appropriate Variable or Fixed Accumulation Unit Value on the
Valuation Period ten (10) days before the date the first variable or fixed
Annuity Payment is due by the corresponding number of Variable or Fixed
Accumulation Units credited to the Contractowner's account as of the date the
first Annuity Payment is due, less any applicable premium taxes not previously
deducted.
The Contracts contain tables reflecting the dollar amount of the first
monthly payment which can be purchased with each $1,000 of value accumulated
under the Contract. The amounts depend on the variable or fixed Annuity Payout
Option selected, the mortality table used under the Contract (the 1983
Individual Mortality Table a projected using Scale G) and the nearest age of the
Annuitant. The first
B-2
<PAGE>
Annuity Payment is determined by multiplying the benefit
per $1,000 of value shown in the Contract tables by the number of thousands of
dollars of value accumulated under the Contract.
Determination of the Second and Subsequent Monthly Variable Annuity
Payments: The amount of the second and subsequent variable Annuity Payments is
determined by multiplying the number of Annuity Units by the appropriate Annuity
Unit Value as of the valuation period ten (10) days prior to the day such
payment is due. The number of Annuity Units under a Contract is determined by
dividing the first monthly variable Annuity Payment by the value of the
appropriate Annuity Unit on the date of such payment. This number of Annuity
Units remains fixed during the variable Annuity Payment period, provided no
transfers among the Variable Investment Options are made. If a transfer among
the Variable Investment Options is made, the number of Annuity Units will be
adjusted accordingly.
The assumed investment return of 4% under the Contract is the measuring
point for subsequent variable Annuity Payments. If the actual net investment
rate (on an annual basis) remains constant at 4%, the variable Annuity Payments
will remain constant. If the actual net investment rate exceeds 4%, the variable
Annuity Payment will increase at a rate equal to the amount of such excess.
Conversely, if the actual rate is less than 4%, variable Annuity Payments will
decrease.
The second and subsequent monthly payments made under a Fixed Annuity
Payout Option will be equal to the amount of the first monthly fixed Annuity
Payment (described above).
PERFORMANCE DATA
The tables below provide performance results for each of the Separate
Account's Investment Divisions through December 31, 1997. The results shown in
this section are not an estimate or guarantee of future investment performance,
and do not represent the actual experience of amounts invested by a particular
Contractowner. Moreover, the performance information for each Investment
Division reflects the investment experience of its underlying Funds for periods
prior to the commencement of operations of the Separate Account (September 15,
1997) if the Funds existed prior to such date. Such results were calculated by
applying all Contract and Separate Account level charges to the historical Fund
performance results for such prior periods. During such prior periods, the Funds
were utilized as the underlying Funds for other separate accounts of GIAC which
were established in connection with the issuance of other variable contracts.
Average Annual Total Return Calculations
The first section of the following table was calculated using the
standardized method prescribed by the Securities and Exchange Commission. It
illustrates each Investment Division's average annual total return over the
periods shown. The average annual total return for an Investment Division for a
specified period is determined by reference to a hypothetical $1,000 investment
that includes capital appreciation and depreciation for the stated period,
according to the following formula:
P(1 + T)n = ERV
Where: P = A hypothetical purchase of $1,000 from which no sales
load is deducted.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of the hypothetical $1,000
purchase at the end of the period.
Each calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period, that
no transfers or additional purchase payments were made and
B-3
<PAGE>
the surrender of the Contract at the end of each period. The Investment
Division's average annual total return is the annual rate that would be
necessary to achieve the ending value of an investment kept in the Investment
Division for the period specified. The rate of return reflects all charges
assessed against a Contract and at the Separate Account level except for any
annuity taxes that may be payable. The charges reflected include any applicable
contingent deferred sales charge; the mortality and expense risk charge; and a
pro-rated portion of the contract administration fee. See the Prospectus for a
detailed description of such charges.
The second section of the table was calculated in the same manner as the
first except that no contingent deferred sales charge was deducted since it is
assumed that the Contract continues through the end of each period.
<TABLE>
<CAPTION>
Average Annual Total Return for a
Contract Surrendered on 12/31/97 Average Annual Total Return on 12/31/97
(EDB= Enhanced Death Benefit/ BC= Basic Contract) Assuming Contract Continues
------------------------------------------------- --------------------------------------
Length of Investment Period Length of Investment Period
------------------------------------------------- --------------------------------------
Ten Years (or Ten Years (or
Since Fund Since Fund
Investment Division Date of Fund Inception, Inception,
Corresponding To Inception One Year Five Years If Less) One Year Five Years If Less)
<S> <C> <C> <C> <C> <C> <C> <C>
EDB EDB EDB EDB EDB EDB
The Guardian Cash BC BC BC BC BC BC
Fund 1/7/82 -3.46 2.28 3.90 3.54 2.82 3.90
-3.25 2.49 4.11 3.75 3.03 4.11
The Guardian Bond
Fund 5/1/83 0.32 4.81 7.26 7.32 5.30 7.26
0.54 5.02 7.48 7.54 5.51 7.48
The Guardian Stock
Fund 4/13/83 26.51 20.21 17.54 33.51 20.50 17.54
26.78 20.45 17.77 33.78 20.74 17.77
The Guardian Small
Cap Stock Fund* 5/1/97 N/A N/A 6.03 N/A N/A 13.03
N/A N/A 6.06 N/A N/A 13.06
Gabelli Capital
Asset Fund 5/1/95 33.41 N/A 19.40 40.41 N/A 20.78
33.69 N/A 19.56 40.69 N/A 20.94
Baillie Gifford
International Fund 2/8/91 3.22 12.08 8.22 10.22 12.46 8.31
3.44 12.31 8.41 10.44 12.68 8.50
Baillie Gifford
Emerging Markets
Fund 10/17/94 -6.59 N/A 0.71 0.41 N/A 1.92
-6.39 N/A 0.85 0.61 N/A 2.06
Value Line Centurion
Fund ("VLCF") 11/15/83 12.53 14.20 15.96 19.53 14.55 15.96
12.77 14.43 16.19 19.77 14.78 16.19
Value Line Strategic
Asset Management
Trust ("VLSAM") 10/1/87 6.89 10.76 13.60 13.89 11.15 13.60
7.12 10.98 13.83 14.12 11.38 13.83
MFS Growth With
Income Series 10/9/95 20.82 N/A 23.29 27.82 N/A 25.69
21.08 N/A 23.55 28.08 N/A 25.94
</TABLE>
* Figures reflect actual total return from inception to December 31, 1997.
B-4
<PAGE>
Change in Accumulation Unit Value
The following performance information illustrates the cumulative change and
the actual annual change in Accumulation Unit values for the periods specified
for each Investment Division and is computed differently than the standardized
average annual total return information.
An Investment Division's cumulative change in Accumulation Unit values is
the rate at which the value of an Accumulation Unit changed over the time period
illustrated. The actual annual change in Accumulation Unit values is the rate at
which the value of an Accumulation Unit changed over each 12-month period
illustrated. The rates of change in Accumulation Unit values quoted in the
tables reflect a deduction for the mortality and expense risk charge,
administrative charge, and when applicable, the Enhanced Death Benefit charge.
They do not reflect deductions for any contingent deferred sales charge,
contract administration fee or annuity taxes. The rates of change would be lower
if these charges were included.
BASIC CONTRACT
<TABLE>
<CAPTION>
Cumulative Change in Accumulation Unit Value
for Period Ended December 31, 1997
-----------------------------------------------------------------
Ten Years (or
Since Fund
Investment Division Inception, Date of Fund
Corresponding To One Year Five Years If Less) Inception
<S> <C> <C> <C> <C>
The Guardian Cash Fund 3.83 16.58 50.82 1/7/82
The Guardian Bond Fund 7.63 31.31 107.34 5/1/83
The Guardian Stock Fund 33.89 157.65 417.76 4/13/83
The Guardian Small Cap Stock Fund N/A N/A 13.12 5/1/97
Gabelli Capital Asset Fund 40.81 N/A 66.32 5/1/95
Baillie Gifford International Fund 10.53 82.44 76.53 2/8/91
Baillie Gifford Emerging Markets Fund 0.70 N/A 7.04 10/17/94
Value Line Centurion Fund 19.87 100.07 352.28 11/15/83
Value Line Strategic Asset Management Trust 14.21 72.10 268.15 10/1/87
MFS Growth With Income Series 28.16 N/A 67.49 10/9/95
</TABLE>
CONTRACT WITH ENHANCED DEATH BENEFIT
<TABLE>
<CAPTION>
Cumulative Change in Accumulation Unit Value
for Period Ended December 31, 1997
-----------------------------------------------------------------
Ten Years (or
Since Fund
Investment Division Inception, Date of Fund
Corresponding To One Year Five Years If Less) Inception
<S> <C> <C> <C> <C>
The Guardian Cash Fund 3.63 15.42 47.83 1/7/82
The Guardian Bond Fund 7.41 30.00 103.23 5/1/83
The Guardian Stock Fund 33.62 155.08 407.50 4/13/83
The Guardian Small Cap Stock Fund N/A N/A 13.09 5/1/97
Gabelli Capital Asset Fund 40.53 N/A 65.76 5/1/95
Baillie Gifford International Fund 10.31 80.62 74.42 2/8/91
Baillie Gifford Emerging Markets Fund 0.49 N/A 6.56 10/17/94
Value Line Centurion Fund 19.63 98.08 343.31 11/15/83
Value Line Strategic Asset Management Trust 13.98 70.39 260.86 10/1/87
MFS Growth With Income Series 27.91 N/A 66.75 10/9/95
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
Change in Accumulation Unit Value for 12-Month Period ended December 31,
(For Basic Contract)
Investment Division
Corresponding To 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Guardian Cash Fund 5.06 5.03 5.99 7.68 6.66 4.27 1.93 1.36 2.52 4.22 3.67
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Bond Fund 13.41 -0.93 8.33 12.46 6.22 14.74 6.35 8.48 -4.66 16.12 1.58
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Stock Fund 15.64 0.59 18.86 21.89 -12.87 34.26 18.57 18.46 -2.51 32.98 25.30
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Small Cap
Stock Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund 9.62*
- -----------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford International
Fund -10.05* 32.36 -0.39 9.84 13.96
- -----------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Emerging
Markets Fund -1.84* 23.02
- -----------------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund
("VLCF") 15.41 -4.07 6.24 29.85 4.24 50.28 4.60 7.84 -3.43 38.33 15.86
- -----------------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset
Management Trust
("VLSAM") 8.81 23.99 -1.40 41.55 13.61 10.46 -6.07 26.93 14.41
- -----------------------------------------------------------------------------------------------------------------------------------
MFS Growth With
Income Series 22.89*
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Division
Corresponding To 1997
- --------------------------------------
The Guardian Cash Fund 3.83
- --------------------------------------
The Guardian Bond Fund 7.63
- --------------------------------------
The Guardian Stock Fund 33.89
- --------------------------------------
The Guardian Small Cap
Stock Fund 3.20*
- --------------------------------------
Gabelli Capital Asset Fund 40.81
- --------------------------------------
Baillie Gifford International
Fund 10.53
- --------------------------------------
Baillie Gifford Emerging
Markets Fund 0.70
- --------------------------------------
Value Line Centurion Fund
("VLCF") 19.87
- --------------------------------------
Value Line Strategic Asset
Management Trust
("VLSAM") 14.21
- --------------------------------------
MFS Growth With
Income Series 28.16
- --------------------------------------
Change in Accumulation Unit Value for 12-Month Period ended December 31,
(For Contract with Enhanced Death Benefit)
<TABLE>
<CAPTION>
Investment Division
Corresponding To 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Guardian Cash Fund 4.85 4.82 5.77 7.46 6.45 4.07 1.72 1.16 2.32 4.01 3.47
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Bond Fund 13.18 -1.13 8.11 12.23 6.00 14.51 6.14 8.26 -4.85 15.89 1.38
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Stock Fund 15.41 0.39 18.63 21.65 -13.05 33.99 18.33 18.22 -2.70 32.71 25.05
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Small Cap
Stock Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund 9.40*
- -----------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford International
Fund -10.22* 32.10 -0.58 9.62 13.74
- -----------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Emerging
Markets Fund -2.04* 22.77
- -----------------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund
("VLCF") 15.18 -4.26 6.03 29.59 4.03 49.98 4.39 7.63 -3.63 38.05 15.63
- -----------------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset
Management Trust
("VLSAM") 8.59* 23.74 -1.60 41.26 13.39 10.24 -6.25 26.68 14.18
- -----------------------------------------------------------------------------------------------------------------------------------
MFS Growth With
Income Series 22.64*
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Division
Corresponding To 1997
- --------------------------------------
The Guardian Cash Fund 3.63
- --------------------------------------
The Guardian Bond Fund 7.41
- --------------------------------------
The Guardian Stock Fund 33.62
- --------------------------------------
The Guardian Small Cap
Stock Fund 3.11*
- --------------------------------------
Gabelli Capital Asset Fund 40.53
- --------------------------------------
Baillie Gifford International
Fund 10.31
- --------------------------------------
Baillie Gifford Emerging
Markets Fund 0.49
- --------------------------------------
Value Line Centurion Fund
("VLCF") 19.63
- --------------------------------------
Value Line Strategic Asset
Management Trust
("VLSAM") 13.98
- --------------------------------------
MFS Growth With
Income 27.91
- --------------------------------------
* From date of commencement of public offering of Fund's shares through
December 31.
B-6
<PAGE>
Calculation of Yield Quotations for the Cash Fund Investment Division
The yield of the Investment Division of the Separate Account investing in
the Cash Fund represents the net change, exclusive of gains and losses realized
by the Investment Division or the Cash Fund and unrealized appreciation and
depreciation with respect to the Cash Fund's portfolio of securities, in the
value of a hypothetical pre-existing Contract that is credited with one
Accumulation Unit at the beginning of the period for which yield is determined
(the "base period"). The base period generally will be a seven-day period. The
current yield for a base period is calculated by dividing (1) the net change in
the value of the Contract for the base period (see "Accumulation Period" in the
Prospectus) by (2) the value of the Contract at the beginning of the base period
and multiplying the result by 365/7. Deductions from purchase payments (for
example, any applicable premium taxes) and any applicable contingent deferred
sales charge assessed at the time of withdrawal or annuitization are not
reflected in the computation of current yield of the Investment Division. The
determination of net change in Contract value reflects all deductions that are
charged to a Contractowner, in proportion to the length of the base period and
the Investment Division's average Contract size. The current annualized yield of
the Cash Fund Investment Division for the 7-day period ended December 31, 1997
was 5.24%.
Yield also may be calculated on an effective or compound basis, which
assumes continual reinvestment by the Investment Division throughout an entire
year of net income earned by the Investment Division at the same rate as net
income is earned in the base period. The effective or compound yield for a base
period is calculated by (1) dividing (i) the net change in the value of the
Contract for the base period by (ii) the value of the Contract as of the
beginning of the base period, (2) adding 1 to the result, (3) raising the sum to
a power equal to 365 divided by the number of days in the base period, and (4)
subtracting 1 from the result. The effective annualized yield of the Cash Fund
Investment Division for the 7-day period ended December 31, 1997 was 5.38%.
The current and effective yields of the Cash Fund Investment Division will
vary depending on prevailing interest rates, the operating expenses and the
quality, maturity and type of instruments held in the Cash Fund's portfolio.
Consequently, no yield quotation should be considered as representative of what
the yield of the Investment Division may be for any specified period in the
future. The yield is subject to fluctuation and is not guaranteed.
Performance Comparisons
Advertisements and sales literature for the Separate Account's Investment
Divisions and their underlying Funds may compare their performance to other
investment vehicles and the separate accounts of other insurance companies as
reflected in independent performance data furnished by sources such as Lipper
Analytical Services, Inc., Morningstar, and Variable Annuity Research & Data
Service, all of which are independent services which monitor and rank the
performance of variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis. The performance analyses
prepared by such services rank issuers on the basis of total return, assuming
reinvestment of distributions, but may not take sales charges, redemption fees,
or certain expense deductions into consideration.
VALUATION OF ASSETS OF THE SEPARATE ACCOUNT
The value of Fund shares held in each Investment Division at the time of
each valuation is the redemption value of such shares at such time. If the right
to redeem shares of a Fund has been suspended, or payment of redemption value
has been postponed for the sole purpose of computing Annuity Payments, the
shares held in the Separate Account (and corresponding Annuity Units) may be
valued at fair value as determined in good faith by GIAC's Board of Directors.
B-7
<PAGE>
TRANSFERABILITY RESTRICTIONS
Where a Contract is owned in conjunction with a retirement plan qualified
under the Internal Revenue Code of 1986, as amended ("Code"), a tax-sheltered
annuity program or individual retirement account, and notwithstanding any other
provisions ofthe Contract, the Contractowner may not change the ownership of the
Contract nor may the Contract be sold, assigned or pledged as collateral for a
loan or as security for the performance of an obligation or for any other
purpose to any person other than GIAC unless the Contractowner is the trustee of
an employee trust qualified under the Code, the custodian of a custodial account
treated as such, or the employer under a qualified non-trusteed pension plan.
EXPERTS
The financial statements of the Separate Account incorporated in this
Statement of Additional Information and in the Registration Statement by
reference to the Annual Report to Contractowners for the year ended December 31,
1997 have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants. The statutory basis balance sheets of GIAC as of
December 31, 1997 and 1996 and the related statutory basis statements of
operations, of changes in common stock and surplus and cash flow for each of the
three years in the period ended December 31, 1997 appearing in this Statement of
Additional Information have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants. Such financial statements have been
included herein or incorporated herein by reference in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
FINANCIAL STATEMENTS
The statutory basis financial statements of GIAC which are set forth herein
beginning on page B-9 should be considered only as bearing upon the ability of
GIAC to meet its obligations under the Contracts.
The financial statements of the Separate Account are incorporated herein
by reference to the Separate Account's 1997 Annual Report to Contractowners.
Such financial statements, the notes thereto and the report of independent
accountants thereon are incorporated herein by reference or are included
elsewhere in this Registration Statement. A free copy of the 1997 Annual Report
to Contractowners accompanies this Statement of Additional Information.
B-8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1997 - $492,052,307; 1996 - $491,271,164) ............. $ 484,747,832 $ 490,445,948
Affiliated mutual funds, at market ............................... 30,551,186 2,755,672
Investment in subsidiary ......................................... 12,073,143 7,746,643
Policy loans - variable life insurance ........................... 72,737,781 68,143,068
Cash and short-term investments .................................. 23,602,410 17,825,039
Investment in joint venture ...................................... 345,492 285,874
Accrued investment income receivable ................................ 13,303,271 10,553,405
Due from parent and affiliates ...................................... 7,573,304 6,507,913
Other assets ........................................................ 12,557,432 12,173,268
Receivable from separate accounts ................................... 30,203,923 11,606,587
Variable annuity and EISP/CIP separate account assets ............... 6,810,882,719 5,248,159,777
Variable life separate account assets ............................... 414,699,239 342,921,803
-------------- --------------
TOTAL ADMITTED ASSETS .......................................... $7,913,277,732 $6,219,124,997
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves .......................................... $ 339,797,646 $ 329,681,355
Fixed immediate reserves ......................................... 7,397,461 5,874,894
Life reserves .................................................... 67,799,492 65,462,693
Minimum death benefit guarantees ................................. 1,117,645 1,257,777
Policy loan collateral fund reserve .............................. 70,734,812 65,762,820
Accrued expenses, taxes, & commissions ........................... 1,592,997 2,712,360
Due to parent and affiliates ..................................... 20,408,087 15,304,638
Federal income taxes payable ..................................... 10,939,640 4,743,447
Other liabilities ................................................ 20,540,325 30,079,434
Asset valuation reserve .......................................... 26,305,528 15,121,269
Variable annuity and EISP/CIP separate account liabilities ....... 6,750,575,077 5,193,574,218
Variable life separate account liabilities ....................... 413,364,790 335,769,184
-------------- --------------
TOTAL LIABILITIES .............................................. $7,730,573,500 $6,065,344,089
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized, issued and
outstanding .................................................... 2,000,000 2,000,000
Additional paid-in surplus ....................................... 137,398,292 137,398,292
Assigned and unassigned surplus .................................. 43,305,940 14,382,616
-------------- --------------
Total Common Stock and Surplus ................................. 182,704,232 153,780,908
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS .................... $7,913,277,732 $6,219,124,997
============== ==============
</TABLE>
See notes to statutory basis financial statements.
B-9
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations:
Variable annuity considerations ............. $ 995,209,301 $ 731,792,764 $ 537,841,762
Life insurance premiums and fixed
annuity considerations .................... 68,222,360 44,874,269 73,938,212
Net investment income ......................... 47,993,754 42,366,902 36,293,598
Amortization of IMR ........................... 111,783 333,219 257,380
Net gain from operations of separate accounts . 5,780,327 8,860,462 --
Service fees .................................. 76,350,291 58,774,486 46,560,286
Variable life -- cost of insurance ............ 11,205,120 4,844,028 4,232,564
Reserve adjustments on reinsurance ceded ...... 7,885,341 30,636,445 (32,192,749)
Commission and expense allowances ............. 16,268,128 14,508,840 10,057,974
Other income .................................. 5,178,266 2,535,356 1,127,526
--------------- --------------- ---------------
1,234,204,671 939,526,771 678,116,553
--------------- --------------- ---------------
Benefits and expenses:
Benefits:
Death benefits .............................. 5,340,675 6,785,456 4,774,584
Annuity benefits ............................ 687,719,014 426,072,773 276,568,762
Surrender benefits .......................... 17,620,583 17,459,706 17,660,413
Increase in reserves ........................ 18,291,585 82,891,516 65,349,399
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ............... 359,468,681 323,093,897 252,772,988
Variable Life ............................... (630,102) (10,417,095) (17,796,371)
Commissions ................................... 43,352,989 39,233,431 34,364,742
General insurance expenses .................... 59,476,685 42,523,892 25,888,456
Taxes, licenses and fees ...................... 3,743,414 3,723,858 2,477,492
Reinsurance terminations ...................... 182,535 (15,470,015) 11,002,701
--------------- --------------- ---------------
1,194,566,059 915,897,419 673,063,166
--------------- --------------- ---------------
Income before income taxes and realized
gains from investments ...................... 39,638,612 23,629,352 5,053,387
Federal income taxes .......................... 12,073,500 3,941,460 439,667
--------------- --------------- ---------------
Income from operations, net of federal
income taxes, and before net realized
gains ....................................... 27,565,112 19,687,892 4,613,720
Realized gains from investments, net of federal
income taxes, net of transfer to IMR ........ 472,127 7,540 342,455
--------------- --------------- ---------------
Net income .................................... $ 28,037,239 $ 19,695,432 $ 4,956,175
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
B-10
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
================================================================================
<TABLE>
<CAPTION>
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 .................... $2,000,000 $137,398,292 $(1,817,759) $137,580,533
---------- ------------ ----------- ------------
Net income from operations ....................... 4,956,175 4,956,175
Increase in unrealized appreciation of Company's
investment in separate accounts, net of
applicable taxes .............................. 3,024,930 3,024,930
Decrease in unrealized appreciation of Company's
investment in joint venture ................... (6,803) (6,803)
Increase in unrealized appreciation of Company's
investment in subsidiary ...................... 298,534 298,534
Increase in non-admitted assets .................. (7,078) (7,078)
Disallowed interest maintenance reserve .......... 143,080 143,080
Net increase in asset valuation reserve .......... (4,111,444) (4,111,444)
---------- ------------ ----------- ------------
Balances at December 31, 1995 .................... 2,000,000 137,398,292 2,479,635 141,877,927
---------- ------------ ----------- ------------
Net income from operations ....................... 19,695,433 19,695,433
Tax on prior years separate account seed
investment unrealized gains ................... (104,732) (104,732)
Increase in unrealized appreciation of Company's
investment in joint venture ................... 241,456 241,456
Increase in unrealized appreciation of Company's
investment in subsidiary ...................... 142,201 142,201
Decrease in unrealized appreciation of Company's
investment in other assets .................... (9,384) (9,384)
Increase in non-admitted assets .................. (80,815) (80,815)
Disallowed interest maintenance reserve .......... (128,107) (128,107)
Surplus changes resulting from reinsurance ....... (2,073,155) (2,073,155)
Net increase in asset valuation reserve .......... (5,779,916) (5,779,916)
---------- ------------ ----------- ------------
Balances at December 31, 1996 .................... 2,000,000 137,398,292 14,382,616 153,780,908
========== ============ =========== ============
Net income from operations ....................... 28,037,239 28,037,239
Increase in unrealized appreciation of Company's
investment in joint venture ................... 42,908 42,908
Increase in unrealized appreciation of Company's
investment in subsidiary ...................... 4,326,500 4,326,500
Increase in unrealized appreciation of Company's
investment in other assets .................... 9,384 9,384
Increase in unrealized appreciation of Company's
investment in an affiliated mutual fund ....... 7,271,233 7,271,233
Decrease in non-admitted assets .................. 83,011 83,011
Disallowed interest maintenance reserve .......... (197,600) (197,600)
Surplus changes resulting from reinsurance ....... 534,908 534,908
Net increase in asset valuation reserve .......... (11,184,259) (11,184,259)
---------- ------------ ----------- ------------
Balances at December 31, 1997 .................... $2,000,000 $137,398,292 $43,305,940 $182,704,232
========== ============ =========== ============
</TABLE>
See notes to statutory basis financial statements.
B-11
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CASH FLOW
================================================================================
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and
deposit funds ................................... $ 1,065,244,583 $ 780,710,735 $ 611,169,979
Investment income ................................. 46,412,248 42,413,736 36,912,131
Commissions and expense allowances on
reinsurance ceded ............................... 22,679,622 37,315,301 (22,118,484)
Other income ...................................... 67,084,996 47,357,962 44,220,753
Death benefits .................................... (5,492,854) (6,900,438) (4,420,866)
Surrender benefits ................................ (17,780,564) (2,774,865) (17,660,413)
Annuity benefits .................................. (689,207,046) (424,511,908) (276,163,436)
Commissions, other expenses
and taxes (excluding FIT) ....................... (101,213,566) (78,968,214) (57,714,112)
Net transfers to separate accounts ................ (356,017,200) (307,856,562) (231,230,812)
Federal income taxes (excluding tax on
capital gains) .................................. (5,094,779) 682,025 (1,557,444)
Increase in policy loans .......................... (4,594,714) (4,300,868) (4,522,280)
Other operating expenses and sources .............. (140,580) 2,077,342 (8,945,084)
--------------- --------------- ---------------
Net cash provided by insurance activities ............ 21,880,146 85,244,246 67,969,932
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities 315,404,430 224,692,954 63,122,215
Purchases of investment securities ................ (331,151,548) (309,590,319) (118,543,796)
Federal income tax on capital gains ............... (355,657) (505,496) 992,810
--------------- --------------- ---------------
Net cash used in investing activities ................ (16,102,775) (85,402,861) (54,428,771)
--------------- --------------- ---------------
Net increase (decrease) in cash ................. 5,777,371 (158,615) 13,541,161
Cash and short-term investments,
beginning of year ............................. 17,825,039 17,983,654 4,442,493
--------------- --------------- ---------------
Cash and short-term investments, end of year .... $ 23,602,410 $ 17,825,039 $ 17,983,654
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
B-12
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 1 -- Organization
The Guardian Insurance & Annuity Company, Inc. (GIAC or the Company) is a
wholly-owned subsidiary of The Guardian Life Insurance Company of America (The
Guardian). The Company, domiciled in the state of Delaware, is licensed to
conduct life and health insurance business in all fifty states and the District
of Columbia. The Company's primary business is the sale of variable deferred
annuity contracts and variable and term life insurance policies. For variable
products other than 401(k) products, contracts are sold by insurance agents who
are licensed by GIAC and are either Registered Representatives of Guardian
Investor Services Corporation (GISC) or of other broker dealer firms that have
entered into sales agreements with GIAC and GISC. The Company's general agency
distribution system is used for the sale of other products and policies.
GISC, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934 and is a registered investment
advisor under the Investment Adviser's Act of 1940. GISC is the distributor and
underwriter for GIAC's variable products, and the investment advisor to certain
mutual funds sponsored by GIAC, which are investment options for the variable
products.
Insurance Separate Accounts: The Company has established fourteen
insurance separate accounts primarily to support the variable annuity and life
insurance products it offers. The majority of the separate accounts are unit
investment trusts registered under the Investment Company Act of 1940. Proceeds
from the sale of variable products are invested through these separate accounts
in certain mutual funds specified by the contractholders. Of these separate
accounts the Company maintains two separate accounts whose sole purpose is to
fund certain employee benefit plans of The Guardian.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabilities of the Company. The assets of
the separate accounts will not be charged with any liabilities arising out of
any other business of the Company. However, the obligations of the separate
accounts, including the promise to make annuity and death benefit payments,
remain obligations of the Company. Assets and liabilities of the separate
accounts are stated primarily at the market value of the underlying investments
and corresponding contractholders obligations. The amounts provided by the
Company to establish separate account investment portfolios (seed money) are not
included in separate account liabilities.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a statutory basis of accounting that is prescribed or
permitted by the Insurance Department of the State of Delaware which is a
comprehensive basis of accounting other than generally accepted accounting
principles (GAAP).
Financial statements prepared on a statutory basis vary from financial
statements prepared on a GAAP basis because: (1) the costs relating to acquiring
business, principally commissions and certain policy issue expenses, are charged
to income in the year incurred, whereas on a GAAP basis they would be recorded
as assets and amortized over the future periods to be benefited; (2) life
insurance and annuity reserves are based on statutory mortality and interest
requirements, without consideration of withdrawals, whereas on GAAP basis they
are on anticipated Company experience for lapses, mortality and investment
yield; (3) life insurance enterprises are required to establish a formula-based
asset valuation reserve (AVR) by a direct charge to surplus to offset potential
investment losses; under GAAP, provisions for investments are established as
needed through a charge to income; (4) realized gains and losses resulting from
changes in interest rates on fixed income investments are deferred in the
interest maintenance reserve (IMR) and amortized into investment income over the
remaining life of the investment sold; for GAAP, such gains and losses are
recognized in income at the time of sale; (5) bonds are carried principally at
amortized cost for statutory reporting and at market value for GAAP; (6) annuity
and certain insurance premiums are recognized as premium income, whereas for
GAAP they are recognized as deposits; (7) deferred federal income taxes are not
provided for temporary differences between tax and book assets and liabilities
as they are under GAAP; (8) certain reinsurance transactions are accounted for
as reinsurance for statutory purposes and as financing transactions under GAAP,
and assets and liabilities are reported net of reinsurance for statutory
purposes and gross of reinsurance for GAAP.
Use of Estimates: The preparation of financial statements of insurance
enterprises requires management to
B-13
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. As a provider of life
insurance and annuity products, GIAC's operating results in any given period
depend on estimates of policy reserves required to provide for future
policyholder benefits. The development of policy reserves for insurance and
investment contracts requires management to make estimates and assumptions
regarding mortality, lapse, expense and investment experience. Such estimates
are primarily based on historical experience and, in many cases, state insurance
laws that require specific mortality, morbidity, and investment assumptions to
be used by the Company. Actual results could differ from those estimates.
Management monitors actual experience, and where circumstances warrant, revises
its assumptions and the related reserve estimates.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures established by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments
carried at market are recorded directly to unassigned surplus. Realized gains
and losses on disposition of investments are determined by the specific
identification method. The Company has recorded in accordance with NAIC
requirements, the net gain from the operations of the separate accounts in the
operations of the general account in 1997 and 1996 instead of in surplus.
Bonds: Bonds are valued principally at amortized cost. Mortgage backed
bonds are carried at amortized cost using the interest method considering
anticipated prepayments at the date of purchase. Significant changes in future
anticipated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method with PSA standard prepayment rates.
Investment in subsidiary: GIAC's investment in GISC is carried at equity
in GIAC's underlying net assets. Undistributed earnings or losses are reflected
as unrealized capital gains and losses directly in unassigned surplus. Dividends
received from GISC are recorded as investment income and amounted to $10,000,000
in 1997, $9,500,000 in 1996 and 6,700,000 in 1995.
Short-Term Investments: Short-term investments are stated at amortized
cost and consist primarily of investments having maturities at the date of
purchase of six months or less. Market values for such investments approximate
carrying value.
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize surplus against market
fluctuations in the value of equities and credit related declines in the value
of bonds. Changes in the AVR are recorded directly to unassigned surplus. The
IMR captures net after-tax realized capital gains which result from changes in
the overall level of interest rates for fixed income investments and amortizes
these net capital gains into income over the remaining stated life of the
investments sold. The Company uses the group method of calculating the IMR,
consistent with prior years. Any net negative IMR amounts are treated as a
non-admitted asset.
Contract and Policy Reserves: Fixed deferred reserves represent the fund
balance left to accumulate at interest under fixed annuity contracts that were
offered directly by the Company, a fixed rate option that is offered to variable
annuity contractowners and a single premium deferred annuity that is offered by
the Company. The Company no longer offers the fixed annuity contracts.
The estimated fair value of contractholder account balances within the
fixed deferred reserves has been determined to be equivalent to carrying value
as the current offering and renewal rates are set in response to current market
conditions and are only guaranteed for one year.
The interest rate credited on fixed annuity contracts included in fixed
deferred reserves for 1997 and 1996 was 5.75%. The interest rate credited on the
fixed rate option that is offered to certain variable annuity contractowners was
5.50% during 1997. For the fixed rate option currently issued, the issue and
renewal interest
B-14
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
rates credited varies from month to month and ranged from 5.25% to 5.40% in
1997. For single premium deferred annuities the rates ranged from 5.00% to 6.00%
in 1997. Fixed immediate reserves are a liability within the general account for
those annuitants that have elected a fixed annuity payout option. The immediate
contract reserve is computed using the 1971 IAM Table and the 1983 IAM Table and
a 4% discount rate.
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values. The reserve is credited with interest at 4% per
annum for single premium variable life policyowners, 6.5% for annual pay
variable life policyowners and 7% for other variable life policyowners.
Non-admitted Assets: Certain assets designated as "non-admitted assets" in
accordance with rules and regulations of the Department of Insurance of the
State of Delaware are charged directly to unassigned surplus. At December 31,
1997 and 1996 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $82,380 and $123,785, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on variable life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also includes service fees from the separate accounts consisting
of mortality and expense charges, annual administration fees, charges for the
cost of term insurance related to variable life policies and penalties for early
withdrawals. Services fees were not charged on separate account assets of
$162,522,811 and $142,722,353 at December 31, 1997 and 1996, respectively, which
represent investments in The Guardian's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently taxable, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the
applicable federal income taxes. The taxable portion of unrealized appreciation
of the Company's separate account investments is included in operations for 1997
and 1996, and in surplus in 1995.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1997 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1997, 1996 and 1995 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 13,873,514 $ 8,270,274 $ 1,768,688
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (291,470) (1,478,476) 337,668
DAC Tax ........................................ 1,712,811 867,731 666,260
Dividend from subsidiary ....................... (3,500,000) (3,325,000) (2,345,000)
Other-- net .................................... 278,645 (393,069) 12,051)
------------ ------------ ------------
Federal income taxes .............................. $ 12,073,500 $ 3,941,460 $ 439,667
============ ============ ============
</TABLE>
B-15
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
The provision for federal income taxes includes deferred taxes in 1997,
1996 and 1995 of $181,145, $353,051 and $304,923, respectively, applicable to
the difference between the tax basis and the financial statement basis of
recording investment income relating to accrued market discount.
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Fixed maturities .................. $31,806,228 $28,234,145 $25,795,915
Affiliated money market funds ..... 524,277 121,733 130,729
Subsidiary ........................ 10,000,000 9,500,000 6,700,000
Policy loans ...................... 3,386,194 3,089,114 2,847,532
Short-term investments ............ 2,280,599 1,204,805 1,166,264
Joint venture dividend ............ 1,047,525 623,160 684,306
Other ............................. 59,779 55,301 14,951
----------- ----------- -----------
49,104,602 42,828,258 37,339,697
Less: Investment expenses ......... 1,110,848 461,356 1,046,099
----------- ----------- -----------
Net investment income ............. $47,993,754 $42,366,902 $36,293,598
=========== =========== ===========
Gross realized gains and losses, less applicable federal income taxes and
transfer to IMR, are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Realized gains from dispositions:
U.S. Government bonds .................... $ 722,440 $ 1,014,811 $ 438,127
Corporate debt securities ................ 413,022 1,014,562 555,817
Common stocks ............................ 174 -- --
Seed investment redeemed ................. -- -- 717,499
Foreign exchange ......................... 2,791 11,599 --
Realized losses from dispositions:
U.S. Government bonds .................... 744,168 181,025 7,498
Corporate debt securities ................ 399,618 617,325 370,353
Foreign exchange ......................... 5,773 -- 10,145
Short term investments ................... 1,218 191 --
----------- ----------- -----------
Net realized capital gains (losses) ...... (12,350) 1,242,431 1,323,447
----------- ----------- -----------
Federal income tax expense (benefit):
Current .................................. (269,216) 829,609 622,821
Deferred ................................. (209,059) (394,759) (42,290)
----------- ----------- -----------
Total federal income tax expense (benefit) (478,275) 434,850 580,531
----------- ----------- -----------
Transfer to IMR ............................. (6,202) 800,041 400,461
----------- ----------- -----------
Net realized gains (losses) ................. $ 472,127 $ 7,540 $ 342,455
=========== =========== ===========
</TABLE>
The market values of bonds are based on quoted prices as available. For
certain private placement debt securities where quoted market prices are not
available, fair value is estimated by management using adjusted market prices
for like securities.
The cost and estimated market values of investments by major investment
category at December 31, 1997 and 1996 are as follows:
B-16
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ....................... $ 65,358,213 $ 1,550,649 $ 16,198 $ 66,892,664
Obligations of states and political
subdivisions ....................... 71,909,687 795,387 41,850 72,663,224
Debt securities issued by foreign
governments ........................ 7,062,711 -- 115,745 6,946,966
Corporate debt securities ............. 340,417,221 6,143,061 1,010,829 345,549,453
Common stock of subsidiary ............ 9,398,292 2,674,851 -- 12,073,143
Affiliated mutual funds ............... 23,279,949 7,271,237 -- 30,551,186
------------ ------------ ------------ ------------
$517,426,073 $ 18,435,185 $ 1,184,622 $534,676,636
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ....................... $133,436,167 $ 761,811 $ 435,887 $133,762,091
Obligations of states and political
subdivisions ....................... 40,444,325 148,692 70,771 40,522,246
Debt securities issued by foreign
governments ........................ 3,491,091 -- 65,431 3,425,660
Corporate debt securities ............. 313,074,365 2,279,414 1,792,612 313,561,167
Common stock of subsidiary ............ 9,398,292 -- 1,651,649 7,746,643
Affiliated mutual funds ............... 2,755,672 -- -- 2,755,672
------------ ------------ ------------ ------------
$502,599,912 $ 3,189,917 $ 4,016,350 $501,773,479
============ ============ ============ ============
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1997 and 1996, by contractual maturity, is shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
As of December 31, 1997
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less .......................... $ 59,694,316 $ 59,737,770
Due after one year through five years ............ 234,805,896 236,867,373
Due after five years through ten years ........... 103,002,869 106,604,446
Due after ten years .............................. 21,552,124 22,383,887
------------ ------------
419,055,205 425,593,476
Sinking fund bonds
(including collateralized mortgage obligations) 65,692,627 66,458,831
------------ ------------
$484,747,832 $492,052,307
============ ============
B-17
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
As of December 31, 1996
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less .......................... $ 64,861,358 $ 65,045,326
Due after one year through five years ............ 286,602,923 287,118,976
Due after five years through ten years ........... 74,354,923 74,503,267
Due after ten years .............................. 25,247,736 25,461,329
------------ ------------
451,066,940 452,128,898
Sinking fund bonds
(including collateralized mortgage obligations) 39,379,008 39,142,266
------------ ------------
$490,445,948 $491,271,164
============ ============
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with affiliated companies and outside parties to
provide for reinsurance of selected variable annuity contracts and group life
and individual life policies. Under the terms of the modified coinsurance
agreements, reserves related to the reinsurance business and corresponding
assets are held by the Company. Accordingly, policy reserves include $76,669,184
and $447,494,766 at December 31, 1997 and 1996, respectively, applicable to
policies reinsured under modified coinsurance agreements. The reinsurance
contracts do not relieve the Company of its primary obligation for policyowner
benefits. Failure of reinsurers to honor their obligations could result in
losses to the Company.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits .................. $(43,873,731) $(83,250,212) $(41,212,253)
Net investment income .................. -- (61,779) --
Commission and expense allowances ...... 7,885,341 14,508,839 10,057,974
Reserve adjustments .................... 16,268,128 30,636,445 (32,192,749)
Other income ........................... 1,875,163 (25,000) --
------------ ------------ ------------
Revenues ............................. (17,845,099) (38,191,707) (63,347,028)
Policyholder benefits .................. (10,975,075) (26,873,945) (57,577,405)
Increase in aggregate reserves ......... 22,859,719 (5,658,260) (11,909,990)
Reinsurance terminations ............... (27,421,066) (15,470,015) 11,002,701
General expenses ....................... (40,452) (81,667) (48,640)
------------ ------------ ------------
Deductions ........................... (15,576,874) (48,083,887) (58,533,334)
------------ ------------ ------------
Net income (loss) from reinsurance ceded $ (2,268,225) $ 9,892,180 $ (4,813,694)
============ ============ ============
</TABLE>
Note 6 -- Reinsurance Assumed
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
B-18
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits ................... $ (389,221) $ 41,133,358 $ 7,153,623
Net investment income ................... 45,288 94,657 62,847
Other income ............................ (62,752) 375,404 32,528
------------ ------------ ------------
Revenues .............................. (406,685) 41,603,419 7,248,998
Policyholder benefits ................... 3,967,619 8,076,053 5,086,702
Increase in aggregate reserves .......... (31,677,857) 31,556,908 (357,463)
Reinsurance expenses .................... 27,603,602 (452,476) 1,451,058
Other expenses .......................... 1,885,300 551,319 54,043
------------ ------------ ------------
Deductions ............................ 1,778,664 39,731,804 6,234,340
------------ ------------ ------------
Net income (loss)from reinsurance assumed $ (2,185,349) $ 1,871,615 $ 1,014,658
============ ============ ============
</TABLE>
The Company terminated, during 1997, an assumption agreement with an
unaffiliated company. Under this agreement, included in the consolidated
statements of income are $(2.3) million, $20.2 million and $7.2 million of
premiums at December 31, 1997, 1996 and 1995, respectively.
Note 7 -- Related Party Transactions
Registered representatives of the Guardian Investor Services Corporation
produce a major portion of the Company's business. During 1997, 1996 and 1995,
premium and annuity considerations produced by GISC amounted to $564,519,265,
$528,353,595 and $400,148,692, respectively. The related commissions paid to
GISC amounted to $1,979,926, $1,851,468 and $1,409,708 for 1997, 1996 and 1995,
respectively.
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$60,009,449 in 1997, $41,129,644 in 1996 and $24,989,111 in 1995, and, in the
opinion of management, were considered appropriate for the services rendered.
The company had an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware insurance law as an insurance
company separate account. GIAC had contributed capital to GREA since it was
established to provide for funds and to preserve liquidity. Effective December
19, 1997, GREA was liquidated and, as a result, $6,746,290 was returned to GIAC
in the form of capital and there was a realized gain recorded of $969,045
included in the net gain from operations of separate accounts.
A significant portion of the Company's separate account assets is invested
in affiliated mutual funds. These funds consist of The Guardian Park Avenue
Fund, The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian
Bond Fund, The Baillie Gifford International Fund, The Baillie Gifford Emerging
Markets Fund, The Guardian Baillie Gifford International Fund, The Guardian
Asset Allocation Fund, The Guardian Investment Quality Bond Fund, The Guardian
Cash Management Fund and The Guardian Cash Fund. Each of these funds has an
investment advisory agreement with GISC, except for The Baillie Gifford
International Fund, The Baillie Gifford Emerging Markets Fund and The Guardian
Baillie Gifford International Fund. The investments as of December 31, 1997 and
1996 are as follows:
B-19
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
1997 1996
-------------- --------------
The Guardian Park Avenue Fund ................ $ 371,662,107 $ 251,812,050
The Guardian Stock Fund ...................... 3,222,051,866 2,226,887,181
The Guardian Small Cap Stock Fund ............ 60,104,422 --
The Guardian Bond Fund ....................... 355,417,535 354,316,320
The Baillie Gifford International Fund ....... 442,651,457 400,894,824
The Baillie Gifford Emerging
Markets Fund ............................... 65,038,546 45,571,916
TheGuardian Baillie Gifford International Fund 3,378,730 19,720
The Guardian Asset Allocation Fund ........... 14,910,420 46,623
The Guardian Investment Quality Bond Fund .... 1,546,854 9,385
The Guardian Cash Management Fund ............ 22,250,501 3,113,523
The Guardian Cash Fund ....................... 368,122,449 378,321,710
-------------- --------------
$4,927,134,887 $3,660,993,252
============== ==============
The Company, in agreement with Baillie Gifford Overseas Ltd., has a joint
venture company - Guardian Baillie Gifford Ltd. (GBG) - that is organized as a
corporation in Scotland. GBG is registered in both the United Kingdom and the
United States to act as an investment advisor for the Baillie Gifford
International Fund (BGIF), the Baillie Gifford Emerging Markets Fund (BGEMF),
The Guardian Baillie Gifford International Fund (GBGIF) and The Guardian Baillie
Gifford Emerging Markets Fund (GBGEMF). The Funds, except for The Guardian
Baillie Gifford Emerging Markets Fund, are offered in the U.S. as investment
options under certain variable annuity contracts and variable life policies.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1997 and 1996 this
amounted to $2,888,149 and $2,755,672, respectively. The Company also made an
investment in an affiliated small cap stock mutual fund during 1997, The
Guardian Small Cap Stock Fund. At December 31, 1997 this investment amounted to
$27,663,037.
Note 8 -- Separate Accounts
The following represents a reconciliation of net transfers from GIAC to
the separate accounts. Transfers are reported in the Summary of Operations of
the Separate Account Annual Statement:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Transfers to separate accounts .................. $ 1,054,380,697 $ 767,741,428 $ 582,715,569
Transfers from separate accounts ................ (782,891,638) (518,683,141) (398,531,802)
--------------- --------------- ---------------
Net transfers to separate accounts ............ 271,489,059 249,058,287 184,183,767
--------------- --------------- ---------------
Reconciling Adjustments:
Mortality & expense guarantees-- variable annuity 70,027,514 53,219,656 41,474,872
Mortality & expense guarantees-- variable life .. 2,021,656 1,687,711 1,571,955
Administrative fees-- variable annuity .......... 4,095,230 3,867,120 3,513,459
Cost of insurance-- variable life ............... 11,205,120 4,844,028 4,232,564
--------------- --------------- ---------------
Total adjustments ............................. 87,349,520 63,618,515 50,792,850
--------------- --------------- ---------------
Transfers as reported in the Statement of
Operations of GIAC ............................ $ 358,838,579 $ 312,676,802 $ 234,976,617
=============== =============== ===============
</TABLE>
B-20
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
For the Year Ending 1997 For the Year Ending 1996
------------------------ ------------------------
Amount % Amount %
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ....... $ 46,276,766 10.19% $ 44,480,214 10.22%
------------ ------ ------------ ------
Total with adjustment or at
market value ..................... 46,276,766 10.19 44,480,214 10.22
at book value without adjustment
(minimal or no charge or
adjustment) ...................... 313,725,462 69.05 302,433,090 69.45
Not subject to discretionary withdrawal 94,338,339 20.76 88,546,538 20.33
------------ ------ ------------ ------
Total (gross) ......................... 454,340,567 100.00 435,459,842 100.00
Reinsurance ceded ..................... -- -- 4,879 --
------------ ------ ------------ ------
Total ................................. $454,340,567 100.00% $435,454,963 100.00%
============ ====== ============ ======
</TABLE>
This does not include $6,647,606,347 and $5,098,658,097 of non-guaranteed
annuity reserves held in separate accounts, and $3,572,284 and $2,927,130 at
December 31, 1997 and 1996, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
Note 10 - Statutory Financial Information
The following reconciles the statutory net income of the Company as
reported to the regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory net income ......................... $ 28,037,239 $ 19,695,432 $ 4,956,175
Adjustments to restate to the basis of GAAP:
Net income of subsidiaries ................ 4,326,500 142,201 298,534
Change in deferred policy acquisition costs 41,883,919 42,525,493 31,247,939
Deferred premiums ......................... (5,542,795) 3,238,115 (1,643,253)
Re-estimation of future policy benefits ... (3,353,249) 26,953,558 297,442
Reinsurance ............................... 12,372,471 (36,353,822) 15,465,956)
Deferred federal income tax expense ....... (16,212,244) (13,074,280) (15,681,250)
Elimination of interest maintenance reserve (111,783) (333,219) (257,381)
Other, net ................................ 201,840 (2,444,872) 2,598,780
------------ ------------ ------------
Consolidated GAAP net income ................. $ 61,601,898 $ 40,348,606 $ 37,282,942
============ ============ ============
</TABLE>
B-21
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997 -- Continued
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Statutory capital and surplus ................. $ 182,704,232 $ 153,780,908 $ 141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs .......... 267,369,685 221,475,216 178,010,226
Elimination of asset valuation reserve ..... 26,305,528 15,121,269 9,341,353
Re-estimation of future policy benefits .... 41,283,947 31,167,840 4,214,282
Establishment of deferred federal income tax (84,703,745) (65,164,526) (53,962,281)
Unrealized gains on investments ............ 7,852,564 2,313,203 10,655,552
Other liabilities .......................... (33,486,652) (32,389,767) 1,811,239
Deferred premiums .......................... (7,024,891) (1,482,096) (4,720,211)
Other, net ................................. (3,468,519) (2,215,098) (1,276,761)
------------- ------------- -------------
Consolidated GAAP stockholder's equity ... $ 396,832,149 $ 322,606,949 $ 285,951,326
============= ============= =============
</TABLE>
B-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying statutory basis balance sheets of The
Guardian Insurance & Annuity Company, Inc. as of December 31, 1997 and 1996, and
the related statutory basis statements of operations, of changes in common stock
and surplus and of cash flows for the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities (statutory basis of accounting), which is a comprehensive
basis of accounting other than generally accepted accounting principles.
Accordingly, the financial statements are not intended to represent a
presentation in accordance with generally accepted accounting principles. The
effects on the financial statements of the variances between such practices and
generally accepted accounting principles are material and are described in Note
2.
In our report dated February 9, 1996, we expressed an opinion that the
1995 financial statements, prepared using accounting practices prescribed or
permitted by insurance regulatory authorities, were presented fairly, in all
material respects, in conformity with generally accepted accounting principles.
As described in Note 2 to these financial statements, pursuant to pronouncements
of the Financial Accounting Standards Board, financial statements of mutual life
insurance companies and their wholly owned stock insurance company subsidiaries
are no longer considered presentations in conformity with generally accepted
accounting principles. Accordingly, our present opinion on the presentation of
the 1995 financial statements, as presented herein, is different from that
expressed in our report dated February 9, 1996.
In our opinion, the financial statements referred to above (1) do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of The Guardian Insurance & Annuity Company, Inc. at December
31, 1997 and 1996, or the results of its operations or its cash flows for the
three years in the period ended December 31, 1997, because of the effects of the
variances between the statutory basis of accounting and generally accepted
accounting principles, and (2) present fairly, in all material respects, its
financial position and the results of its operations and its cash flows, in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
B-23
<PAGE>
The Guardian Separate Account E
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The following financial statements have been incorporated by reference
or are included in Part B:
(1) The Guardian Separate Account E (incorporated by reference into
Part B):
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statements of Changes in Net Assets for the Two Years Ended
December 31, 1997 and 1996
Notes to Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
(2) The Guardian Insurance & Annuity Company, Inc. (included in Part
B):
Statutory Basis Balance Sheets as of December 31, 1997 and 1996
Statutory Basis Statements of Operations for the Three Years
Ended December 31, 1997, 1996 and 1995
Statutory Basis Statements of Changes in Common Stock and Surplus
for the Three Years Ended December 31, 1997, 1996 and 1995
Statutory Basis Statements of Cash Flow for the Three Years
Ended December 31, 1997, 1996 and 1995
Notes to Statutory Basis Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
(b) Exhibits
Number Description
------ -----------
1 Resolutions of the Board of Directors of The
Guardian Insurance & Annuity Company, Inc.
establishing Separate Account E(1)
2 Not Applicable
3 Underwriting and Distribution Contracts:
(a) Distribution and Service Agreement
between The Guardian Insurance &
Annuity Company, Inc. and Guardian
Investor Services Corporation, as
amended(1)
(b) Form of Broker-Dealer Supervisory and
Service Agreement(2)
4 Specimen of Variable Annuity Contract(1)
5 Form of Application for Variable Annuity
Contract(2)
6 (a) Certificate of Incorporation of The
Guardian Insurance & Annuity Company,
Inc.(1)
(b) By-laws of The Guardian Insurance &
Annuity Company, Inc(1)
7 Not Applicable
8 Amended and Restated Agreement for Services
and Reimbursement Therefor, between The
Guardian Life Insurance Company of America
and The Guardian Insurance & Annuity
Company, Inc.(2)
9 Opinion and Consent of Counsel(1)
10 (a) Consent of Price Waterhouse LLP
11 Not Applicable
12 Not Applicable
13 (a) Powers of Attorney executed by a
majority of the Board of Directors and
certain principal officers of The
Guardian Insurance & Annuity Company,
Inc.(1)
(c) Schedule for Computation of Performance
Quotations(2)
27 Financial Data Schedule
- -------------------
(1) Incorporated by reference to the Registration Statement on Form N-4, (Reg.
No. 333-21975), as initially filed on February 18, 1997.
(2) Incorporated by reference to the Registration Statement on Form N-4, (Reg.
No. 333-21975), as previously filed on August 1, 1997.
C-1
<PAGE>
Item 25. Directors and Officers of the Depositor
The following is a list of directors and officers of The Guardian
Insurance & Annuity Company, Inc. ("GIAC"), the depositor of the Registrant. The
principal business address of each director and officer is 201 Park Avenue
South, New York, New York 10003.
Name Positions with GIAC
---- -------------------
Joseph D. Sargent President, Chief Executive Officer
& Director
John M. Smith Executive Vice President & Director
Edward K. Kane Executive Vice President & Director
Frank J. Jones Executive Vice President, Chief
Investment Officer & Director
Philip H. Dutter Director
Arthur V. Ferrara Director
Leo R. Futia Director
Peter L. Hutchings Director
William C. Warren Director
John M. Fagan Vice President
Thomas G. Sorrell Vice President
Charles G. Fisher Vice President & Actuary
William C. Frentz Vice President, Real Estate
Thomas R. Hickey, Jr. Vice President, Operations
Ryan W. Johnson Vice President, Equity Sales
Eileen McDonnell Vice President, Group Pensions
Frank L. Pepe Vice President & Controller
Richard T. Potter, Jr. Vice President and Counsel
Donald P. Sullivan, Jr. Vice President
Joseph A. Caruso Vice President & Secretary
Earl Harry Treasurer
Ann T. Kearney Second Vice President
Alexander M. Grant, Jr. Second Vice President
Raymond J. Henry Second Vice President
Paul Iannelli Second Vice President
Peggy L. Coppola Second Vice President
C-2
<PAGE>
Item 26. Persons Controlled by or under Common Control with Registrant
The following list sets forth the persons directly controlled by The
Guardian Life Insurance Company of America ("Guardian Life"), the parent company
of GIAC, the Registrant's depositor, as of February 27, 1998:
State of Percent of
Incorporation Voting Securities
Name or Organization Owned
---- --------------- -----------------
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Asset Management Delaware 100%
Corporation
Guardian Reinsurance Services, Inc. Connecticut 100%
Park Avenue Life Insurance Company Delaware 100%
Managed Dental Care, Inc. California 100%
Physicians Health Services Inc. Delaware 14%
Private Healthcare Systems, Inc. Delaware 14%
The Guardian Tax-Exempt Bond Fund Massachusetts 87.4%
The Guardian Baillie Gifford Massachusetts 25.5%
International Fund
The Guardian Investment Quality Massachusetts 44.7%
Bond Fund
The Guardian Asset Allocation Fund Massachusetts 12.7%
Baillie Gifford Emerging Markets Fund Maryland 26.3%
Baillie Gifford International Fund Maryland 18.1%
The Guardian Park Avenue Small Cap Fund Massachusetts 21.4%
The Guardian Baillie Gifford Massachusetts 78.4%
Emerging Markets Fund
The following list sets forth the persons directly controlled by GIAC
or other affiliates of Guardian Life and, thus, indirectly controlled by
Guardian Life, as of April 1, 1998:
Approximate
Percentage of Voting
Place of Securities Owned
Incorporation by Guardian Life
Name or Organization Affiliates
---- --------------- -------------------
Guardian Investor Services
Corporation New York 100%
Guardian Baillie Gifford Ltd. Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
GIAC Funds, Inc. Maryland 100%
Item 27. Number of Contractowners
Type of Contract As of April 1, 1998
---------------- -------------------
Non-Qualified .............. 1,323
Qualified .................. 2,841
-----
Total .............. 4,164
C-3
<PAGE>
Item 28. Indemnification
The By-Laws of The Guardian Insurance & Annuity Company, Inc. provide that
the Company shall, to the fullest extent legally permissible under the General
Corporation Law of the State of Delaware, indemnify and hold harmless officers
and directors of the Corporation for certain liabilities reasonably incurred in
connection with such person's capacity as an officer or director.
The Certificate of Incorporation of the Corporation includes the following
provision:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) under Section 164 of the Delaware General
Corporation Law, or (iv) for any transaction for which the director derived an
improper personal benefit.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
(a) Guardian Investor Services Corporation ("GISC") is the
principal underwriter of the Registrant's variable annuity contracts and it is
also the principal underwriter of shares of The Guardian Bond Fund, Inc.; The
Guardian Stock Fund, Inc.; The Guardian Cash Fund, Inc.; The Park Avenue
Portfolio, a series trust consisting of the following ten series: The Guardian
Cash Management Fund, The Guardian Park Avenue Fund, The Guardian Investment
Quality Bond Fund, The Guardian High Yield Bond Fund, The Guardian Tax-Exempt
Fund, The Guardian Asset Allocation Fund, The Guardian Park Avenue Small Cap
Fund, The Guardian Park Avenue Tax-Efficient Fund, The Guardian Baillie Gifford
International Fund and The Guardian Baillie Gifford Emerging Markets Fund and
GIAC Funds, Inc. a series fund consisting of Baillie Gifford International Fund,
Baillie Gifford Emerging Markets Fund and The Guardian Small Cap Stock Fund. All
of the aforementioned funds and the series trust are registered with the SEC as
open-end management investment companies under the Investment Company Act of
1940, as amended ("1940 Act"). In addition, GISC is the distributor of variable
annuity and variable life insurance contracts currently offered by GIAC through
its separate accounts, The Guardian/Value Line Separate Account, The Guardian
Separate Account A, The Guardian Separate Account B, The Guardian Separate
Account C, The Guardian Separate Account D, The Guardian Separate Account E and
The Guardian Separate Account K, which are all registered as unit investment
trusts under the 1940 Act.
(b) The following is a list of each director and officer of
GISC. The principal business address of each person is 201 Park Avenue South,
New York, New York 10003.
Name Position(s) with GISC
---- ---------------------
John M. Smith President & Director
Arthur V. Ferrara Director
Leo R. Futia Director
Peter L. Hutchings Director
Philip H. Dutter Director
Joseph D. Sargent Director
William C. Warren Director
Frank J. Jones Director
John M. Fagan Vice President
Ryan W. Johnson Senior Vice President
& National Sales Director
Thomas R. Hickey, Jr. Senior Vice President,
Operations
Frank L. Pepe Vice President & Controller
Richard T. Potter, Jr. Vice President and Counsel
Donald P. Sullivan, Jr. Vice President
C-4
<PAGE>
Name Position(s) with GISC
---- ---------------------
Joseph A. Caruso Vice President & Secretary
Kevin S. Alter Second Vice President
Alexander M. Grant, Jr. Second Vice President
Ann T. Kearney Second Vice President
Peggy L. Coppola Second Vice President
Earl C. Harry Treasurer
Item 30. Location of Accounts and Records
Most of the Registrant's accounts, books and other documents
required to be maintained by Section 31(a) of the 1940 Act and the rules
promulgated thereunder are maintained by GIAC, the depositor, at its Customer
Service Office, 3900 Burgess Place, Bethlehem, Pennsylvania 18017. Documents
constituting the Registrant's corporate records are also maintained by GIAC but
are located at its Executive Office, 201 Park Avenue South, New York, New York
10003.
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement are
never more than 16 months old for so long as payment under the variable
annuity contracts may be accepted.
(b) The Registrant hereby undertakes to include, as part of any application
to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information.
(c) The Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
(d) The Depositor, GIAC, hereby undertakes and represents that the fees and
charges deducted under the contract, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by GIAC.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, The Guardian Separate Account E
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and the State of New York on the 24th day of April, 1998.
The Guardian Separate Account E
(Registrant)
By: THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
(Depositor)
By: /s/ Thomas R. Hickey, Jr.
--------------------------------
Thomas R. Hickey, Jr.
Vice President
C-6
<PAGE>
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following directors and principal officers of The
Guardian Insurance & Annuity Company, Inc. in the capacities and on the date
indicated.
/s/ Joseph D. Sargent* President, Chief Executive
- ----------------------------------- Officer and Director
Joseph D. Sargent
(Principal Executive Officer)
/s/ Frank J. Jones* Executive Vice President, Chief
- ----------------------------------- Investment Officer and Director
Frank J. Jones
(Principal Financial Officer)
/s/ Frank L. Pepe Vice President and Controller
- -----------------------------------
Frank L. Pepe
(Principal Accounting Officer)
/s/ John M. Smith* Executive Vice President
- ----------------------------------- and Director
John M. Smith
/s/ Arthur V. Ferrara* Director
- -----------------------------------
Arthur V. Ferrara
/s/ William C. Warren* Director
- -----------------------------------
William C. Warren
/s/ Edward K. Kane* Executive Vice President
- ----------------------------------- and Director
Edward K. Kane
/s/ Leo R. Futia* Director
- -----------------------------------
Leo R. Futia
/s/ Philip H. Dutter* Director
- -----------------------------------
Philip H. Dutter
/s/ Peter L. Hutchings* Director
- -----------------------------------
Peter L. Hutchings
By /s/ Thomas R. Hickey, Jr. Date: April 24, 1998
--------------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
* Pursuant to a Power of Attorney
C-7
<PAGE>
Exhibit Index
Number Description
10 Consent of Price Waterhouse LLP
27 Financial Data Schedule
C-8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
amendment No. 1 to the registration statement on Form N-4 (the "Registration
Statement") of our report dated February 13, 1998, relating to the financial
statements appearing in the December 31, 1997 Annual Report to Contractowners of
the Guardian Separate Account E, which are also incorporated by reference into
the Registration Statement. We also consent to the use in the Statement of
Additional Information of our report dated February 10, 1998, relating to the
statutory basis financial statements of The Guardian Insurance & Annuity
Company, Inc., which appears in such Statement of Additional Information, and to
the incorporation by reference of our report into the Prospectus. We also
consent to the references to us under the heading "Condensed Financial
Information" in the Prospectus and under the heading "Experts" in the Statement
of Additional Information.
Price Waterhouse LLP
New York, NY
April 22, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the "Annual
Report to Shareholders" dated December 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 1034027
<NAME> Separate Account E - Guardian Investor
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 46,815,990
<INVESTMENTS-AT-VALUE> 45,109,617
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,109,617
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,054
<TOTAL-LIABILITIES> 64,054
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 146,728
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,116,477
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,706,373)
<NET-ASSETS> 45,045,563
<DIVIDEND-INCOME> 211,602
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 64,874
<NET-INVESTMENT-INCOME> 146,728
<REALIZED-GAINS-CURRENT> 2,116,477
<APPREC-INCREASE-CURRENT> (1,706,373)
<NET-CHANGE-FROM-OPS> 556,832
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 64,874
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64,874
<AVERAGE-NET-ASSETS> 45,045,563
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 410,104
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .001
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
