Registration Nos. 333-21975
811-08057
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT No. 4 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
POST-EFFECTIVE AMENDMENT No. 4 |X|
(Check appropriate box or boxes)
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THE GUARDIAN SEPARATE ACCOUNT E
(Exact Name of Registrant as Specified in Charter)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
7 Hanover Square, New York, New York 10004
(Address of Principal Executive Offices)
Depositor's Telephone Number: (212) 598-8359
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:
KIMBERLY J. SMITH, 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 July 6, 1999 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, 1999.
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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............................................................ Special Terms Used in this
Prospectus
Item 3. Synopsis............................................................... Summary: What is a variable annuity
contract and how does it work?;
Costs and Expenses
Item 4. Condensed Financial Information........................................ Summary Financial Information About
the Separate Account; Performance
Results
Item 5. General Description of Registrant, Depositor and Portfolio
Companies ........................................................... The Guardian Insurance & Annuity
Company, Inc.; Variable Investment
Options; Fixed-Rate Investment Options;
Voting Rights
Item 6. Deductions............................................................. Expenses; Costs and Expenses;
Distribution of the Contracts
Item 7. General Description of Variable Annuity Contracts...................... Summary: What is a variable annuity
contract and how does it work?
Item 8. Annuity Period......................................................... The Annuity Period
Item 9. Death Benefit.......................................................... Death Benefits; Enhanced Death Benefits
Item 10. Purchases and Contract Value........................................... Buying a Contract; the Acccumulation
Period
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........... Where to get more 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>
VARIABLE ANNUITY PROSPECTUS
July 6, 1999
THE GUARDIAN INVESTOR
RETIREMENT ASSET MANAGER
THIS PROSPECTUS describes an individual Flexible Premium Deferred Variable
Annuity Contract. It contains important information that you should know before
investing in the contract. Please read this prospectus carefully, along with the
accompanying Fund prospectuses, and keep them for future reference.
- --------------------------------------------------------------------------------
The contract is issued by The Guardian Insurance & Annuity Company, Inc. (GIAC)
through its Separate Account E (the Separate Account). The contract is designed
to provide tax deferred annuity benefits under retirement programs. It will also
pay a death benefit if the owner or annuitant dies before annuity payments
begin.
The minimum initial premium payment is $500. Your premiums may be invested in up
to 20 variable investment options or 19 variable investment options and a
fixed-rate option. Special limits apply to transfers out of the fixed-rate
option. The variable investment options invest in the mutual funds listed below.
The prospectuses for these Funds are attached.
o The Guardian Stock Fund, Inc.
o The Guardian Bond Fund, Inc.
o The Guardian Cash Fund, Inc.
o GIAC Funds, Inc.
- Baillie Gifford International Fund
- Baillie Gifford Emerging Markets Fund
- The Guardian Small Cap Stock Fund
o AIM Variable Insurance Funds, Inc.
- AIM V.I. Capital Appreciation Fund
- AIM V.I. Global Utilities Fund
- AIM V.I. Value Fund
o Davis Variable Account Fund, Inc.
- Davis Financial Portfolio
- Davis Real Estate Portfolio
- Davis Value Portfolio
o Fidelity
- Fidelity VIP II Contrafund(R) Portfolio
- Fidelity VIP Equity-Income Portfolio
- Fidelity VIP III Growth Opprtunities Portfolio
- Fidelity VIP III Mid Cap Portfolio
o Gabelli Capital Series Funds, Inc.
- Gabelli Capital Asset Fund
o Janus Aspen Series
- Janus Aggressive Growth Portfolio
- Janus Capital Appreciation Portfolio
- Janus Growth Portfolio
- Janus Worldwide Growth Portfolio
o MFS(R) Variable Insurance Trust(SM)
- MFS Emerging Growth Series
- MFS Growth With Income Series
- MFS New Discovery Series
- MFS Research Series
- MFS Total Return Series
o Value Line Strategic Asset Management Trust
o Value Line Centurion Fund
A Statement of Additional Information about the contract and the Separate
Account is available free of charge by writing to GIAC at its Customer Service
Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002, or by calling
1-800-221-3253. Its contents are noted on the last page of this prospectus.
The Statement of Additional Information, which is also dated July 6, 1999, is
incorporated by reference into this prospectus.
- --------------------------------------------------------------------------------
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission, nor has the Commission
or any state securities commission passed upon the accuracy or adequacy of this
prospectus.
The contract is not a deposit or obligation of or guaranteed or endorsed by, any
bank or depository institution, and the contract is not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
agency, and involves investment risk, including possible loss of the principal
amount invested.
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<PAGE>
- --------------------------------------------------------------------------------
CONTENTS
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SUMMARY
What is a variable annuity contract? .......... 1
- How your annuity payments are calculated .... 1
- The annuity period .......................... 1
- Other contract features ..................... 2
- Expenses .................................... 2
- Deciding to purchase a contract ............. 2
Expense table .................................. 3
Buying a contract .............................. 7
- The application form ........................ 7
- Payments .................................... 7
The accumulation period ........................ 8
- How we allocate your premium payments ....... 8
- The Separate Account ........................ 8
- Variable investment options ................. 9
- Fixed-rate option ........................... 11
- Transfers ................................... 12
- Surrenders and partial withdrawals .......... 14
- Managing your annuity ....................... 15
The annuity period ............................. 17
- When annuity payments begin ................. 17
- How your annuity payments are calculated .... 17
- Variable annuity payout options ............. 18
- Fixed-rate annuity payout options ........... 19
Other contract features ........................ 20
- Death benefits .............................. 20
- Enhanced death benefits ..................... 21
Financial information .......................... 23
- How we calculate unit values ................ 23
- Summary financial information about the
Separate Account .......................... 23
- Contract costs and expenses ................. 28
- Federal tax matters ......................... 30
- Performance results ......................... 35
Your rights and responsibilities................ 37
Special terms used in this prospectus........... 39
Other information............................... 40
<PAGE>
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SUMMARY
- --------------------------------------------------------------------------------
WHAT IS A VARIABLE ANNUITY CONTRACT?
- --------------------------------------------------------------------------------
A variable annuity contract allows you to accumulate tax-deferred savings which
are invested in options that you choose. This is the accumulation period of the
contract. On an agreed date, you or someone else you have named as the annuitant
will start receiving regular payments from the amount you have saved and any
investment earnings. This is the annuity period. The amount of the annuity
payments will depend on earnings during the accumulation period, and afterward
if you select a variable annuity option. That's why this product is called a
variable annuity.
- --------------------------------------------------------------------------------
HOW YOUR ANNUITY PAYMENTS ARE CALCULATED
During the accumulation period, this contract allows you to allocate your net
premium payments and accumulation value to as many as 20 variable investment
options, or 19 variable investment options and a fixed-rate option.
When you allocate your premiums to the variable investment options, you bear the
risk of any investment losses. No assurance can be given that the value of the
contract during the accumulation period, or the total amount of annuity payments
made under the contract, will equal or exceed the net premium payments allocated
to the variable investment options. When you allocate your net premium payments
to the fixed-rate option, the contract guarantees that they will earn a minimum
rate of interest and the investment risk is borne by GIAC.
- --------------------------------------------------------------------------------
Annuity payments
The amount of the annuity payments will depend on earnings during the
accumulation period, and afterward if you select a variable annuity option.
That's why this product is called a variable annuity.
- --------------------------------------------------------------------------------
GIAC has established a Separate Account to hold the variable investments in its
annuity contracts. The Separate Account has 28 investment divisions,
corresponding to 28 variable investment options, each of which invests in a
mutual fund. Your net premiums are used to buy accumulation units in the
investment divisions you have chosen, or are allocated to the fixed-rate option.
The total value of your contract's investment in the investment divisions and in
the fixed-rate option is known as the accumulation value. It's determined by
multiplying the number of variable accumulation units credited to your account
in each investment division by the current value of the division's units, and
adding your value in the fixed-rate option.
The value of units in a variable investment division reflects the investment
experience within the division. The value of units in the fixed-rate option
reflects interest accrued at a rate not less than the guaranteed minimum
specified in the contract. For a complete explanation, please see Financial
information: How we calculate unit values.
THE ANNUITY PERIOD
Payments to the annuitant under this contract must begin no later than his or
her 90th birthday. Distributions under the contract are taxable, and if you take
money out of the contract before age 59 1/2, you may also incur a 10% federal
tax penalty on your earnings.
- --------------------------------------------------------------------------------
Payout options
Annuity payout options are available on either a variable or fixed-rate basis.
- --------------------------------------------------------------------------------
You may select one or a combination of three annuity payout options under the
contract:
o Life annuity without a guaranteed period
o Life annuity with a 10-year guaranteed period
o Joint and survivor annuity
These payout options are available on either a variable or fixed-rate basis.
They're described in more detail in the section titled The annuity period.
----------------------
S U M M A R Y P R O S P E C T U S 1
----------------------
<PAGE>
OTHER CONTRACT FEATURES
Transfers among investment options
You can make transfers among the variable investment options at any time.
Transfers to and from the fixed-rate option are only permitted during the
accumulation period. Certain restrictions apply to transfers out of the
fixed-rate option. Transfers must also comply with the rules of any retirement
plan that apply. Please see The accumulation period: Transfers.
Death benefits
If you, or another person named as the annuitant, should die before annuity
payments begin, then we pay a death benefit to the beneficiary. The contract
also gives you the option of purchasing a rider that may provide a greater death
benefit. Please see Other contract features: Death benefits.
Surrenders and partial withdrawals
At any time during the accumulation period, you may withdraw some or all of the
amount you have saved in the contract. Taking out all you have saved is known as
a surrender; taking out part of your savings is a partial withdrawal. These
options are not available once annuity payments begin. Please see The
accumulation period: Surrenders and partial withdrawals.
EXPENSES
The following are expenses that you will incur as a contract owner:
o Operating expenses for mutual funds comprising the variable investment
options
Management fees and other expenses associated with the Funds ranged from
0.52% to 1.49% in 1998. Actual charges will depend on the variable
investment options you select.
o Mortality and expense risk charges
1.05% annually of the net asset value of your variable investment options.
o Administrative expenses
0.20% annually of the net asset value of your variable investment options.
o Contract fee
An annual fee of $35, if the accumulation value in your contract is less
than $100,000 on your contract's anniversary date.
The following are expenses that you may incur as a contract owner:
o Contingent deferred sales charges
A charge of 1% to 7% against any amount that you withdraw that has been in
your contract for less than seven years. The actual amount will depend on
the number of years the amount has been invested.
o Enhanced death benefit expense
If you choose this benefit, the annual expense is 0.20% of the net asset
value of your variable investment options.
o Annuity taxes
A tax on premiums or annuity payments, applicable in some states and
municipalities only, that varies from 0.5% to 3.5% of premiums paid to the
contract.
DECIDING TO PURCHASE A CONTRACT
You should consider purchasing a variable annuity contract if your objective is
to invest over a long period of time and to accumulate assets on a tax-deferred
basis, generally for retirement. You have the right to examine the contract and
return it for cancellation within 10 days of receiving it. This is known as the
free-look period. The period may be longer than 10 days in some states.
- --------------------------------------------------------------------------------
Free-look period
You have the right to examine the contract and return it for cancellation
within 10 days of receiving it. This is known as the free-look period.
- --------------------------------------------------------------------------------
Please see Financial information: Summary of financial information about the
Separate Account for more information about Separate Account E and unit values.
Please see Special terms used in this prospectus for definitions of key terms.
- ----------------------
2 P R O S P E C T U S S U M M A R Y
- ----------------------
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE TABLE
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CONTRACT OWNER TRANSACTION EXPENSES
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Sales Charge Imposed on Purchases: None
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Transfer Fee: Currently, none
(may charge $25 for each transfer)
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Contingent Deferred Sales Charge:
The following charges will be assessed on premiums withdrawn that have been in
the contract for less than 7 contract years.
Contingent
Number of contract years completed deferred sales charge
from date of the premium payment percentage(1)
================================================================================
0 7%
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1 6%
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2 5%
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3 4%
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4 3%
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5 2%
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6 1%
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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(2)
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT LEVEL ANNUAL EXPENSES
(as a percentage of daily net asset value)
Contracts Contracts
without Enhanced with Enhanced
Death Benefit Death Benefit
================================================================================
Mortality & Expense Risk Charge 1.05% 1.05%
- --------------------------------------------------------------------------------
Administrative Charge 0.20% 0.20%
- --------------------------------------------------------------------------------
Enhanced Death Benefit Charge 0.00% 0.20%
================================================================================
Total 1.25% 1.45%
Expenses
- --------------------------------------------------------------------------------
The tables will assist you in understanding the various costs and expenses
of the Separate Account and its underlying Funds. The accompanying Fund
prospectuses provide a more complete description of the various costs and
expenses.
----------------------
E X P E N S E T A B L E P R O S P E C T U S 3
----------------------
<PAGE>
ANNUAL EXPENSES OF THE FUNDS(3)
(as a percentage of average net assets after expense reimbursements)
Total fund
Management Other operating
fees expenses expenses
================================================================================
The Guardian Cash Fund .50% .03% .53%
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The Guardian Bond Fund .50% .05% .55%
- --------------------------------------------------------------------------------
The Guardian Stock Fund .50% .02% .52%
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The Guardian Small Cap Stock Fund .75% .14% .89%
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Baillie Gifford International Fund .80% .18% .98%
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 1.00% .49% 1.49%
- --------------------------------------------------------------------------------
Value Line Centurion Fund .50% .09% .59%
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust .50% .08% .58%
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 1.00% .12% 1.12%
- --------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund .62% .05% .67%
- --------------------------------------------------------------------------------
AIM V.I. Global Utilities Fund .65% .46% 1.11%
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AIM V.I. Value Fund .61% .05% .66%
- --------------------------------------------------------------------------------
Davis Financial Portfolio(4) .75% .30% 1.05%
- --------------------------------------------------------------------------------
Davis Real Estate Portfolio(4) .75% .30% 1.05%
- --------------------------------------------------------------------------------
Davis Value Portfolio(4) .75% .30% 1.05%
================================================================================
(1) After the first contract year, you may withdraw in each contract year,
without a deferred sales charge, the greater of: (i) the excess of the
accumulation value on the date of withdrawal over the aggregate net
premium payments that have not been previously withdrawn, or (ii) 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
Section 1035 exchanges, trustee-to-trustee transfers, in certain IRA
transfers or rollovers, or to Charitable Remainder Trusts, this privilege
may also be exercised in the first contract year.
(2) Where required by state law, this fee may be lower.
(3) These percentages reflect the actual fees and expenses incurred by each
Fund during the year ended December 31, 1998 except for new Funds, whose
expenses are estimated for the year ending December 31, 1999. 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.
(4) Because this is the first year of operations for Davis Financial
Portfolio, Davis Real Estate Portfolio and Davis Value Portfolio, the
amounts shown under "Other expenses" and "Total fund operating expenses"
in the table reflect estimated annualized expenses for these Funds' first
year of operations.
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4 P R O S P E C T U S E X P E N S E T A B L E
- ----------------------
<PAGE>
Total fund
Management Other operating
fees expenses expenses
================================================================================
Fidelity VIP II Contrafund Portfolio(5) .59% .07% .66%
- --------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(5) .49% .08% .57%
- --------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities
Portfolio(5) .59% .11% .70%
- --------------------------------------------------------------------------------
Fidelity VIP III Mid Cap Portfolio(5) .59% .41% 1.00%
- --------------------------------------------------------------------------------
Janus Aggressive Growth Portfolio .65% .03% .75%
- --------------------------------------------------------------------------------
Janus Capital Appreciation Portfolio(6) .70% .22% .92%
- --------------------------------------------------------------------------------
Janus Growth Portfolio(6) .65% .03% .68%
- --------------------------------------------------------------------------------
Janus Worldwide Growth Portfolio(6) .65% .07% .72%
- --------------------------------------------------------------------------------
MFS Emerging Growth Series .75% .10% .85%
- --------------------------------------------------------------------------------
MFS Growth With Income Series .75% .13% .88%
- --------------------------------------------------------------------------------
MFS New Discovery Series(7) .90% .25% 1.17%
- --------------------------------------------------------------------------------
MFS Research Series .75% .11% .86%
- --------------------------------------------------------------------------------
MFS Total Return Series .75% .16% .91%
================================================================================
(5) The expenses shown for Fidelity VIP II Contrafund Portfolio, Fidelity VIP
Equity-Income Portfolio, Fidelity VIP III Growth Opportunities Portfolio
and Fidelity VIP III Mid Cap Portfolio reflect varying arrangements
between these Funds and third parties who have either paid or reduced a
portion of the Funds' expenses. The management fees for each of the Funds
consist of a group fee rate and an individual fee rate. The fee shown in
the table adds these components and multiplies the result by each Fund's
average net assets. Please see the Fidelity prospectuses for a complete
explanation of the Fund's fees and expenses.
(6) The "Total fund operating expenses" shown for Janus Capital Appreciation
Portfolio, Janus Growth Portfolio and Janus Worldwide Growth Portfolio
reflect contractual waivers and fee reductions by the Funds' adviser. Fee
reductions by the adviser reduce the management fees to the level of the
corresponding Janus retail fund. The other waivers are applied first
against the management fee and then against "Other expenses". Without
these waivers and fee reductions, total expenses for Janus Capital
Appreciation Portfolio, Janus Growth Portfolio and Janus Worldwide Growth
Portfolio would have been 0.97%, 0.75% and 0.74%, respectively. Janus has
agreed to continue these waivers and fee reductions until at least the
next annual renewal of the Funds' advisory agreement.
(7) The expenses shown for MFS New Discovery Series reflect an agreement by
the Fund's adviser to bear expenses, subject to reimbursement by the Fund,
such that the Fund's "Other expenses" will not exceed 0.25% of the Fund's
average daily net assets during 1999. The Fund has an expense offset
arrangement which reduces the custodian fee based upon the amount of cash
maintained by the Fund with its custodian. The "Total fund operating
expenses" in the table do not take into account this expense reduction
and are therefore higher than the actual expenses of the Fund.
Reimbursement by the Fund will be accomplished by the payment of an
expense reimbursement fee by the Fund to the adviser, subject to the
maximum of 0.25% described above. The adviser's obligation to bear part of
the Fund's expenses under this arrangement terminates on the earlier of
the date the Fund has reimbursed all expenses borne by the adviser, or May
1, 2001. Please see the Fund's prospectus for a complete explanation of
the Fund's fees and expenses.
----------------------
S U M M A R Y 5 P R O S P E C T U S
----------------------
<PAGE>
Comparison of contract expenses among underlying funds
BC = Basic Contract
EDB = With Enhanced Death Benefit
The tables below assume there are no fee waivers or reimbursements that reduce
the expenses of the funds.
If you surrender your contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets.
<TABLE>
<CAPTION>
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
============== ============== ============== ==============
BC EDB BC EDB BC EDB BC EDB
=========================================== ===== ===== ===== ===== ===== ===== ===== =====
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Guardian Cash Fund 90 92 110 117 134 145 225 246
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
The Guardian Bond Fund 90 92 111 117 135 146 227 249
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
The Guardian Stock Fund 89 92 110 117 133 144 224 245
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
The Guardian Small Cap Stock Fund 93 95 122 128 153 164 263 284
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Baillie Gifford International Fund 94 96 125 131 158 168 273 294
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Baillie Gifford Emerging Markets Fund 100 102 141 147 184 195 325 345
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Value Line Centurion Fund 90 92 112 119 137 148 231 253
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Value Line Strategic Asset Management Trust 90 92 112 118 137 147 230 252
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Gabelli Capital Asset Fund 96 98 129 135 165 176 288 308
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
AIM V.I. Capital Appreciation Fund 91 93 115 121 141 152 240 261
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
AIM V.I. Global Utilities Fund 96 98 129 135 165 175 287 307
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
AIM V.I. Value Fund 91 93 115 121 141 152 239 260
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Davis Financial Portfolio 95 97 127 133 162 172 280 301
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Davis Real Estate Portfolio 95 97 127 133 162 172 280 301
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Davis Value Portfolio 95 97 127 133 162 172 280 301
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP II Contrafund Portfolio 91 93 116 122 143 154 243 265
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP Equity-Income Portfolio 90 92 112 118 137 147 230 252
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP III Growth Opportunities
Portfolio 91 94 116 123 144 154 244 266
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP III Mid Cap Portfolio 96 98 129 135 164 175 285 306
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Aggressive Growth Portfolio 92 94 117 124 146 156 249 270
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Capital Appreciation Portfolio 94 96 124 131 157 168 272 293
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Growth Portfolio 92 94 117 124 146 156 249 270
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Worldwide Growth Portfolio 92 94 117 123 145 156 248 269
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Emerging Growth Series 93 95 121 127 151 162 259 280
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Growth With Income Series 94 96 124 130 156 167 270 291
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS New Discovery Series 96 98 131 137 168 178 293 313
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Research Series 93 95 121 127 152 162 260 281
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Total Return Series 94 96 123 129 154 165 266 287
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
- ----------------------
6 P R O S P E C T U S S U M M A R Y
- ----------------------
<PAGE>
If you do not surrender your contract at the end of the applicable time period,
you would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets.
<TABLE>
<CAPTION>
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
============== ============== ============== ==============
BC EDB BC EDB BC EDB BC EDB
=========================================== ===== ===== ===== ===== ===== ===== ===== =====
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Guardian Cash Fund 20 22 60 67 104 115 225 246
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
The Guardian Bond Fund 20 22 61 67 105 116 227 249
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
The Guardian Stock Fund 19 22 60 67 103 114 224 245
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
The Guardian Small Cap Stock Fund 23 25 72 78 123 134 263 284
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Baillie Gifford International Fund 24 26 75 81 128 138 273 294
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Baillie Gifford Emerging Markets Fund 30 32 91 97 154 165 325 345
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Value Line Centurion Fund 20 22 62 69 107 118 231 253
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Value Line Strategic Asset Management Trust 20 22 62 68 107 117 230 252
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Gabelli Capital Asset Fund 26 28 79 85 135 146 288 308
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
AIM V.I. Capital Appreciation Fund 21 23 65 71 111 122 240 261
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
AIM V.I. Global Utilities Fund 26 28 79 85 135 145 287 307
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
AIM V.I. Value Fund 21 23 65 71 111 122 239 260
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Davis Financial Portfolio 25 27 77 83 132 142 280 301
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Davis Real Estate Portfolio 25 27 77 83 132 142 280 301
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Davis Value Portfolio 25 27 77 83 132 142 280 301
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP II Contrafund Portfolio 21 23 66 72 113 124 243 265
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP Equity-Income Portfolio 20 22 62 68 107 117 230 252
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP III Growth Opportunities
Portfolio 21 24 66 73 114 124 244 266
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Fidelity VIP III Mid Cap Portfolio 26 28 79 85 134 145 285 306
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Aggressive Growth Portfolio 22 24 67 74 116 126 249 270
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Capital Appreciation Portfolio 24 26 74 81 127 138 272 293
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Growth Portfolio 22 24 67 74 116 126 249 270
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Janus Worldwide Growth Portfolio 22 24 67 73 115 126 248 269
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Emerging Growth Series 23 25 71 77 121 132 259 280
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Growth With Income Series 24 26 74 80 126 137 270 291
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS New Discovery Series 26 28 81 87 138 148 293 313
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Research Series 23 25 71 77 122 132 260 281
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
MFS Total Return Series 24 26 73 79 124 135 266 287
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
----------------------
E X P E N S E T A B L E P R O S P E C T U S 7
----------------------
<PAGE>
The comparison of Fund expenses assumes that the expenses incurred during the
periods shown will be the same as those reported in the Expense Table above. The
comparison does not represent 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 contract
administration fees for the year ended December 31, 1998 by total average net
assets for the year; (2) adding this percentage to annual expenses; and (3)
calculating the dollar amounts. In addition, annuity taxes currently imposed by
certain states and municipalities on premium payments will reduce the amount of
each premium payment available for allocation under the contract.
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
The Guardian Insurance & Annuity Company, Inc. (GIAC) is a stock life insurance
company incorporated in the state of Delaware in 1970. GIAC, which issues the
contracts offered with this prospectus, is licensed to conduct an insurance
business in all 50 states of the United States and the District of Columbia. The
company had total assets of over $9.5 billion as of December 31, 1998. Its
financial statements appear in the Statement of Additional Information.
GIAC's executive office is located at 7 Hanover Square, New York, New York
10004. 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, 1998, Guardian Life had total assets in excess of $15.5
billion. Guardian Life does not issue the contracts offered under this
prospectus and does not guarantee the benefits they provide.
- --------------------------------------------------------------------------------
- ----------------------
8 P R O S P E C T U S E X P E N S E T A B L E
- ----------------------
<PAGE>
- --------------------------------------------------------------------------------
BUYING A CONTRACT
- --------------------------------------------------------------------------------
THE APPLICATION FORM
If you would like to buy a contract, you must complete and sign the application
form. You or your agent then must send it, along with your initial premium
payment, by regular U.S. mail to the following address:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002
If you wish to send your application and payment by certified, registered or
express mail, please address it to:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
3900 Burgess Place
Bethlehem, Pennsylvania 18017
Our decision to accept or reject your application is based on administrative
rules such as whether you have completed the form completely and accurately. We
have the right to reject any application or initial premium payment for any
reason.
If we accept your application as received, we will credit your net premium
payment to your new contract within two business days. If your application is
not complete within five business days of our receiving it, we will return it to
you along with your payment.
PAYMENTS
We require a minimum initial premium payment of $500. Thereafter, the minimum
additional payment is $100. However, if you purchase a contract through an
employer payroll deduction plan, we will accept purchase payments below $100. We
will not accept an initial premium payment greater than $2,000,000 without prior
permission from an authorized officer of GIAC. Without our written consent,
total flexible premium payments made in any contract year after the first may
not exceed $1,000,000.
----------------------
B U Y I N G A C O N T R A C T P R O S P E C T U S 9
----------------------
<PAGE>
- --------------------------------------------------------------------------------
THE ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
Accumulation units
- --------------------------------------------------------------------------------
The value of accumulation units will vary as you earn interest in the
fixed-rate option or as the value of investments rises and falls in the
variable investment options.
HOW WE ALLOCATE YOUR PREMIUM PAYMENTS
After we receive your initial premium payment and issue a contract to you, we
will normally credit subsequent net premium payments to your contract on the
same day we receive them, provided we receive them prior to the close of our
regular business day.
If we receive your payment on a non-business day, or after our close, we will
normally credit it on the next business day. If required in your state or
municipality, annuity taxes are deducted from your payment before we credit it
to your contract. We call the amount remaining after this deduction the net
premium payment.
We use your net premium payments to purchase accumulation units in the variable
investment options you have chosen or in the fixed-rate option, according to
your instructions in the application or as later changed. The prices of
accumulation units are set daily because they change along with the share values
of the Funds you invest in. The amount you pay for each unit will be the next
price calculated after we receive and accept your payment.
The value of accumulation units will vary as you earn interest in the fixed-rate
option or as the value of investments rises and falls in the variable investment
options.
You can change your investment option selections by notifying us in writing. We
will apply your new instructions to subsequent net premium payments after we
receive and accept them. Please remember that you cannot invest in more than 20
variable investment options, or 19 variable investment options and the
fixed-rate option, at any given time.
THE SEPARATE ACCOUNT
GIAC has established a Separate Account, known as Separate Account E, to receive
and invest your premium payments in the variable investment options. The
Separate Account has 28 investment divisions, corresponding to the 28 Funds
available to you. The performance of each division is based on the Fund in which
it invests.
The Separate Account was established by GIAC on September 26, 1996. It is
registered as a unit investment trust under the Investment Company Act of 1940
(the 1940 Act) and meets the definition of a separate account under federal
securities laws. State insurance law provides that the assets of the Separate
Account equal to its reserves and other liabilities are not chargeable with
GIAC's obligations except those under annuity contracts issued through the
Separate Account. Income, gains and losses of the Separate Account are kept
separate from other income, gains or losses of the contract owner.
- -----------------------
10 P R O S P E C T U S A C C U M U L A T I O N P E R I O D
- -----------------------
<PAGE>
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, whether realized or unrealized, are
credited to or charged against the assets held in that division according to the
terms of each contract, without regard to other income, capital gains or capital
losses of the other investment divisions or of GIAC. Contract obligations are
GIAC's responsibility. According to Delaware insurance law, the assets of the
Separate Account are not chargeable with liabilities arising out of any other
business GIAC may conduct. Please see Financial Information: Federal tax
matters.
We have the right to make changes to the Separate Account, to the investment
divisions within it, and to the Fund shares they hold. These changes must be
made in a manner that is consistent with laws and regulations. When necessary,
we'll use this right to serve your best interests and to carry out the purposes
of the contract. Possible changes to the Separate Account and the investment
divisions include:
o deregistering the Separate Account under the 1940 Act
o operating the Separate Account as a management investment company, or in
another permissible form
o combining two or more Separate Accounts or investment divisions
o transferring assets between investment divisions, or into another Separate
Account, or into GIAC's general account
o modifying the contracts where necessary to preserve the favorable tax
treatment that owners of variable annuities currently receive under the
Internal Revenue Code
o eliminating the shares of any of the Funds and substituting shares of
another appropriate Fund
o adding to or suspending your ability to make allocations or transfers into
any variable investment option or the fixed-rate option.
VARIABLE INVESTMENT OPTIONS
You may choose to invest in a maximum of 20 of the 28 variable investment
options at any time. Each Fund is an open-end diversified management investment
company, registered with the Securities and Exchange Commission under the 1940
Act.
The Funds have different investment objectives which influence their risk and
return. The table below summarizes their main characteristics.
Variable investment options
- --------------------------------------------------------------------------------
You may choose to invest in a maximum of 20 of the 28 variable investment
options at any time.
-----------------------
A C C U M U L A T I O N P E R I O D P R O S P E C T U S 11
-----------------------
<PAGE>
Variable investment options
<TABLE>
<CAPTION>
Fund Investment objectives Typical investments
===========================================================================================================================
<S> <C> <C>
The Guardian Stock Fund Long-term growth of capital U.S. common stocks
- ---------------------------------------------------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund Long-term growth of capital U.S. common stocks of companies with
small market capitalization
- ---------------------------------------------------------------------------------------------------------------------------
The Guardian Bond Fund Maximum income without undue Investment grade debt obligations
risk of principal; capital appreciation
as a secondary objective
- ---------------------------------------------------------------------------------------------------------------------------
The Guardian Cash Fund High level of current income consistent Money market instruments
with liquidity and preservation of capital
- ---------------------------------------------------------------------------------------------------------------------------
Baillie Gifford International Fund Long-term capital appreciation Common stocks and convertible
securities issued by foreign companies
- ---------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Long-term capital appreciation Common stocks and convertible
securities of emerging market
companies
- ---------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund Long-term growth of capital U.S. common stocks with selections
based on rankings of the Value Line
Ranking System
- ---------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset High total investment return (current U.S. common stocks with selections
Management Trust income and capital appreciation) based on rankings of the Value Line
consistent with reasonable risk Ranking System, bonds and money market
instruments
- ---------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund Growth of capital; current income as U.S. common stocks and convertible
a secondary objective securities
- ---------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund Growth of capital Common stocks of medium and
small-sized growth companies
- ---------------------------------------------------------------------------------------------------------------------------
AIM V.I. Global Utilities Fund High current income; growth of capital Common and preferred stocks of
as a secondary objective domestic or foreign public utilities
- ---------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund Long-term growth of capital; income as a Equity securities judged to be
secondary objective undervalued by the investment advisor
- ---------------------------------------------------------------------------------------------------------------------------
Davis Financial Portfolio Growth of capital Common stocks of financial companies
- ---------------------------------------------------------------------------------------------------------------------------
Davis Real Estate Portfolio Total return through a combination of Securities issued by companies that
growth and income are "principally engaged" in real
estate
- ---------------------------------------------------------------------------------------------------------------------------
Davis Value Portfolio Growth of capital U.S. common stocks of companies with
at least $5 billion market
capitalization
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio Long-term capital appreciation U.S. and foreign common stocks of
companies believed to be undervalued
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio Reasonable income; also considers Income-producing equity securities
potential for capital appreciation
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities Capital growth U.S. and foreign common stocks
Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Mid Cap Portfolio Long-term growth of capital Common stocks with medium market
capitalization, both U.S. and foreign
- ---------------------------------------------------------------------------------------------------------------------------
Janus Aggressive Growth Portfolio Long-term growth of capital Equity securities of medium-sized
companies; may concentrate in a small
number of issuers
- ---------------------------------------------------------------------------------------------------------------------------
Janus Capital Aggressive Portfolio Long-term growth of capital Equity securities of companies of any
size; may concentrate in a small
number of issuers
- ---------------------------------------------------------------------------------------------------------------------------
Janus Growth Portfolio Long-term growth of capital in a manner Common stocks of issuers of any size
consistent with preservation of capital
- ---------------------------------------------------------------------------------------------------------------------------
Janus Worldwide Growth Portfolio Long-term growth of capital in a manner Common stocks of foreign and U.S.
consistent with preservation of capital issuers; usually invests in at least
five countries, including the U.S.
- ---------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series Long-term growth of capital Common stocks of emerging growth
companies of any size
- ---------------------------------------------------------------------------------------------------------------------------
MFS Growth With Income Series Reasonable current income and long-term Equity securities issued by U.S. and
growth of capital and income foreign companies
- ---------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series To seek capital appreciation Equity securities of companies that
offer superior prospects for growth,
both U.S. and foreign
- ---------------------------------------------------------------------------------------------------------------------------
MFS Research Series Long-term growth of capital and future Equity securities of companies
income believed to possess better than average
prospects for long-term growth
- ---------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series Above average income consistent with Broad list of securities, including
prudent employment of capital; as a a combination of equity and fixed-income,
secondary objective, to provide reasonable both U.S. and foreign
opportunity for growth of capital and
income
===========================================================================================================================
</TABLE>
Some of these Funds may not be available in your state
Some Funds have similar investment objectives and policies to other funds
managed by the same adviser. However, the investment returns of the Funds may be
higher or lower than those of similar funds managed by the same adviser. There
is no assurance, and we make no representation, that the performance of any Fund
will be comparable to the performance of any other fund.
Some of these Funds are available under other separate accounts supporting
variable annuity contracts and variable life insurance policies of GIAC and
other companies. We do not anticipate any inherent conflicts with these
arrangements. However, it is possible that conflicts of interest may arise in
connection with the use of the same Funds under both variable life insurance
policies and variable annuity contracts, or issued by different companies. While
the Board of Directors of each Fund monitors activities in an effort to avoid or
- -----------------------
12 P R O S P E C T U S A C C U M U L A T I O N P E R I O D
- -----------------------
<PAGE>
correct any material irreconcilable conflicts of interest arising out of this
arrangement, we may also take actions to protect the interests of our contract
owners. See the accompanying Fund prospectuses for more information about
possible conflicts of interest.
Some investment advisers (or their affiliates) may pay us compensation for
administration, distribution or other expenses. Currently, these advisers
include Value Line, Inc., Massachusetts Financial Services Company, AIM
Advisors, Inc., Janus Capital Corporation, Fidelity Management & Research
Company, and Davis Selected Advisers, LP. The amount of compensation is usually
based on assets of the relevant variable investment options from contracts that
we issue, and some advisers may pay us more than others.
The Funds' investment advisers and their principal business addresses are shown
in the table below.
Investment advisers
<TABLE>
<CAPTION>
Investment adviser
Fund and principal business address
=====================================================================================
<S> <C>
The Guardian Stock Fund Guardian Investor Services Corporation
The Guardian Small Cap Stock Fund 7 Hanover Square
The Guardian Bond Fund New York, New York 10004
The Guardian Cash Fund
- -------------------------------------------------------------------------------------
Baillie Gifford International Fund Guardian Baillie Gifford Limited (Adviser)
Baillie Gifford Emerging Baillie Gifford Overseas Limited (Sub-adviser)
Markets Fund 1 Rutland Court
Edinburgh, Scotland EH3 8EY
- -------------------------------------------------------------------------------------
Value Line Centurion Fund Value Line, Inc.
Value Line Strategic Asset 220 East 42nd Street
Management Trust New York, New York 10017
- -------------------------------------------------------------------------------------
Gabelli Capital Asset Fund Gabelli Funds, Inc.
One Corporate Center, Rye, New York 10580
- -------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund AIM Advisors, Inc.
AIM V.I. Global Utilities Fund 11 Greenway Plaza -- Suite 100
AIM V.I. Value Fund Houston, Texas 77046-1173
- -------------------------------------------------------------------------------------
Davis Financial Portfolio Davis Selected Advisers, LP
Davis Real Estate Portfolio 124 East Marcy Street
Davis Value Portfolio Santa Fe, New Mexico 87501
- -------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio Fidelity Management & Research Company
Fidelity VIP Equity-Income Portfolio 82 Devonshire Street
Fidelity VIP III Growth Boston, Massachusetts 02109
Opportunities Portfolio
Fidelity VIP III Mid Cap Portfolio
- -------------------------------------------------------------------------------------
Janus Aggressive Growth Portfolio Janus Capital Corporation
Janus Capital Appreciation Portfolio 100 Fillmore Street
Janus Growth Portfolio Denver, Colorado 80206-4928
Janus Worldwide Browth Portfolio
- -------------------------------------------------------------------------------------
MFS Growth With Income Series MFS Investment Management(R)
MFS Emerging Growth Series 500 Boylston Street, Boston, Massachusetts 02116
MFS New Discovery Series
MFS Research Series
MFS Total Return Series
- -------------------------------------------------------------------------------------
</TABLE>
Before investing
- --------------------------------------------------------------------------------
Please read the accompanying Fund prospectuses carefully. They contain
important information on the investment objectives, policies, charges and
expenses of the Funds.
-----------------------
A C C U M U L A T I O N P E R I O D P R O S P E C T U S 13
-----------------------
<PAGE>
Fixed-rate option
- --------------------------------------------------------------------------------
In the fixed-rate option, we guarantee that the net premium payments you
invest will earn daily interest at a minimum annual rate of 3%.
FIXED-RATE OPTION
The fixed-rate option is not registered under the Securities Act of 1933 or as
an investment company under the 1940 Act, and is therefore not subject to the
provisions or restrictions of these Acts. 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.
In the fixed-rate option, we guarantee that the net premium payments you invest
will earn daily interest at a minimum annual rate of 3%. You can allocate all of
your net premium payments to this option, or you may choose it as one of your
investment selections. The value of your net premiums invested in the fixed-rate
option does not vary with the investment experience of any Fund. The money that
you put into your fixed-rate option becomes part of GIAC's general assets.
At certain times we may choose to pay interest at a rate higher than 3%, but we
aren't obliged to do so. Higher interest rates are determined at our discretion,
and we can change them prospectively without notice. We don't use a specific
formula to determine interest rates; rather we consider such factors as general
economic trends, current rates of return on our general account investments,
regulatory and tax requirements, and competitive factors. The rate of interest
we pay hasn't been limited by our Board of Directors.
Here are some of the important conditions that apply when we pay interest on
your investments in the fixed-rate option:
o The initial interest rate that we credit to your premiums or transfers
will be whatever rate is in effect on the date the amounts are allocated
to the fixed-rate option.
o This interest rate will continue until the next contract anniversary date
(unless you have elected Dollar Cost Averaging from the fixed-rate option
over a shorter period of time).
o At that time, all payments and transfers allocated to the fixed-rate
option during the previous year, together with interest earned, will be
credited with the rate of interest in effect on the renewal date, known as
the renewal rate.
- --------------------------------------------------------------------------------
When you buy a contract, please note:
o You can choose up to 20 investment options at any one time.
o If you select the fixed-rate option, you are limited to an additional 19
variable options.
o There are no initial sales charges on the premium payments that you
allocate to the variable investment options. However, there may be premium
tax charges.
o All of the dividends and capital gains distributions that are payable to
variable investment options are reinvested in shares of the applicable
Fund at the current net asset value.
o When the annuity period of the contract begins, we will apply your
accumulation value to a payment option in order to make annuity payments
to you.
o You can arrange to transfer your investments among the divisions by
notifying us in writing or by telephone. Currently, there is no fee for
this, but we reserve the right to charge a fee and to limit the number of
transactions.
> You can change beneficiaries as long as the annuitant is living.
- --------------------------------------------------------------------------------
- -----------------------
14 P R O S P E C T U S A C C U M U L A T I O N P E R I O D
- -----------------------
<PAGE>
o The renewal rate will be guaranteed until the next contract anniversary
date.
If your state's insurance department permits, your contract may have what's
known as a bailout rate. If the renewal rate set on any contract anniversary
date is less than the bailout rate, you can withdraw all or part of the money
you have invested in the fixed-rate option for at least one year from the
contract without incurring a deferred sales charge.
TRANSFERS
You can transfer money among variable investment options both before and after
the date annuity payments begin. You can also transfer to and from the
fixed-rate option, but only before the date annuity payments begin. Transfers
are subject to certain conditions, which are described below.
If you are considering a transfer, be sure to look into each option carefully
and make sure your decisions will help you to achieve your long-term investment
goals.
During the accumulation period and up to 30 days before the date annuity
payments are scheduled to begin, you can transfer all or part of your
accumulation value among the contract options. These transfers are subject to
the following rules:
o We permit transfers from the fixed-rate option to any variable investment
option only once each contract year, during the 30 days beginning on the
contract anniversary date. There is an exception for the dollar cost
averaging feature: amounts that have been on deposit in the fixed-rate
option longest will be transferred out first. The maximum yearly transfer
from the fixed-rate option is the greater of the following:
- 33 1/3% of the amount in the fixed-rate option on the applicable
contract anniversary date or
- 10,000, or
- the total dollar amount transferred from the fixed-rate option in
the previous contract year multiplied by 1.15
o Each transfer involving the variable investment options will be based on
the accumulation unit value that is next calculated after we have received
proper transfer instructions from you.
We will implement a transfer upon receiving your written or telephone
instructions in good order. If your request reaches our customer service office
before 3:30 p.m. Eastern time on a business day, we will normally implement it
that same day.
At this time, we do not limit the number of transfers you may make. However, we
have the right to limit the frequency of transfers to not more than once every
30 days.
Transfers
- --------------------------------------------------------------------------------
You can transfer money between variable investment options both before and
after the date annuity payments begin. You can also transfer to and from
the fixed-rate option, but only before the date annuity payments begin.
-----------------------
A C C U M U L A T I O N P E R I O D P R O S P E C T U S 15
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
Personal security
When you call us, we will require identification of your contract as well as
your personal security code. We may accept transfer instructions from anyone who
can provide us with this information. Neither GIAC, Guardian Investor Services
Corporation, nor the Funds will be liable for any loss, damage, cost or expense
resulting from a telephone transfer we reasonably believe to be genuine. As a
result, you assume the risk of unauthorized or fraudulent telephone transfers.
We may record telephone conversations regarding transfers without disclosure to
the caller.
- --------------------------------------------------------------------------------
At this time, we do not charge for transfers; however, we do have the right to
impose a fee of up to $25 per transfer. We will deduct any transfer charges on a
pro-rata basis from the options you transfer from.
We require proper authorization to honor telephone transfer instructions. If you
would like this privilege, please complete a transfer authorization form, or
give us authorization on your application. Once we have your authorization on
file, you can carry out a telephone transfer by calling 1-800-533-0099 between
9:00 a.m. and 3:30 p.m. Eastern time on any business day when we are open.
During periods of drastic economic or market changes it may be difficult to
contact us to request a telephone transfer. At such times, please send your
transfer request by regular or express mail and we will process it using the
accumulation unit value first calculated after we receive the request. We have
the right to modify, suspend or discontinue telephone transfer privileges at any
time without prior notice.
After the date annuity payments begin, if you have a variable annuity option you
can transfer all or part of the value of your annuity among the variable
investment options only once each calendar year. No fixed-rate option transfers
are permitted.
SURRENDERS AND PARTIAL WITHDRAWALS
During the accumulation period and while the annuitant and all contract owners
are living, you can redeem your contract in whole. This is known as surrendering
the contract. If you redeem part of the contract, it's called a partial
withdrawal. We will not accept requests for surrenders or partial withdrawals
after the date annuity payments begin.
Your request for surrenders and partial withdrawals must be received in good
order. If you wish to surrender your contract, you must send us the contract or
we will not process the request. If you have lost the contract, we will require
an acceptable affidavit of loss.
To process a partial withdrawal, we will redeem enough accumulation units to
equal the dollar value of your request. When you surrender your contract, we
redeem all the units. For both transactions we use the unit value next
calculated after we receive a proper request from you. We will deduct any
applicable contract charges and deferred sales charges from the proceeds of a
surrender. In the case of a partial withdrawal, we will cash additional units to
cover these charges. If you have less than $500 left in your contract
- -----------------------
16 P R O S P E C T U S A C C U M U L A T I O N P E R I O D
- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
Special restrictions
There are special restrictions on withdrawals from contracts issued in
connection with Section 403(b) qualified plans. Please see Financial
information: Federal tax matters for details about how withdrawals can be made
from these contracts.
- --------------------------------------------------------------------------------
after a partial withdrawal, we have the right to cancel the contract and pay you
the balance of the proceeds. This is called an involuntary surrender, and it may
be subject to any applicable contract charges and a deferred sales charge.
Please see Financial information: Federal tax matters.
Surrenders and partial withdrawals are subject to tax, and may be subject to
penalty taxes and mandatory federal income tax withholding. After the first
contract year, you are allowed to make an annual withdrawal from the contract
without paying a deferred sales charge in the following circumstances:
o If, on the date of withdrawal, the accumulation value is greater than the
total of the net premium payments that you have made (and not withdrawn),
you may withdraw the excess, or if greater,
o You may withdraw 10% of the total premium payments you have made, minus
the total of all the withdrawals you already made during that contract
year.
This withdrawal privilege can be exercised in the first contract year of the
following contracts:
o trustee-to-trustee transfers
o Section 1035 exchanges
o IRA transfers
o rollovers from annuity contracts
o Charitable Remainder Trusts.
Unless you are making a withdrawal directly from the fixed-rate option in
accordance with the bailout provisions, we will cash accumulation units in the
following order:
o all variable accumulation units attributable to the investment divisions;
this will be done on a pro-rata basis unless you instruct us differently,
then
o all fixed accumulation units attributable to the fixed-rate option.
We will send you your payment within seven days of receiving a request from you
in good order. Please see the margin note Payments later in this section.
If you have a question about surrenders or withdrawals, please call us toll free
at 1-800-221-3253.
Surrenders and partial withdrawals
- --------------------------------------------------------------------------------
Surrenders and partial withdrawals are subject to tax, and may be subject
to penalty taxes and mandatory federal income tax withholding.
Programs to build your annuity
- --------------------------------------------------------------------------------
You may wish to take advantage of one of the programs we offer to help you
build a stronger annuity. These include dollar cost averaging and
portfolio rebalancing.
-----------------------
A C C U M U L A T I O N P E R I O D P R O S P E C T U S 17
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
Assigning contract interests
If the contract is part of a corporate retirement plan or an individual plan
under sections 401(a), 403(b) or 408 of the Internal Revenue Code, the contract
owner's interest in the contract cannot be assigned, unless the contract owner
is not the annuitant or the annuitant's employer. Assigned contract interests
may be treated as a taxable distribution to the contract owner. See Federal tax
matters for more information.
- --------------------------------------------------------------------------------
MANAGING YOUR ANNUITY
You may wish to take advantage of one of the programs we offer to help you build
a stronger annuity. These include dollar cost averaging and portfolio
rebalancing.
There is no fee for dollar cost averaging or portfolio rebalancing, but we have
the right to introduce one. We also have the right to modify or discontinue
these programs. We'll give you written notice if we do so.
Dollar Cost Averaging (not available in New York)
You can transfer specific amounts of money from one investment option to another
on a monthly basis, as opposed to investing the total amount at one time. This
approach may help lower your average dollar cost of investing over time.
However, there is no guarantee that dollar cost averaging will result in profits
or prevent losses.
If you wish to take advantage of this program, you must designate a dollar
amount to be transferred automatically out of either the Cash Fund investment
division or the fixed-rate option, but not from both. The money can go into one
or more of the other variable investment options or the fixed-rate option. The
rule still applies that you can invest in a maximum of only 20 options at one
time (this includes the required Cash Fund or fixed-rate option).
You can begin dollar cost averaging when you buy your contract or at any time
afterwards, until annuity payments begin, by completing the dollar cost
averaging election form and returning it to us. We must receive it in good order
at least three business days before the monthly anniversary date of when you
wish the transfers to begin.
You may select dollar cost averaging from the Cash Fund investment division for
periods of 12, 24 or 36 months. Dollar cost averaging from the fixed-rate option
may be selected for periods of 6, 12 or 36 months. Your total accumulation value
at the time must be at least $10,000 for transfers over a 12-month period, and
$20,000 for transfers over a 24 to 36 month period. Dollar cost averaging from
the fixed-rate option over a 6-month or 12-month period is only available for
new investments of $5,000 or more in your contract. We may offer special rates
of interest when you elect dollar cost averaging for these shorter periods from
the fixed-rate option. Transfers will be made in the amounts you designate and
must be at least $100 per receiving contract investment option.
- --------------------------------------------------------------------------------
Reports
At least twice each year, we send a report to each contract owner that contains
financial information about the Separate Account, according to applicable laws,
rules and regulations. Additionally, at least once each year, we send a
statement to each contract owner that reports the number of accumulation units
and their value under the contract.
- --------------------------------------------------------------------------------
- -----------------------
18 P R O S P E C T U S A C C U M U L A T I O N P E R I O D
- -----------------------
<PAGE>
Portfolio Rebalancing
Over time, you may find that the investment performance of certain Funds results
in a shift in your holdings beyond the percentage you originally allocated. If
this occurs, you may wish to use our portfolio rebalancing program to maintain a
desired asset allocation mix. If you choose, we will automatically transfer
amounts among your variable investment options to return them to the designated
percentages. We will process these transfers quarterly. To participate in this
program you must have an accumulation value of at least $10,000.
Payments
For all transactions, we can delay payment if the contract is being contested.
We may postpone any calculation or payment from the variable investment options
if:
o the New York Stock Exchange is closed for trading or trading has been
suspended, or
o the Securities and Exchange Commission restricts trading or determines
that a state of emergency exists which may make payment or transfer
impracticable.
-----------------------
S U M M A R Y P R O S P E C T U S 19
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
THE ANNUITY PERIOD
- --------------------------------------------------------------------------------
WHEN ANNUITY PAYMENTS BEGIN
You choose the month and year in which we will begin paying annuity benefits.
The first payment is made on the first day of the month. The date you choose
can't be later than the annuitant's 90th birthday, unless we have agreed. Please
note that this date may be determined by the retirement plan under which your
annuity contract was issued.
HOW YOUR ANNUITY PAYMENTS ARE CALCULATED
Your annuity payments will be fixed, variable or a combination of both,
depending on whether you have chosen a fixed-rate or a variable rate payment
option. Your payments are determined by the following:
o the table in your contract reflecting the nearest age of the annuitant
o the annuity payout option you choose
o the investment returns of the variable investment options you choose, if
you choose a variable payment option.
The number and amount of your annuity payments won't be affected by the
longevity of annuitants as a group. Nor will they be affected by an increase in
our expenses over the amount we have charged in your contract.
We will make annuity payments once a month, except as follows:
o Proceeds of less than $2,000 will be delivered in a single payment.
o We may change the schedule of installment payments to avoid payments of
less than $20.
If you choose a variable annuity payment, or a combination of variable and fixed
payments, variable annuity payments assume a 4% annual investment return. We
compare the assumed rate of 4% to the actual returns of the variable investment
options you have chosen:
o if the actual net annual return on investment equals 4% - the amount of
your variable annuity payments will not change
o if the actual net annual return on investment is greater than 4% - the
amount of your variable annuity payments will increase
o if the actual net annual return on investment is less than 4% - the amount
of your variable annuity payments will decrease.
- -----------------------
20 P R O S P E C T U S S U M M A R Y
- -----------------------
<PAGE>
VARIABLE ANNUITY PAYOUT OPTIONS
The payout options currently offered are discussed below. You can choose to have
annuity payments made under any one or a combination of the variable or
fixed-rate annuity payout options that are available. You can make your choice
at any time before your annuity payments begin. At any time, we may discontinue
any of these options or make additional options available.
All variable annuity payout options are designated with the letter "V." After
the first payment, the amount of variable annuity payments will increase or
decrease to reflect the value of your variable annuity units. The value of the
units will reflect the performance of the variable investment options chosen.
This is why the amount of each payment will vary.
There are a variety of payout options for you to choose from that we've
described below. If you do not make a choice, we will automatically select
Option V-2. You may change options if you wish, provided you do so before
payments begin.
OPTION V-1 - Life Annuity without Guaranteed Period
We make a payment once a month during the annuitant's lifetime, ending with the
payment preceding the annuitant's death. This option allows for the maximum
variable monthly payment because there is neither a guaranteed minimum number of
payments nor a provision for a death benefit for beneficiaries. It is possible
that an annuitant could receive only one payment, if he or she dies before the
date of the second payment.
OPTION V-2 - Life Annuity with 10-Year Guaranteed Period
We make a payment once a month during the annuitant's lifetime, but if the
annuitant dies before receiving 10 years' worth of payments (120), the remaining
payments will be made to the beneficiary. The beneficiary can then choose to
take all or part of the remaining payments in a lump sum at their current dollar
value. If the beneficiary dies while receiving the payments, the balance will be
paid in one sum at its current dollar value to the beneficiary's estate.
OPTION V-3 - Joint and Survivor Annuity
We make a payment once a month during the joint lifetimes of the annuitant and a
designated second person, the joint annuitant. If one dies, payments will
continue during the survivor's lifetime, but the amount of the payment will then
be reduced to two-thirds of the number of units paid out each month when both
parties were alive. It is possible that the joint annuitants could receive only
one payment if they both die before the date of the second payment.
Variable annuity payout options
- --------------------------------------------------------------------------------
o OPTION V-1 Life Annuity without Guaranteed Period
o OPTION V-2 Life Annuity with 10-Year Guaranteed Period
o OPTION V-3 Joint and Survivor Annuity
-----------------------
A N N U I T Y P E R I O D P R O S P E C T U S 21
-----------------------
<PAGE>
Fixed-rate annuity payout options
- --------------------------------------------------------------------------------
o OPTION F-1 Life Annuity without Guaranteed Period
o OPTION F-2 Life Annuity with 10-Year Guaranteed Period
o OPTION F-3 Joint and Survivor Annuity
FIXED-RATE ANNUITY PAYOUT OPTIONS
All Fixed Annuity Payout Options are designated by the letter "F."
OPTION F-1 - Life Annuity without Guaranteed Period
We make a fixed payment once a month during the annuitant's lifetime, ending
with the payment preceding the annuitant's death. This option offers the maximum
fixed payment because there is neither a guaranteed minimum number of fixed
monthly payments nor a provision for a death benefit for beneficiaries. It is
possible that the annuitant could receive only one payment if he or she dies
before the date of the second payment.
OPTION F-2 - Life Annuity with 10-Year Guaranteed Period
We make a fixed payment once a month during the annuitant's lifetime, but if the
annuitant dies before receiving 10 years worth of payments (120), the remaining
payments will be made to the beneficiary. The beneficiary can then choose to
take all or part of the remaining payments in a lump sum at their current dollar
value. If the beneficiary dies while receiving the payments, the balance will be
paid in one sum at its current dollar value to the beneficiary's estate.
OPTION F-3 - Joint and Survivor Annuity
We make a fixed payment once a month during the joint lifetimes of the annuitant
and a designated second person, the joint annuitant. If one dies, payments will
continue during the survivor's lifetime, but the amount of the payment will then
be reduced to two-thirds of the number of units paid out each month when both
parties were alive. It is possible that the joint annuitants could receive only
one payment if they both die before the date of the second payment.
- -----------------------
22 P R O S P E C T U S A N N U I T Y P E R I O D
- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
DEATH BENEFITS
If you, or the annuitant you have named, dies before the date annuity payments
begin, we pay a death benefit. In addition, you have the option of buying an
enhanced death benefit rider which may provide a higher death benefit.
The regular death benefit is the greater of:
o The accumulation value of the contract at the end of the valuation period
during which we receive proof of death, minus any annuity taxes; or
o The total of all premiums paid, minus any partial withdrawals, any
deferred sales charges paid on any withdrawals and any annuity taxes.
For annuitants aged 75 or older on the contract's issue date, the death benefit
will be the accumulation value at the end of the valuation period during which
we receive proof of death, minus any annuity taxes.
We normally pay the death benefit within seven days of receiving in good order
proof of death. However, we have the right to defer the payment of other
contract benefits under certain circumstances. These are described under
Surrenders and partial withdrawals.
If the annuitant is not the contract owner and dies on or before the date that
annuity payments begin, we will pay the death benefits to the beneficiary. If
the beneficiary has also died, we will pay the benefits to the contingent
beneficiary. If a contingent beneficiary hasn't been named, then we will pay the
benefits to you, the contract owner. However, if you are no longer living, we
will pay the benefits to your estate.
If you are both the annuitant and the owner of the contract, and you die before
the date annuity payments begin, we will pay the death benefit to your
beneficiary, as described above. However, we must distribute your interest
according to the Special requirements outlined below. In this situation, your
beneficiary will become the new owner of the contract.
We will pay the death benefit in a lump sum unless:
o You have chosen a different annuity payout option for the death benefit.
We must receive notification of your choice at least three business days
before we pay out the proceeds.
o You, the contract owner, have not chosen a payout option and the
beneficiary has. Again, we must receive the beneficiary's request at least
three business days before we pay out the proceeds, and within a year of
the annuitant's death.
Death benefits
- --------------------------------------------------------------------------------
If you, or the annuitant you have named, dies before the date annuity
payments begin, we pay a death benefit. In addition, you have the option
of buying an enhanced death benefit rider which may provide a higher death
benefit.
-----------------------
A N N U I T Y P E R I O D P R O S P E C T U S 23
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
Primary annuitant
Please note that the primary annuitant is determined in accordance with Section
72(s) of the Internal Revenue Code, which states that he or she is 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.
- --------------------------------------------------------------------------------
If you are a contract owner but not the annuitant, and you die before the date
annuity payments begin, then any joint contract owner will become the new owner
of the contract. If you haven't named a joint contract owner, then your
beneficiary will become the new owner of the contract. In the event of any
contract owner's death, we must distribute all of the owner's interest in the
contract according to the Special requirements outlined below.
Generally, your beneficiaries will be taxed on the gain in your annuity
contract. Consult your tax adviser about the estate tax and income tax
consequences of your particular situation.
Special requirements
If the contract owner dies, the following rules apply.
If the beneficiary (or the sole surviving joint contract owner) is not your
spouse, and you die before the date annuity payments begin, then we must
distribute all of your interest in the contract within five years of your death.
These distribution requirements will be satisfied if any portion of the deceased
contract owner's interest:
o is payable to, or for the benefit of, any new contract owner, and
o will be distributed over the new contract owner's life, or over a period
not extending beyond the life expectancy of any new contract owner.
Under the above conditions, distributions must begin within one year of your
death.
If the beneficiary (or sole surviving joint contract owner) is your spouse, he
or she can continue the contract, assuming the role of contract owner.
If the owner of the contract is not an individual, then the primary annuitant
will be treated as the owner of the contract. In this situation, any change in
the annuitant will be treated as the death of the contract owner.
ENHANCED DEATH BENEFITS
When you buy your contract, you can choose to buy an enhanced death benefit
rider. You will pay a daily charge for this rider based on an annual rate of
0.20% of the net assets of your variable net investment options. We may offer
this rider to existing contract owners in the future.
- -----------------------
24 P R O S P E C T U S O T H E R C O N T R A C T F E A T U R E S
- -----------------------
<PAGE>
If a death benefit is payable under this option, the beneficiary will either
receive the death benefit described above or the enhanced death benefit,
whichever is greater. The enhanced death benefit is calculated as follows:
o The accumulation value of the contract at the end of the reset date
immediately preceding the annuitant's death:
- Plus any premiums paid after the reset date
- Minus any partial withdrawals after the reset date
- Minus any deferred sales charges and annuity taxes.
The first reset date is on the seventh contract anniversary date. After this,
each reset date will be each seventh contract anniversary date after that (i.e.,
the 14th, 21st and 28th contract anniversaries, and so on).
We will terminate the enhanced death benefit rider on the earliest of the
following dates:
o the date the enhanced death benefit is paid out
o the date the contract terminates
o the date of the annuitant's 85th birthday
o the date annuity payments begin
o the date we receive a written termination request from you.
Once the rider is terminated, it cannot be reinstated.
-----------------------
O T H E R C O N T R A C T F E A T U R E S P R O S P E C T U S 25
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The value of your account
- --------------------------------------------------------------------------------
To determine the value of your account, we multiply the number of
accumulation units in each option by the current unit value for the
option.
HOW WE CALCULATE UNIT VALUES
When you choose a variable investment option, you accumulate variable
accumulation units. With the fixed-rate option, you accumulate fixed
accumulation units. To calculate the number of accumulation units you buy with
each payment, we divide the amount you invest in each option by the value of
units in the option. We use the unit value next calculated after we have
received and accepted your payment. We calculate unit values at the close of
business of the New York Stock Exchange, usually at 4:00 p.m. Eastern time, each
day the Exchange is open for trading and GIAC is open for business.
To determine the value of your account, we multiply the number of accumulation
units in each option by the current unit value for the option.
The net investment factor is a measure of the investment experience of each
variable investment option. We determine the net investment factor for a given
valuation period as follows:
o At the end of the valuation period we add together the net asset value of
a Fund share and its portion of dividends and distributions made by the
Fund during the period
o We divide this total by the net asset value of the particular Fund share
calculated at the end of the preceding valuation period
o Finally we add up the daily charges (mortality and expense risks,
administrative expenses, any annuity taxes, and the enhanced death benefit
rider where applicable) and subtract them from the above total.
SUMMARY FINANCIAL INFORMATION ABOUT THE SEPARATE ACCOUNT
The following condensed financial information is derived from the financial
statements of Separate Account E, which were audited by PricewaterhouseCoopers
LLP, independent accountants, for the year ended December 31, 1998. The data
should be read in conjunction with the financial statements, related notes and
other financial information from the Separate Account's 1998 Annual Report to
contract owners which are incorporated by reference into the Statement of
Additional Information. A copy of the 1998 Annual Report to contract owners 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.
The Funds in the tables below are only some of the variable investment options
available to you. The other Funds were not offered in 1998 and are therefore not
included in the summary financial information.
- -----------------------
26 P R O S P E C T U S O T H E R C O N T R A C T F E A T U R E S
- -----------------------
<PAGE>
BASIC CONTRACT
Variable accumulation unit value
at beginning of period
(tax-qualified and non-tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund ($) ($)
================================================================================
The Guardian Cash Fund 10.121 10.00
- --------------------------------------------------------------------------------
The Guardian Stock Fund 10.437 10.00
- --------------------------------------------------------------------------------
The Guardian Bond Fund 10.299 10.00
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 10.320 10.00
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 11.002 10.00
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 9.688 10.00
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 8.431 10.00
- --------------------------------------------------------------------------------
Value Line Centurion Fund 9.680 10.00
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 10.253 10.00
- --------------------------------------------------------------------------------
MFS Growth With Income Series 10.560 10.00
================================================================================
Variable accumulation unit value
at the end of period
(tax-qualified and non-tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund ($) ($)
================================================================================
The Guardian Cash Fund 10.506 10.121
- --------------------------------------------------------------------------------
The Guardian Stock Fund 12.354 10.437
- --------------------------------------------------------------------------------
The Guardian Bond Fund 10.993 10.299
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 9.605 10.320
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 12.137 11.002
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 11.592 9.688
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 6.097 8.431
- --------------------------------------------------------------------------------
Value Line Centurion Fund 12.185 9.680
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 12.904 10.253
- --------------------------------------------------------------------------------
MFS Growth With Income Series 12.756 10.560
================================================================================
(1) Commencement of operations of the Separate Account.
-----------------------
F I N A N C I A L I N F O R M A T I O N P R O S P E C T U S 27
-----------------------
<PAGE>
Number of variable accumulation units
outstanding at end of period
(tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund
================================================================================
The Guardian Cash Fund 1,096,945 117,109
- --------------------------------------------------------------------------------
The Guardian Stock Fund 6,797,478 510,354
- --------------------------------------------------------------------------------
The Guardian Bond Fund 768,901 31,534
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 1,026,044 107,489
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 674,692 36,094
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 599,063 32,078
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 78,688 9,425
- --------------------------------------------------------------------------------
Value Line Centurion Fund 533,959 26,187
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 2,111,868 113,253
- --------------------------------------------------------------------------------
MFS Growth With Income Series 969,040 54,050
================================================================================
Number of variable accumulation units
outstanding at end of period
(non-tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund
================================================================================
The Guardian Cash Fund 766,090 119,085
- --------------------------------------------------------------------------------
The Guardian Stock Fund 4,419,302 630,297
- --------------------------------------------------------------------------------
The Guardian Bond Fund 636,303 49,464
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 537,983 112,412
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 490,114 24,087
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 326,721 30,500
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 81,805 22,501
- --------------------------------------------------------------------------------
Value Line Centurion Fund 286,221 38,898
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 1,465,749 127,877
- --------------------------------------------------------------------------------
MFS Growth With Income Series 774,560 62,952
================================================================================
(1) Commencement of operations of the Separate Account.
- -----------------------
28 P R O S P E C T U S F I N A N C I A L I N F O R M A T I O N
- -----------------------
<PAGE>
CONTRACT WITH ENHANCED DEATH BENEFIT
Variable accumulation unit value
at beginning of period
(tax-qualified and non-tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund ($) ($)
================================================================================
The Guardian Cash Fund 10.115 10.00
- --------------------------------------------------------------------------------
The Guardian Stock Fund 10.430 10.00
- --------------------------------------------------------------------------------
The Guardian Bond Fund 10.292 10.00
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 10.314 10.00
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 10.995 10.00
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 9.682 10.00
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 8.425 10.00
- --------------------------------------------------------------------------------
Value Line Centurion Fund 9.674 10.00
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 10.246 10.00
- --------------------------------------------------------------------------------
MFS Growth With Income Series 10.553 10.00
================================================================================
Variable accumulation unit value
at the end of period
(tax-qualified and non-tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund ($) ($)
================================================================================
The Guardian Cash Fund 10.478 10.115
- --------------------------------------------------------------------------------
The Guardian Stock Fund 12.321 10.430
- --------------------------------------------------------------------------------
The Guardian Bond Fund 10.964 10.292
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 9.579 10.314
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 12.105 10.995
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 11.562 9.682
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 6.081 8.425
- --------------------------------------------------------------------------------
Value Line Centurion Fund 12.153 9.674
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 12.870 10.246
- --------------------------------------------------------------------------------
MFS Growth With Income Series 12.723 10.553
================================================================================
(1) Commencement of operations of the Separate Account.
-----------------------
F I N A N C I A L I N F O R M A T I O N P R O S P E C T U S 29
-----------------------
<PAGE>
Number of variable accumulation units
outstanding at end of period
(tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund
================================================================================
The Guardian Cash Fund 880,559 158,925
- --------------------------------------------------------------------------------
The Guardian Stock Fund 3,495,244 701,284
- --------------------------------------------------------------------------------
The Guardian Bond Fund 443,589 31,666
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 615,777 153,256
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 550,912 60,886
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 392,744 54,339
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 75,589 40,867
- --------------------------------------------------------------------------------
Value Line Centurion Fund 248,606 38,125
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 1,277,967 155,638
- --------------------------------------------------------------------------------
MFS Growth With Income Series 734,306 23,701
================================================================================
Number of variable accumulation units
outstanding at at end of period
(non-tax qualified)
Period from
Year ended Sep 15, 1997(1) to
Dec 31, 1998 Dec 31, 1997
Fund
================================================================================
The Guardian Cash Fund 312,884 92,588
- --------------------------------------------------------------------------------
The Guardian Stock Fund 1,734,568 334,605
- --------------------------------------------------------------------------------
The Guardian Bond Fund 271,163 13,542
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund 362,082 82,383
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 231,590 9,072
- --------------------------------------------------------------------------------
Baillie Gifford International Fund 189,668 18,732
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund 54,053 6,163
- --------------------------------------------------------------------------------
Value Line Centurion Fund 97,197 7,955
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust 486,176 62,852
- --------------------------------------------------------------------------------
MFS Growth With Income Series 341,717 53,104
================================================================================
(1) Commencement of operations of the Separate Account.
- -----------------------
30 P R O S P E C T U S F I N A N C I A L I N F O R M A T I O N
- -----------------------
<PAGE>
CONTRACT COSTS AND EXPENSES
The amount of a charge may not strictly correspond to the costs of providing the
services or benefits indicated by the name of the charge or related to a
particular contract. For example, the contingent deferred sales charge may not
fully cover all of the sales and distribution expenses actually incurred by
GIAC, and proceeds from other charges, including the mortality and expense risk
charge, may be used in part to cover these expenses.
No sales charges are deducted from your premium payments when you make them.
However, the following charges do apply:
Expenses of the Funds
The Funds you choose through your variable investment options have their own
management fees and general operating expenses. The deduction of these fees and
expenses is reflected in the per-share value of the Funds. They are fully
described in the Funds' prospectuses.
Mortality and expense risk charge
You will pay a daily charge based on an annual rate of 1.05% of the net assets
of your variable investment options to cover our mortality and expense risks.
Mortality risks arise from our promise to pay death benefits and make annuity
payments to each annuitant for life. Expense risks arise from the possibility
that the amounts we deduct to cover sales and administrative expenses may not be
sufficient.
Administrative expenses
You will also pay a daily charge based on an annual rate of 0.20% of the net
assets of your variable investment options for our administrative expenses.
Contract fee
We deduct a yearly fee of $35 on each anniversary date of your contract. To pay
this charge, we will cancel the number of accumulation units that is equal in
value to the fee. We cancel accumulation units in the same proportion as the
percentage of the contract's accumulation value attributable to each variable
investment option and the fixed-rate option. If you surrender your contract
before the contract anniversary date, we will still deduct the contract fee for
that year. We will waive the contract fee if the accumulation value is $100,000
or more on the anniversary date of your contract.
Cost and expenses
- --------------------------------------------------------------------------------
No sales charges are deducted from your premium payments when you make
them. However, the following charges do apply:
o expenses of the Funds
o mortality and expense risk charge
o administrative expenses
o contract fee.
See accompanying text for details.
-----------------------
F I N A N C I A L I N F O R M A T I O N P R O S P E C T U S 31
-----------------------
<PAGE>
Deferred sales charges
- --------------------------------------------------------------------------------
Number of contract Deferred
years completed sales
from the date of charge
premium payment (%)
==========================================================================
0 7
--------------------------------------------------------------------------
1 6
--------------------------------------------------------------------------
2 5
--------------------------------------------------------------------------
3 4
--------------------------------------------------------------------------
4 3
--------------------------------------------------------------------------
5 2
--------------------------------------------------------------------------
6 1
--------------------------------------------------------------------------
7+ 0
--------------------------------------------------------------------------
Annuity taxes
- --------------------------------------------------------------------------------
Some states and municipalities may charge annuity taxes when premium
payments are made or when you begin to receive annuity payments.
In addition, the following charges may apply:
Contingent deferred sales charge
If you make a partial withdrawal from your account or surrender your contract,
you will pay a deferred sales charge on any amount that has been in your
contract for less than seven contract years. This charge compensates us for
expenses related to the sale of contracts. These include commissions to
registered representatives, as well as promotional expenses.
When we calculate the deferred sales charge, all amounts taken out are assumed
to come from the oldest premium. We do this to minimize the amount you owe.
Deferred sales charges are listed in the table.
The deferred sales charge percentage is applied to the lesser of:
o the premium payments you have made within seven contract years (84 months)
before the date of your request for the withdrawal or surrender; or
o the amount withdrawn or surrendered.
We don't impose deferred sales charges on contracts bought by:
o Guardian Life, its subsidiaries or any of their separate accounts
o present or retired directors, officers, employees, general agents, or
field representatives of Guardian Life or its subsidiaries
o present or retired directors or officers of any of the Funds
o present and retired directors, trustees, officers, partners, registered
representatives and employees of broker-dealer firms that have written
sales agreements with Guardian Investor Services Corporation
o immediate family members of the individuals named above, based on their
status at the time the contract was purchased, limited to their:
- spouses
- children and grandchildren
- parents and grandparents
- brothers and sisters
o trustees or custodians of any employee benefit plan, IRA, Keogh plan or
trust established for the benefit of persons named in the second and third
bullets above
o clients of broker-dealers, financial institutions and registered
investment advisers that have entered into an agreement with GIAC to
participate in fee-based wrap accounts or similar programs to purchase
contracts.
- -----------------------
32 P R O S P E C T U S F I N A N C I A L I N F O R M A T I O N
- -----------------------
<PAGE>
Enhanced death benefit expenses
If you choose the enhanced death benefit and it is in effect, you will pay a
daily charge based on an annual rate of 0.20% of the net assets of your variable
investment options.
Annuity taxes
Some states and municipalities may charge annuity taxes when premium payments
are made or when you begin to receive annuity payments. These taxes range from
about 0.5% to 3.5% of your premium payments. We may deduct the annuity tax
either from your premium payment when made, or from the annuity payments on the
date annuity payments begin, depending on state laws.
In jurisdictions where the annuity tax is incurred when a premium payment is
made, we deduct the amount from your premium payment at the time it is made. We
reserve the right to pay the annuity tax on your behalf and then deduct the same
amount from the value of your contract when you surrender it, or on your death,
or on the date annuity payments begin, whichever is first. We will do this only
if permitted by applicable law.
Transfer charge
Currently, we do not charge for transfers. However, we reserve the right to
charge up to $25 for each transfer. We will deduct this charge on a proportional
basis from the options from which amounts are transferred.
FEDERAL TAX MATTERS
The following summary provides a general description of the Federal income tax
considerations associated with the contract. It is not intended to be complete
or to cover all tax situations. This summary is not intended as tax advice. You
should consult a tax adviser for more complete information. This summary is
based on our understanding of the present Federal income tax laws. We make no
representation as to the likelihood of continuation of the present Federal
income tax laws or as to how they may be interpreted by the Internal Revenue
Service (IRS).
We believe that our contracts will qualify as annuity contracts for Federal
income tax purposes and the following summary assumes so. Further details are
available in the Statement of Additional Information, under the heading Tax
Status of the Contracts.
When you invest in an annuity contract, you usually don't pay taxes on your
investment gains until you withdraw the money - generally for retirement
purposes. In this way, annuity contracts have been recognized by the tax
authorities as a legitimate means of deferring tax on investment income.
Deferring tax
- --------------------------------------------------------------------------------
When you invest in an annuity contract, you usually don't pay taxes on
your investment gains until you withdraw the money - generally for
retirement purposes. In this way, annuity contracts have been recognized
by the tax authorities as a legitimate means of deferring tax on
investment income.
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F I N A N C I A L I N F O R M A T I O N P R O S P E C T U S 33
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<PAGE>
Employer-sponsored or independent?
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If you invest in a variable annuity as part of a pension plan or
employer-sponsored retirement program, your contract is called a qualified
contract. If your annuity is independent of any formal retirement or
pension plan, it is termed a non-qualified contract.
We believe that if your are a natural person you won't be taxed on increases in
the accumulation value of a contract until a distribution occurs or until
annuity payments begin. For these purposes, the agreement to assign or pledge
any portion of a contact's accumulation value and, in the case of a qualified
contract (described below) any portion of an interest in the qualified plan
generally will be treated as a distribution.
When annuity payments begin, you will be taxed only on the investment gains you
have earned and not on the payments you made to purchase the contract.
Generally, withdrawals from your annuity should only be made once the annuitant
reaches age 59 1/2, dies or is disabled, otherwise a 10% tax penalty is applied
against any amounts included in income.
If you invest in a variable annuity as part of a pension plan or
employer-sponsored retirement program, your contract is called a qualified
contract. If your annuity is independent of any formal retirement or pension
plan, it is termed a non-qualified contract.
Taxation of non-qualified contracts
Non-natural person - If a non-natural person owns a non-qualified annuity
contract, the owner generally must include in income any increase in the excess
of the accumulation value over the investment in the contract (generally, the
premiums or other consideration paid for the contract) during the taxable year.
There are some exceptions to this rule and a prospective owner that is not a
natural person should discuss these with a tax adviser.
This following summary generally applies to contracts owned by natural persons.
Withdrawals - When a withdrawal from a non-qualified contract occurs, the amount
received will be treated as ordinary income subject to tax up to an amount equal
to any excess of the accumulation value immediately before the distribution that
exceeds the owner's investment in the contract. Generally, the owner's
investment in the contract is the amount equal to the premiums or other
consideration paid for the contract, reduced by any amounts previously
distributed from the contract that were not subject to tax at that time. In the
case of a surrender under a non-qualified contract, the amount received
generally will be taxable only to the extent it exceeds the owner's investment
in the contract.
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34 P R O S P E C T U S F I N A N C I A L I N F O R M A T I O N
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<PAGE>
Penalty tax on certain withdrawals - In the case of a distribution from a
non-qualified contract, a federal tax penalty may be imposed equal to 10% of the
amount treated as income. However, there is generally no penalty on
distributions that are:
o made on or after the taxpayer reaches age 59 1/2
o made on or after the death of an owner
o attributable to the taxpayer's becoming disabled, or
o made as part of a series of substantially equal periodic payments for the
life - or life expectancy - of the taxpayer.
Other exceptions may apply under certain circumstances. Special rules may also
apply to the exceptions noted above. You should consult a tax adviser with
regard to exceptions from the penalty tax.
Annuity payments - Although tax consequences may vary depending on the payout
option elected under an annuity contract, a portion of each annuity payment is
generally not taxed, and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined so that you
recover your investment in the contract ratably on a tax-free basis over the
expected stream of annuity payments, as determined when annuity payments begin.
However, once your investment in the contract has been fully recovered, the full
amount of each annuity payment is subject to tax as ordinary income.
Taxation of death benefits - Amounts may be distributed from a contract because
of your death or the death of the annuitant. Generally, such amounts are
included in the income of the recipient as follows:
o if distributed in a lump sum, they are taxed in the same manner as a
surrender of the contract
o if distributed under a payout option, they are taxed in the same way as
annuity payments.
Transfers, assignments and contract exchanges - Transferring or assigning
ownership of a contract, designating an annuitant, selecting certain maturity
dates or exchanging a contract may result in certain tax consequences to you
that are not outlined here. If you are considering any such transaction, you
should consult a professional tax adviser.
Withholding tax - Annuity distributions are generally subject to withholding for
the recipient's federal income tax liability. However, recipients can generally
choose not to have tax withheld from distributions.
Taxation of annuity payments
- --------------------------------------------------------------------------------
Once your investment in the contract has been fully recovered, the full
amount of each annuity payment is subject to tax as ordinary income.
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F I N A N C I A L I N F O R M A T I O N P R O S P E C T U S 35
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<PAGE>
Multiple contracts - All annuity contracts issued by GIAC or its affiliates to
the same owner during any calendar year are treated as one annuity contract for
purposes of determining the amount included in the contract owner's income when
a taxable distribution occurs.
Taxation of qualified contracts
Your rights under a qualified contract may be subject to the terms of the
retirement plan itself, regardless of the terms of the qualified contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions with respect to the contract comply with
the law.
Individual Retirement Accounts (IRAs) - As defined in Sections 219 and 408 of
the Internal Revenue Code, individuals are allowed to make annual contributions
to an IRA of up to the lesser of $2,000 or 100% of their adjusted gross income.
All or a portion of these contributions may be deductible, depending on the
person's income.
Distributions from certain pension plans may be rolled over into an IRA on a
tax-deferred basis without regard to these limits. So-called SIMPLE IRAs under
Section 408(p) of the Internal Revenue Code and Roth IRAs under Section 408A,
may also be used in connection with variable annuity contracts.
SIMPLE IRAs allow employees to defer a percentage of annual compensation up to
$6,000 to a retirement plan, if the sponsoring employer makes matching or
non-elective contributions. The penalty for a distribution from a SIMPLE IRA
that occurs within the first two years after the employee begins to participate
in the plan is 25%, instead of the usual 10%.
Contributions to Roth IRAs are not tax-deductible and contributions must be made
in cash or as a rollover or transfer from another Roth IRA or IRA. A rollover or
conversion of an IRA to a Roth IRA may be subject to tax.
Distributions from Roth IRAs are generally not taxed. In addition to the 10%
penalty which generally applies to distributions made before age 591/2, a 10%
penalty will be imposed for any distribution made from a Roth IRA during the
five taxable years starting after you first contribute to any Roth IRA.
Corporate pension and profit-sharing plans - Under Section 401(a) of the
Internal Revenue Code, corporate employers are allowed to establish various
types of retirement plans for employees, and self-employed individuals are
allowed to establish qualified plans for themselves and their employees.
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36 P R O S P E C T U S F I N A N C I A L I N F O R M A T I O N
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<PAGE>
Adverse tax consequences to the retirement plan, the participant or both may
result if the contract is transferred to any individual as a means of providing
benefit payments, unless the plan complies with all applicable requirements
before transferring the contract.
Tax-sheltered annuities - Under Section 403(b) of the Internal Revenue Code,
public schools and other eligible employers are allowed to purchase annuity
contracts and mutual fund shares through custodial accounts on behalf of
employees. Generally, these purchase payments are excluded for tax purposes from
employee gross incomes. However, these payments may be subject to Social
Security taxes.
Distributions of salary reduction contributions and earnings (other than your
salary reduction accumulation as of December 31, 1988) are not allowed before
age 591/2, separation from service, death or disability. Salary reduction
contributions may also be distributed upon hardship, but would generally be
subject to penalties.
Other tax issues - You should note that the annuity 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 viewed as an incidental benefit,
the amount of which is limited in any 401(a) or 403(b) plan. Because the death
benefit may exceed this limitation, employers using the contract in connection
with corporate pension and profit-sharing plans, or tax-sheltered annuities,
should consult their tax adviser.
Qualified contracts other than Roth IRAs have minimum distribution rules that
govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement or consult a tax adviser for more
information about these distribution rules.
Our income taxes
At the present time, we make no charge for any Federal, state or local taxes -
other than the charge for state and local premium taxes that we incur - that may
be attributable to the investment divisions of the Separate Account or to the
contracts. We do have the right in the future to make additional charges for any
such tax or other economic burden resulting from the application of the tax laws
that we determine is attributable to the investment divisions of the Separate
Account or the contracts.
Under current laws in several states, we may incur state and local taxes in
addition to premium taxes. These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.
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F I N A N C I A L I N F O R M A T I O N P R O S P E C T U S 37
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<PAGE>
- --------------------------------------------------------------------------------
Gender-neutral and gender-distinct tables
As a result of a U.S. Supreme Court ruling, employer-related plans must use rate
tables that are gender-neutral to calculate annuity purchase rates. We have
revised our tables for employer-related plans and filed them in the states where
we do business. We will continue to use our gender-distinct tables in all other
contracts, unless it is prohibited by state law. In those cases our
gender-neutral tables will be used.
- --------------------------------------------------------------------------------
Possible tax law changes
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the contract could change by legislation
or otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the contract.
We have the right to modify the contract in response to legislative changes that
could otherwise diminish the favorable tax treatment annuity contract owners
currently receive. We make no guarantee regarding the tax status of any contract
and do not intend this summary as tax advice.
PERFORMANCE RESULTS
From time to time, we may show performance information for the Separate
Account's investment divisions in advertisements, sales literature or other
materials provided to existing or prospective contract owners. These materials
are based upon historical information and are not necessarily representative of
future performance. More detail about historical performance appears in the
Statement of Additional Information. When we show performance, we'll always
include SEC standard performance, which reflects all fees and charges for
specified periods. We may also show non-standard performance, for example,
without showing the effect of certain charges such as deferred sales charges.
Among the key performance measures we use are total returns and yields.
Total returns include: average annual total return, total return, and change in
accumulation unit value - all of which reflect the change in the value of an
investment in an investment division of the Separate Account over a specified
period, assuming the reinvestment of all income dividends and capital gains
distributions.
Yield figures may be quoted for investments in shares of the Cash Fund and other
investment divisions. Current yield is a measure of the 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 other investment
divisions. Effective yield is another measure which may be quoted by the Cash
Fund investment division, which assumes that the net investment income earned
during a base period will be earned and reinvested for a year. Yields are
expressed as a percentage of the value of an accumulation
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38 P R O S P E C T U S F I N A N C I A L I N F O R M A T I O N
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<PAGE>
unit at the beginning of the base period. Yields are annualized, which assumes
that an investment division will generate the same level of net investment
income over a one-year period. However, yields fluctuate daily.
Advertisements and sales literature for the Separate Account's investment
divisions may compare a Fund's performance to that of investments offered
through the separate accounts of other insurance companies that have similar
investment objectives or programs. Promotional material 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. Performance comparisons may be
illustrated by tables, graphs or charts. Additionally, promotional material may
refer to:
o the types and characteristics of certain securities
o features of a Fund's portfolio
o financial markets
o historical, current or perceived economic trends, and
o topics of general investor interest, such as personal financial planning.
In addition, advertisements and sales literature may refer to or reprint all or
portions of articles, reports or independent rankings or ratings which relate
specifically to the investment divisions or to other comparable investments.
However, such material will not be used to indicate future performance.
Advertisements and sales literature about the variable annuity contract and the
Separate Account may also refer to ratings given to GIAC by insurance company
rating organizations such as:
o Moody's Investors Service, Inc.
o Standard & Poor's Ratings Group
o A.M. Best & Co.
o Duff & Phelps.
These ratings relate only to GIAC's ability to meet its obligations under the
contract's fixed-rate option and to pay death benefits provided under the
contract, not to the performance of the variable investment options.
Further information about the performance of each investment division is
contained in their respective annual reports, which may be obtained from GISC
free of charge.
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F I N A N C I A L I N F O R M A T I O N P R O S P E C T U S 39
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<PAGE>
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YOUR RIGHTS AND RESPONSIBILITIES
- --------------------------------------------------------------------------------
Free-look period
- --------------------------------------------------------------------------------
During the 10-day period after receiving your contract, the free-look
period, you have the right to examine your contract and return it for
cancellation if you change your mind about buying it.
VOTING RIGHTS
We own the Fund's shares, but you may have voting rights in the various Funds.
To the extent that we are required by law, we will cast our votes according to
the instructions of those contract owners who have an interest in variable
investment options investing in Funds holding a shareholder vote, as of the
shareholder meeting record date. Those votes for which we receive no
instructions will be voted in the same proportion as those we have received
instructions for. We'll solicit instructions when the Funds hold shareholder
votes. We have the right to restrict contract owner voting instructions if the
laws change to allow us to do so.
The owner of the contract has voting rights until the date annuity payments
begin. After that date, rights switch to the annuitant. Voting rights diminish
with the reduction of your contract value. The fixed-rate option has no voting
rights.
YOUR RIGHT TO CANCEL THE CONTRACT
During the 10-day period after receiving your contract, the free-look period,
you have the right to examine your contract and return it for cancellation if
you change your mind about buying it. Longer periods may apply in some states.
In order to cancel your contract, we must receive both the contract and your
cancellation notice in good order. You can forward these documents to GIAC's
customer service office or to the registered representative who sold you the
contract. If you mail the notice, we consider it received on the postmark date,
provided it has been properly addressed and the full postage has been paid.
Upon cancellation, we'll refund to you:
o the difference between the gross premiums you paid (including contract
fees, annuity taxes and other charges) and the amounts we allocated to the
variable investment and fixed-rate options you chose; and
o the accumulation value of the contract on the date we receive your
cancellation.
If state law requires, you will receive the total premium you paid for the
contract instead.
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40 P R O S P E C T U S F I N A N C I A L I N F O R M A T I O N
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<PAGE>
DISTRIBUTION OF THE CONTRACT
The variable annuity 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.
GIAC will generally pay commissions to these individuals or entities for the
sale of contracts. These commissions may vary, but in total are not expected to
exceed 7% of each contract premium payment. We also reserve the right to pay
additional annual sales compensation of up to .13% of the value of contracts
with an enhanced death benefit rider in force. Where permitted by state law, we
reserve 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 7
Hanover Square, New York, New York 10004.
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R I G H T S A N D R E S P O N S I B I L I T I E S P R O S P E C T U S 41
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<PAGE>
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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 measure used to determine the value of a contractowner's interest under the
contract before annuity payments begin. The contract has variable accumulation
units and fixed accumulation units.
Accumulation value
The value of all the accumulation units in the variable investment options
and/or the fixed-rate option credited to a contract.
Annuitant
The person on whose life the annuity payments are based and on whose death,
prior to the annuity commencement date, benefits under the contract are paid.
Annuity commencement date
The date on which annuity payments under the contact begin.
Annuity Payments
Periodic payments, either variable or fixed in nature, made by GIAC to the
contract owner at monthly intervals after the annuity commencement date.
Annuity unit
A measure used to determine the amount of any variable annuity payment.
Business day
Each day the New York Stock Exchange is open for trading and GIAC is open for
business.
Contract anniversary date
The annual anniversary measured from the issue date of the contract.
Contract owner
You (or your); the person(s) or entity designated as the owner in the contract.
Funds
The diversified open-end management investment companies, each corresponding to
a variable investment option. The Funds are listed on the front cover of this
prospectus.
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.
Valuation period
The time period from the determination of one accumulation unit and annuity unit
value to the next.
Variable investment options
The Funds underlying the contract are the variable investment options - as
distinguished from the fixed-rate option - available for allocations of net
premium payments and accumulation values.
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42 P R O S P E C T U S R I G H T S A N D R E S P O N S I B I L I T I E S
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<PAGE>
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OTHER INFORMATION
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YEAR 2000 compliance
Many computer systems are unable to distinguish between the years 1900 and 2000
when they are making date-related calculations, because of the way that date
information is stored in these machines. Like businesses around the world that
rely on computerized systems for their day-to-day functioning, we may be
adversely affected if our computer systems, or the computer systems of companies
that we do business with, cannot address this problem by January 1, 2000. We are
working to address this issue, and expect that our computer systems will be able
to correctly interpret the year 2000 when that date arrives, but we cannot
guarantee that our preparations will be successful.
In conjunction with our parent company, Guardian Life, we are directing
significant portions of our internal information technology efforts and
contracting, as needed, with outside consultants to help update our systems to
accommodate the year 2000. We have also initiated discussions with other
critical parties whose systems impact our own to determine the progress they are
making toward addressing year 2000 issues.
Everyone involved is making substantial efforts to address their systems and the
systems with which they interface, but it is not possible to provide assurance
that operational problems will not occur. We believe that, with the modification
of existing computer systems, updates by vendors and conversion to new software
and hardware, we are well positioned to mitigate the year 2000 issue and that
contract owners will not experience negative effects with respect to their
contracts as a result of the year 2000 issue. However, the year 2000 issue by
its very nature contains inherent uncertainties, including the uncertainty of
year 2000 readiness of third parties. As a result, we are unable to determine at
this time whether the consequences of year 2000 failures will have a material
adverse effect on our results of operations, liquidity or financial position.
We are also incorporating potential issues surrounding year 2000 into our
contingency planning process, in the event that, despite our substantial efforts
and those of other critical parties, there may still remain unresolved year 2000
problems.
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S P E C I A L T E R M S P R O S P E C T U S 43
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<PAGE>
LEGAL PROCEEDINGS
Neither the Separate Account nor GIAC is a party to any pending material legal
proceeding.
WHERE TO GET MORE INFORMATION
Our Statement of Additional Information (SAI) has more details about the
contract described in this prospectus. If you would like a free copy, please
call us toll-free at 1-800-221-3253, or write to us at the following address:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
Box 26210
Lehigh Valley, Pennsylvania 18002
The SAI contains the following information:
o Services to the Separate Account
o Annuity payments
o Tax status of the contracts
o Performance data
o Valuation of assets of the Separate Account
o Transferability restrictions
o Experts
o Financial statements
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44 P R O S P E C T U S O T H E R I N F O R M A T I O N
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<PAGE>
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Issued Through
THE GUARDIAN SEPARATE ACCOUNT E
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
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Statement of Additional Information dated July 6, 1999
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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 July 6, 1999.
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
Tax Status of the Contracts B-3
Performance Data B-4
Valuation of Assets of the Separate Account B-8
Transferability Restrictions B-9
Experts B-9
Financial Statements B-9
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 PricewaterhouseCoopers 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 1998, 1997 and 1996, GISC received
underwriting commissions from GIAC with respect to the sales of variable annuity
contracts in the amount of $1,946,477, $1,979,926 and $1,851,468, 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 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
B-2
<PAGE>
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).
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that variable annuities must satisfy
in order to receive the tax treatment normally accorded to annuity contracts.
Diversification Requirements. The Code requires that the investments of
each investment division of the separate account underlying the contracts be
"adequately diversified" in order for the contracts to be treated as annuity
contracts for Federal income tax purposes. It is intended that each investment
division, through the fund in which it invests, will satisfy these
diversification requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the variable account assets. There is little guidance in this area, and some
features of our contracts, such as the flexibility of an owner to allocate
premium payments and transfer amounts among the investment divisions of the
separate account, have not been explicitly addressed in published rulings. While
we believe that the contracts do not give owners investment control over
separate account assets, we reserve the right to modify the contracts as
necessary to prevent an owner from being treated as the owner of the separate
account assets supporting the contract.
Required Distributions. In order to be treated as an annuity contract for
Federal income tax purposes, section 72(s) of the Internal Revenue Code requires
any non-qualified contract to contain certain provisions specifying how your
interest in the contract will be distributed in the event of the death of a
holder of the contract. Specifically, section 72(s) requires that (a) if any
holder dies on or after the annuity starting date, but prior to the time the
entire interest in the contract has been distributed, the entire interest in the
contract will be distributed at least as rapidly as under the method of
distribution being used as of the date of such holders death; and (b) if any
holder dies prior to the annuity starting date, the entire interest in the
contract will be distributed within five years after the date of such holder's
death. These requirements will be considered satisfied as to any portion of a
holder's interest which is payable to or for the benefit of a designated
beneficiary and which is distributed over the life of such designated
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of the
holder's death. The designated beneficiary refers to a natural person designated
by the holder as a beneficiary and to whom ownership of the contract passes by
reason of death. However, if the designated beneficiary is the surviving spouse
of the deceased holder, the contract may be continued with the surviving spouse
as the new holder.
The non-qualified contracts contain provisions that are intended to comply
with these Code requirements, although no regulations interpreting these
requirements have yet been issued. We intend to review such provisions and
modify them if necessary to assure that they comply with the applicable
requirements when such requirements are clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
B-3
<PAGE>
PERFORMANCE DATA
The tables below provide performance results for each of the Separate
Account's Investment Divisions through December 31, 1998. 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.
Several new Investment Divisions were added to the Separate Account as of
July 6, 1999. For performance information about those Investment Divisions, you
should refer to the prospectuses describing each one. The prospectuses were
provided with the prospectus for the Contract.
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 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.
B-4
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for a
Contract Surrendered on 12/31/98 Average Annual Total Return on 12/31/98
(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 -3.49 2.78 3.68 3.51 3.32 3.68
-3.28 3.00 3.89 3.72 3.52 3.89
The Guardian Bond
Fund 5/1/83 -0.56 4.46 7.10 6.44 4.96 7.10
-0.34 4.68 7.32 6.66 5.17 7.32
The Guardian Stock
Fund 4/13/83 11.03 20.19 17.49 18.03 20.48 17.49
11.27 20.44 17.73 18.27 20.72 17.73
The Guardian Small
Cap Stock Fund 5/1/97 -13.70 N/A -0.80 -7.20 N/A 3.28
-13.52 N/A -0.61 -7.01 N/A 3.49
Gabelli Capital
Asset Fund 5/1/95 3.00 N/A 16.88 10.00 N/A 17.59
3.22 N/A 17.12 10.22 N/A 17.83
Baillie Gifford
International Fund 2/8/91 12.32 9.80 9.59 19.32 10.21 9.59
12.56 10.03 9.81 19.56 10.43 9.81
Baillie Gifford
Emerging Markets
Fund 10/17/94 -32.94 N/A -6.91 -27.89 N/A -6.24
-32.81 N/A -6.96 -27.75 N/A -6.05
Value Line Centurion
Fund ("VLCF") 11/15/83 18.52 17.84 17.94 25.52 18.15 17.94
18.77 18.08 18.18 25.77 18.39 18.18
Value Line Strategic
Asset Management
Trust ("VLSAM") 10/1/87 18.51 13.74 15.26 25.51 14.09 15.26
18.76 13.97 15.50 25.76 14.32 15.50
MFS Growth With 13.45 N/A 23.30 20.45 N/A 24.07
Income Series 10/9/95 13.70 N/A 23.55 20.70 N/A 24.32
</TABLE>
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. No information is provided for
Investment Divisions that were added after December 31, 1998.
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.
B-5
<PAGE>
BASIC CONTRACT
<TABLE>
<CAPTION>
Cumulative Change in Accumulation Unit Value
for Period Ended December 31, 1998
-----------------------------------------------------------------
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 3.80 19.39 47.71 1/7/82
The Guardian Bond Fund 6.74 29.20 104.30 5/1/83
The Guardian Stock Fund 18.37 157.44 415.58 4/13/83
The Guardian Small Cap Stock Fund -6.93 N/A -3.95 5/1/97
Gabelli Capital Asset Fund 10.31 N/A 70.27 5/1/95
Baillie Gifford International Fund 19.66 64.93 95.25 2/8/91
Baillie Gifford Emerging Markets Fund -27.69 N/A -12.07 10/17/94
Value Line Centurion Fund 25.88 133.53 435.86 11/15/83
Value Line Strategic Asset Management Trust 25.86 96.10 325.83 10/1/87
MFS Growth With Income Series 20.80 N/A 102.31 10/9/95
</TABLE>
CONTRACT WITH ENHANCED DEATH BENEFIT
<TABLE>
<CAPTION>
Cumulative Change in Accumulation Unit Value
for Period Ended December 31, 1998
-----------------------------------------------------------------
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 3.59 18.21 45.15 1/7/82
The Guardian Bond Fund 6.53 27.92 101.74 5/1/83
The Guardian Stock Fund 18.13 152.54 413.02 4/13/83
The Guardian Small Cap Stock Fund -7.12 N/A -6.51 5/1/97
Gabelli Capital Asset Fund 10.09 N/A 67.71 5/1/95
Baillie Gifford International Fund 19.42 63.29 92.69 2/8/91
Baillie Gifford Emerging Markets Fund -27.83 N/A -14.63 10/17/94
Value Line Centurion Fund 25.62 131.18 433.30 11/15/83
Value Line Strategic Asset Management Trust 25.61 94.14 323.27 10/1/87
MFS Growth With Income Series 20.55 N/A 89.11 10/9/95
</TABLE>
B-6
<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 1998
- ------------------------------------------------
The Guardian Cash Fund 3.83 3.80
- ------------------------------------------------
The Guardian Bond Fund 7.63 6.74
- ------------------------------------------------
The Guardian Stock Fund 33.89 18.37
- ------------------------------------------------
The Guardian Small Cap
Stock Fund 3.20* -6.93
- ------------------------------------------------
Gabelli Capital Asset Fund 40.81 10.31
- ------------------------------------------------
Baillie Gifford International
Fund 10.53 19.66
- ------------------------------------------------
Baillie Gifford Emerging
Markets Fund 0.70 -27.69
- ------------------------------------------------
Value Line Centurion Fund
("VLCF") 19.87 25.88
- ------------------------------------------------
Value Line Strategic Asset
Management Trust
("VLSAM") 14.21 25.86
- ------------------------------------------------
MFS Growth With
Income Series 28.16 20.80
- ------------------------------------------------
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 1998
- -------------------------------------------------
The Guardian Cash Fund 3.63 3.59
- -------------------------------------------------
The Guardian Bond Fund 7.41 6.53
- -------------------------------------------------
The Guardian Stock Fund 33.62 18.13
- -------------------------------------------------
The Guardian Small Cap
Stock Fund 3.11* -7.12
- -------------------------------------------------
Gabelli Capital Asset Fund 40.53 10.09
- -------------------------------------------------
Baillie Gifford International
Fund 10.31 19.42
- -------------------------------------------------
Baillie Gifford Emerging
Markets Fund 0.49 -27.83
- -------------------------------------------------
Value Line Centurion Fund
("VLCF") 19.63 25.62
- -------------------------------------------------
Value Line Strategic Asset
Management Trust
("VLSAM") 13.98 25.61
- -------------------------------------------------
MFS Growth With
Income 27.91 20.55
- -------------------------------------------------
* From date of commencement of public offering of Fund's shares through
December 31.
B-7
<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, 1998
was 4.76%.
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, 1998 was 4.87%.
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-8
<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,
1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants. The statutory basis balance
sheets of GIAC as of December 31, 1998 and 1997 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, 1998 appearing in
this Statement of Additional Information have been so included in reliance on
the report of PricewaterhouseCoopers 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 1998 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 1998 Annual Report
to Contractowners accompanies this Statement of Additional Information.
B-9
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
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, 1998 and 1997, 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,
1998. 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 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 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, 1998 and 1997, or the results of its operations or its cash flows for the
three years ended in the period ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
February 25, 1999
B-10
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE
& ANNUITY COMPANY, INC.
- --------------------------------------------------------------------------------
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Admitted Assets
Investments:
Fixed maturities, principally at amortized cost
(market: 1998 - $547,051,594; 1997 - $492,052,307) ...... $ 536,554,920 $ 484,747,832
Affiliated mutual funds, at market .......................... 29,096,730 30,551,186
Investment in subsidiary .................................... 16,915,998 12,073,143
Policy loans - variable life insurance ...................... 72,861,940 72,737,781
Cash and short-term investments ............................. 9,006,075 23,602,410
Investment in joint venture ................................. 347,338 345,492
Other Invested Assets ....................................... 96,910 95,710
Accrued investment income receivable ........................... 17,378,196 13,303,271
Due from parent and affiliates ................................. 15,296,679 7,573,304
Other assets ................................................... 10,565,481 12,461,722
Receivable from separate accounts .............................. 34,565,822 30,203,923
Variable annuity and EISP/CIP separate account assets .......... 8,338,242,774 6,810,882,719
Variable life separate account assets .......................... 502,222,315 414,699,239
-------------- --------------
Total admitted assets ................................... $9,583,151,178 $7,913,277,732
============== ==============
Liabilities
Policy liabilities and accruals:
Fixed deferred reserves ..................................... $ 344,614,116 $ 339,797,646
Fixed immediate reserves .................................... 10,576,555 7,397,461
Life reserves ............................................... 74,101,150 67,799,492
Minimum death benefit guarantees ............................ 1,447,553 1,117,645
Policy loan collateral fund reserve ......................... 71,009,047 70,734,812
Accrued expenses, taxes, & commissions ...................... 1,507,045 1,592,997
Due to parent and affiliates ................................ 25,040,196 20,408,087
Federal income taxes payable ................................ 16,932,639 10,939,640
Other liabilities ........................................... 16,127,345 20,540,325
Asset valuation reserve ..................................... 29,566,970 26,305,528
Variable annuity and EISP/CIP separate account liabilities .. 8,263,551,697 6,750,575,077
Variable life separate account liabilities .................. 501,289,827 413,364,790
-------------- --------------
Total liabilities ....................................... 9,355,764,140 7,730,573,500
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 ............................. 87,988,746 43,305,940
-------------- --------------
Total Common Stock and Surplus .......................... 227,387,038 182,704,232
-------------- --------------
Total liabilities, common stock and surplus ............. $9,583,151,178 $7,913,277,732
============== ==============
</TABLE>
See notes to statutory basis financial statements.
B-11
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations:
Variable annuity considerations ................... $ 1,266,800,186 $ 995,209,301 $ 731,792,764
Life insurance premiums and fixed
annuity considerations .......................... 69,728,716 68,222,360 44,874,269
Net investment income ............................. 54,235,472 47,993,754 42,366,902
Amortization of IMR ............................... 266,599 111,783 333,219
Net gain from operations of separate accounts ..... 2,619,113 5,780,327 8,860,462
Service fees ...................................... 94,170,552 76,350,291 58,774,486
Variable life -- cost of insurance ................ 16,844,679 11,205,120 4,844,028
Reserve adjustments on reinsurance ceded .......... 34,449,189 7,885,341 30,636,445
Commission and expense allowances ................. 29,942,869 16,268,128 14,508,840
Other income ...................................... 9,570,705 5,178,266 2,535,356
--------------- --------------- ---------------
1,578,628,080 1,234,204,671 939,526,771
--------------- --------------- ---------------
Benefits and expenses:
Benefits:
Death benefits ........................................ 6,461,543 5,340,675 6,785,456
Annuity benefits .................................. 1,041,372,277 687,719,014 426,072,773
Surrender benefits ................................ 25,260,734 17,620,583 17,459,706
Increase in reserves .............................. 14,594,471 18,291,585 82,891,516
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ..................... 291,988,248 359,468,681 323,093,897
Variable Life ..................................... 7,484,413 (630,102) (10,417,095)
Commissions ........................................... 50,875,519 43,352,989 39,233,431
General insurance expenses ............................ 79,386,352 59,476,685 42,523,892
Taxes, licenses and fees .............................. 6,289,814 3,743,414 3,723,858
Reinsurance terminations .............................. 40,482 182,535 (15,470,015)
--------------- --------------- ---------------
1,523,753,853 1,194,566,059 915,897,419
--------------- --------------- ---------------
Income before income taxes and realized
gains from investments ............................ 54,874,227 39,638,612 23,629,352
Federal income taxes .................................. 14,505,552 12,073,500 3,941,460
--------------- --------------- ---------------
Income from operations, net of federal income taxes,
and before net realized gains ..................... 40,368,675 27,565,112 19,687,892
Realized gains from investments, net of federal
income taxes, net of transfer to IMR .............. 92,355 472,127 7,540
--------------- --------------- ---------------
Net income ............................................ $ 40,461,030 $ 28,037,239 $ 19,695,432
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
B-12
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
Assigned and Total
Additional unassigned common
Common paid-in surplus stock and
stock surplus (Deficit) surplus
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
============= ============= ============= =============
Net income from operations ......................... 40,461,030 40,461,030
Increase in unrealized appreciation of Company's
investment in joint venture .................... 1,846 1,846
Increase in unrealized appreciation of Company's
investment in subsidiary ....................... 4,542,855 4,542,855
Decrease in unrealized appreciation of Company's
investment in an affiliated mutual fund ........ (1,831,189) (1,831,189)
Increase in unrealized appreciation of Company's
seed investment in separate accounts ........... 3,690,295 3,690,295
Decrease in non-admitted assets .................... 57,886 57,886
Disallowed interest maintenance reserve ............ 1,090,623 1,090,623
Surplus changes resulting from reinsurance ......... (69,098) (69,098)
Net increase in asset valuation reserve ............ (3,261,442) (3,261,442)
------------- ------------- ------------- -------------
Balances at December 31, 1998 ...................... $ 2,000,000 $ 137,398,292 $ 87,988,746 $ 227,387,038
============= ============= ============= =============
</TABLE>
See notes to statutory basis financial statements.
B-13
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and
deposit funds ........................ $ 1,341,389,534 $ 1,065,244,583 $ 780,710,735
Investment income ....................... 51,241,553 46,412,248 42,413,736
Commissions and expense allowances on
reinsurance ceded .................... 57,916,363 22,679,622 37,315,301
Other income ............................ 102,437,913 67,084,996 47,357,962
Death benefits .......................... (7,112,859) (5,492,854) (6,900,438)
Surrender benefits ...................... (25,806,851) (17,780,564) (2,774,865)
Annuity benefits ........................ (1,040,119,415) (689,207,046) (424,511,908)
Commissions, other expenses
and taxes (excluding FIT) ............ (133,189,119) (101,213,566) (78,968,214)
Net transfers to separate accounts ...... (298,118,417) (356,017,200) (307,856,562)
Federal income taxes (excluding tax on
capital gains) ....................... (8,930,569) (5,094,779) 682,025
Increase in policy loans ................ (124,158) (4,594,714) (4,300,868)
Other operating expenses and sources .... (2,618,322) (140,580) 2,077,342
--------------- --------------- ---------------
Net cash provided by insurance activities ... 36,965,653 21,880,146 85,244,246
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from dispositions of
investment securities ................ 280,921,058 315,404,430 224,692,954
Purchases of investment securities ...... (332,368,788) (331,151,548) (309,590,319)
Federal income tax on capital gains ..... (114,258) (355,657) (505,496)
--------------- --------------- ---------------
Net cash used in investing activities ....... (51,561,988) (16,102,775) (85,402,861)
--------------- --------------- ---------------
Net increase (decrease) in cash ......... (14,596,335) 5,777,371 (158,615)
Cash and short-term investments,
beginning of year .................... 23,602,410 17,825,039 17,983,654
--------------- --------------- ---------------
Cash and short-term investments,
end of year .......................... $ 9,006,075 $ 23,602,410 $ 17,825,039
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
B-14
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO STATUTORY BASIS
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
B-15
<PAGE>
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 based 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 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 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 $14,000,000
in 1998, $10,000,000 in 1997 and $9,500,000 in 1996.
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.
B-16
<PAGE>
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 1998 was 5.75%. The interest rate credited on the fixed
rate option that is offered to certain variable annuity contractowners ranged
from 5.25% to 5.50% during 1998. For the fixed rate option currently issued, the
issue and renewal interest rates credited vary from month to month and ranged
from 5.00% to 5.40% in 1998. For single premium deferred annuities the rates
ranged from 5.00% to 6.00% in 1998. 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 and group universal 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,
1998 and 1997 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $24,493 and $82,380, 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
$239,935,035 and $162,522,811 at December 31, 1998 and 1997, 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.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods to the 1998 presentation.
B-17
<PAGE>
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 1998, 1997 and 1996 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 19,205,980 $ 13,873,514 $ 8,270,274
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (669,996) (291,470) (1,478,476)
DAC Tax ........................................ 1,179,820 1,712,811 867,731
Dividend from subsidiary ....................... (4,900,000) (3,500,000) (3,325,000)
Other -- net ................................... (310,282) 278,645 (393,069)
------------ ------------ ------------
Federal income taxes .............................. $ 14,505,522 $ 12,073,500 $ 3,941,460
============ ============ ============
</TABLE>
The provision for federal income taxes includes deferred taxes in 1998,
1997 and 1996 of $140,153, $181,145 and $353,051, 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:
For the years ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Fixed maturities ................ $33,923,167 $31,806,228 $28,234,145
Affiliated money market funds ... 376,734 524,277 121,733
Subsidiary ...................... 14,000,000 10,000,000 9,500,000
Policy loans .................... 3,489,135 3,386,194 3,089,114
Short-term investments .......... 2,320,305 2,280,599 1,204,805
Joint venture dividend .......... 1,254,010 1,047,525 623,160
Other ........................... 58,069 59,779 55,301
----------- ----------- -----------
55,421,420 49,104,602 42,828,258
Less: Investment expenses ....... 1,185,948 1,110,848 461,356
----------- ----------- -----------
Net investment income ........... $54,235,472 $47,993,754 $42,366,902
=========== =========== ===========
B-18
<PAGE>
Gross realized gains and losses, less applicable federal income taxes and
transfer to IMR, are summarized as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Realized gains from dispositions:
U.S. Government bonds ........................ $ 1,195,870 $ 722,440 $ 1,014,811
Corporate debt securities .................... 997,008 413,022 1,014,562
Common stocks ................................ -- 174 --
Seed investment redeemed ..................... -- -- --
Foreign exchange ............................. 13,301 2,791 11,599
Realized losses from dispositions:
U.S. Government bonds ........................ 65,414 744,168 181,025
Corporate debt securities .................... 39,431 399,618 617,325
Foreign exchange ............................. 10,413 5,773 --
Short term investments ....................... -- 1,218 191
----------- ----------- -----------
Net realized capital gains (losses) .......... 2,090,921 (12,350) 1,242,431
----------- ----------- -----------
Federal income tax expense (benefit):
Current ...................................... 889,995 (269,216) 829,609
Deferred ..................................... (248,651) (209,059) (394,759)
----------- ----------- -----------
Total federal income tax expense (benefit) ... 641,344 (478,275) 434,850
----------- ----------- -----------
Transfer to IMR ................................. 1,357,222 (6,202) 800,041
----------- ----------- -----------
Net realized gains (losses) ..................... $ 92,355 $ 472,127 $ 7,540
=========== =========== ===========
</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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
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 ............................. $ 28,358,300 $ 1,523,421 $ 16,958 $ 29,864,763
Obligations of states and political
subdivisions ............................. 60,246,691 1,424,844 3,176 61,668,359
Debt securities issued by foreign
governments .............................. 7,997,622 91,952 27,557 8,062,017
Corporate debt securities ................... 439,952,307 10,035,537 2,531,389 447,456,455
Common stock of subsidiary .................. 9,698,292 7,217,706 -- 16,915,998
Affiliated mutual funds ..................... 23,656,682 5,440,048 -- 29,096,730
------------ ------------ ------------ ------------
$569,909,894 $ 25,733,508 $ 2,579,080 $593,064,322
============ ============ ============ ============
</TABLE>
B-19
<PAGE>
<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>
The amortized cost and estimated market value of debt securities at
December 31, 1998 and 1997, by contractual maturity, is shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less ................................ $ 45,493,721 $ 45,752,348
Due after one year through five years .................. 249,871,238 253,196,904
Due after five years through ten years ................. 102,513,130 107,752,117
Due after ten years .................................... 67,626,976 68,332,574
------------ ------------
465,505,065 475,033,943
Sinking fund bonds
(including collateralized mortgage obligations) .. 71,049,855 72,017,651
------------ ------------
$536,554,920 $547,051,594
============ ============
</TABLE>
B-20
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
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
$125,849,752 and $76,669,184 at December 31, 1998 and 1997, 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>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits ...................... $(65,505,954) $(43,873,731) $(83,250,212)
Net investment income ...................... -- -- (61,779)
Commission and expense allowances .......... 34,449,189 7,885,341 14,508,839
Reserve adjustments ........................ 29,942,869 16,268,128 30,636,445
Other income ............................... 2,447,454 1,875,163 (25,000)
------------ ------------ ------------
Revenues ................................. 1,333,558 (17,845,099) (38,191,707)
Policyholder benefits ...................... (7,606,157) (10,975,075) (26,873,945)
Increase in aggregate reserves ............. (35,020) 22,859,719 (5,658,260)
Reinsurance terminations ................... -- (27,421,066) (15,470,015)
General expenses and other taxes ........... (337,215) (40,452) (81,667)
------------ ------------ ------------
Deductions ............................... (7,978,392) (15,576,874) (48,083,887)
------------ ------------ ------------
Net income (loss) from reinsurance ceded ... $ 9,311,950 $ (2,268,225) $ 9,892,180
============ ============ ============
</TABLE>
B-21
<PAGE>
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:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits ....................... $ 1,336,343 $ (389,221) $ 41,133,358
Net investment income ....................... 45,349 45,288 94,657
Other income ................................ -- (62,752) 375,404
------------ ------------ ------------
Revenues .................................. 1,381,692 (406,685) 41,603,419
Policyholder benefits ....................... 3,022,842 3,967,619 8,076,053
Increase in aggregate reserves .............. (1,387,716) (31,677,857) 31,556,908
Reinsurance expenses ........................ -- 27,603,602 (452,476)
Other expenses .............................. 382,249 1,885,300 551,319
------------ ------------ ------------
Deductions ................................ 2,017,375 1,778,664 39,731,804
------------ ------------ ------------
Net (loss) income from reinsurance assumed .. $ (635,683) $ (2,185,349) $ 1,871,615
============ ============ ============
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
Registered representatives of the Guardian Investor Services Corporation
produce a major portion of the Company's business. During 1998, 1997 and 1996,
premium and annuity considerations produced by GISC amounted to $554,895,420,
$564,519,265 and $528,353,595, respectively. The related commissions paid to
GISC amounted to $1,946,477, $1,979,926 and $1,851,468 for 1998, 1997 and 1996,
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
$83,611,701 in 1998, $60,009,449 in 1997 and $41,129,644 in 1996, 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. Each of these funds has an investment advisory
agreement with GISC, except for The Baillie Gifford International Fund, The
Baillie Gifford Emerging Markets Fund, The Guardian Baillie Gifford
International Fund and The Guardian Baillie Gifford Emerging Markets Fund. The
investments as of December 31, 1998 and 1997 are as follows:
B-22
<PAGE>
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
The Guardian Park Avenue Fund ....................... $ 511,588,454 $ 371,662,107
The Guardian Stock Fund ............................. 3,664,861,157 3,222,051,866
The Guardian Small Cap Stock Fund ................... 109,166,077 60,104,422
The Guardian Park Avenue Small Cap Fund ............. 13,183,737 --
The Guardian Bond Fund .............................. 381,492,004 355,417,535
The Baillie Gifford International Fund .............. 526,434,528 442,651,457
The Baillie Gifford Emerging Markets Fund ........... 34,599,571 65,038,546
The Guardian Baillie Gifford International Fund ..... 9,066,433 3,378,730
The Guardian Baillie Gifford Emerging Markets Fund .. 817,757 --
The Guardian Asset Allocation Fund .................. 39,803,636 14,910,420
The Guardian Investment Quality Bond Fund ........... 9,350,331 1,546,854
The Guardian Cash Management Fund ................... 57,953,144 22,250,501
The Guardian Cash Fund .............................. 419,482,654 368,122,449
-------------- --------------
$5,777,799,483 $4,927,134,887
============== ==============
</TABLE>
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 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, 1998 and 1997 this
amounted to $3,025,669 and $2,888,149, respectively. The Company also maintains
an investment in an affiliated small cap stock mutual fund, The Guardian Small
Cap Stock Fund. At December 31, 1998 and 1997 this amounted to $26,071,061 and
$27,663,037, respectively.
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 years ended December 31,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Transfers to separate accounts ........................ $ 1,358,239,902 $ 1,054,380,697 $ 767,741,428
Transfers from separate accounts ...................... (1,168,640,854) (782,891,638) (518,683,141)
--------------- --------------- ---------------
Net transfers to separate accounts .................. 189,599,048 271,489,059 249,058,287
--------------- --------------- ---------------
Reconciling Adjustments:
Mortality & expense guarantees -- variable annuity .... 85,937,882 70,027,514 53,219,656
Mortality & expense guarantees -- variable life ....... 2,387,487 2,021,656 1,687,711
Administrative fees -- variable annuity ............... 4,703,565 4,095,230 3,867,120
Cost of insurance -- variable life .................... 16,844,679 11,205,120 4,844,028
--------------- --------------- ---------------
Total adjustments ................................... 109,873,613 87,349,520 63,618,515
--------------- --------------- ---------------
Transfers as reported in the Statement of
Operations of GIAC .................................. $ 299,472,661 $ 358,838,579 $ 312,676,802
=============== =============== ===============
</TABLE>
B-23
<PAGE>
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 1998 For the Year Ending 1997
------------------------ ------------------------
Amount % Amount %
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ....... $ 52,174,391 10.91% $ 46,276,766 10.19%
------------ ------ ------------ ------
total with adjustment or at
market value ..................... 52,174,391 10.91 46,276,766 10.19
at book value without adjustment
(minimal or no charge or
adjustment) ...................... 312,963,860 65.44 313,725,462 69.05
Not subject to discretionary
withdrawal ......................... 113,088,817 23.65 94,338,339 20.76
------------ ------ ------------ ------
Total (gross) ........................ 478,227,068 100.00 454,340,567 100.00
Reinsurance ceded .................... -- -- -- --
------------ ------ ------------ ------
Total ................................ $478,227,068 100.00% $454,340,567 100.00%
============ ====== ============ ======
</TABLE>
This does not include $8,132,854,608 and $6,647,606,347 of non-guaranteed
annuity reserves held in separate accounts, and $2,618,241 and $3,572,284 at
December 31, 1998 and 1997, 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 years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory net income ........................... $ 40,461,030 $ 28,037,239 $ 19,695,432
Adjustments to restate to the basis of GAAP:
Net income of subsidiaries ................... 4,542,855 4,326,500 142,201
Change in deferred policy acquisition costs .. 43,181,782 41,883,919 42,525,493
Deferred premiums ............................ (1,497,411) (5,542,795) 3,238,115
Re-estimation of future policy benefits ...... (9,649,126) (3,353,249) 26,953,558
Reinsurance .................................. 4,088,420 12,372,471 (36,353,822)
Deferred federal income tax expense .......... (11,950,565) (16,212,244) (13,074,280)
Elimination of interest maintenance reserve .. (266,599) (111,783) (333,219)
Other, net ................................... 427,287 201,840 (2,444,872)
------------ ------------ ------------
Consolidated GAAP net income ................... $ 69,337,673 $ 61,601,898 $ 40,348,606
============ ============ ============
</TABLE>
B-24
<PAGE>
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 years ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Statutory capital and surplus .................... $ 227,387,038 $ 182,704,232 $ 153,780,908
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs ............. 313,617,745 267,369,685 221,475,216
Elimination of asset valuation reserve ........ 29,566,970 26,305,528 15,121,269
Re-estimation of future policy benefits ....... 46,905,628 41,283,947 31,167,840
Establishment of deferred federal income tax .. (98,820,880) (84,703,745) (65,164,526)
Unrealized gains on investments ............... 11,711,227 7,852,564 2,313,203
Other liabilities ............................. (48,126,550) (33,486,652) (32,389,767)
Deferred premiums ............................. (7,848,934) (7,024,891) (1,482,096)
Other, net .................................... (5,026,655) (3,468,519) (2,215,098)
------------- ------------- -------------
Consolidated GAAP stockholder's equity ...... $ 469,365,589 $ 396,832,149 $ 322,606,949
============= ============= =============
</TABLE>
B-25
<PAGE>
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, 1998
Statement of Operations for the Year Ended December 31, 1998
Statements of Changes in Net Assets for the Two Years Ended
December 31, 1998 and 1997
Notes to Financial Statements
Report of PricewaterhouseCoopers LLP, Independent Accountants
(2) The Guardian Insurance & Annuity Company, Inc. (included in Part
B):
Statutory Basis Balance Sheets as of December 31, 1998 and 1997
Statutory Basis Statements of Operations for the Three Years
Ended December 31, 1998, 1997 and 1996
Statutory Basis Statements of Changes in Common Stock and Surplus
for the Three Years Ended December 31, 1998, 1997 and 1996
Statutory Basis Statements of Cash Flow for the Three Years
Ended December 31, 1998, 1997 and 1996
Notes to Statutory Basis Financial Statements
Report of PricewaterhouseCoopers 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 PricewaterhouseCoopers 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)
- -------------------
(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 7 Hanover Square, New
York, New York 10004.
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
Charles G. Fisher Vice President & Actuary
Frank L. Pepe Vice President & Controller
Richard T. Potter, Jr. Vice President and Counsel
Thomas G. Sorell Vice President
Howard G. Most Vice President
Robert J. Crimmins Vice President
Eileen C. McDonnell Vice President, Group Pensions
Donald P. Sullivan, Jr. Vice President
Joseph A. Caruso Vice President & Secretary
Earl Harry Treasurer
Ann T. Kearny Second Vice President
Alexander M. Grant, Jr. 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 28, 1999:
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%
Private Healthcare Systems, Inc. Delaware 48%
The Guardian Tax-Exempt Bond Fund Massachusetts 89%
The Guardian Baillie Gifford Massachusetts 22%
International Fund
The Guardian Investment Quality Massachusetts 34%
Bond Fund
The Guardian Asset Allocation Fund Massachusetts 11%
Baillie Gifford Emerging Markets Fund Maryland 33%
Baillie Gifford International Fund Maryland 24%
The Guardian Park Avenue Small Cap Fund Massachusetts 19%
The Guardian Baillie Gifford Massachusetts 76%
Emerging Markets Fund
The Guardian High Yield Bond Fund Massachusetts 91%
The Guardian Small Cap Stock Fund Maryland 33%
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 February 28, 1999:
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%
The Guardian Park Avenue Fund Massachusetts 16%
Park Avenue Securities LLC Delaware 100%
Item 27. Number of Contractowners
Type of Contract As of April 1, 1999
---------------- -------------------
Non-Qualified .............. 4,126
Qualified .................. 10,391
Total .............. 14,517
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 nine 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 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, The Guardian Separate
Account K, and The Guardian Separate Account M, 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
Frank L. Pepe Vice President & Controller
Richard T. Potter, Jr. Vice President and Counsel
Donald P. Sullivan, Jr. Vice President
Alexander M. Grant, Jr. Second Vice President
Ann T. Kearny Second Vice President
Peggy L. Coppola Second Vice President
C-4
<PAGE>
Name Position(s) with GISC
---- ---------------------
Joseph A. Caruso Vice President & Secretary
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, 7 Hanover Square, New York, New York
10004.
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
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment to the Registration Statement under Rule 485(b) under
the Securities Act of 1933 and 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 29th day of June, 1999.
The Guardian Separate Account E
(Registrant)
By: THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
(Depositor)
By: /s/ John M. Smith
--------------------------------
John M. Smith
Executive 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/ John M. Smith Date: June 29, 1999
--------------------------------
John M. Smith
Executive Vice President
* Pursuant to a Power of Attorney
C-7
<PAGE>
Exhibit Index
Number Description
10(a) Consent of PricewaterhouseCoopers LLP
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. 4 to the registration statement on Form N-4 (the "Registration
Statement") of our report dated February 25, 1999, relating to the financial
statements appearing in the December 31, 1998 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 25, 1999, 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 "Summary Financial Information
about the Separate Account" in the Prospectus and under the heading "Experts" in
the Statement of Additional Information. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Summary Financial
Information about the Separate Account."
PricewaterhouseCoopers LLP
New York, NY
June 25, 1999
