Park Avenue VUL
Flexible Premium Adjustable Variable Life Insurance Policy
Prospectus Dated February 2, 1998
Park Avenue VUL is a flexible premium adjustable variable life insurance policy.
The policy is issued by The Guardian Insurance & Annuity Company, Inc. ("GIAC"),
a wholly owned subsidiary of The Guardian Life Insurance Company of America
("Guardian Life"). The policy is designed to provide lifetime insurance
protection. At the same time, the policy is flexible as to the timing of premium
payments, the amount of premiums paid, and insurance coverage. Both premium
payments and coverage may be adjusted to meet current financial circumstances
and insurance needs.
A policyowner may allocate Net Premiums and transfer all or portions of the
Unloaned Policy Account Value among Variable Investment Options and a Fixed-Rate
Option. Special limits apply to transfers out of the Fixed-Rate Option. The
Variable Investment Options provide variable market returns and are offered
through the investment divisions of The Guardian Separate Account M (the
"Separate Account"). The Fixed-Rate Option provides a guaranteed interest rate
of at least 4% annually. The Policy Account Value increases or decreases with,
among other things, the investment experience and/or credited interest provided
by the Variable Investment Options and the Fixed-Rate Option, as selected by the
policyowner, premium payments and Face Amount changes. A policyowner bears the
investment risk for amounts held in the Variable Investment Options.
Within limits, a policyowner may draw upon the Policy Account Value through
policy loans or partial withdrawals. A policyowner may also surrender the policy
for its Net Cash Surrender Value, but then all insurance coverage will end.
Surrender charges will be assessed during the first 15 policy years, or the
first 15 years after a Face Amount increase, if the policy lapses or is
surrendered, or if the Face Amount is reduced. The Face Amount can be reduced by
request or as a result of a partial withdrawal.
For the first three policy years, the policy will not lapse if the No Lapse
Guarantee Premium Test is in effect and has been satisfied.
Upon the insured's death, GIAC will pay the policy's death proceeds to the
beneficiary(ies). Two death benefit options are offered. Option 1 provides a
death benefit that at least equals the Face Amount of the policy when the
insured dies. Option 2 provides a variable death benefit at least equal to the
Face Amount of the policy plus the Policy Account Value. Under either option, a
higher death benefit may apply to satisfy federal income tax law requirements.
Also, under either option, after the Policy Anniversary nearest the insured's
100th birthday, the death benefit is equal to the Policy Account Value.
Variable life insurance is not a short term investment. A prospective purchaser
should evaluate the need for life insurance and the policy's long term
investment potential before buying a policy. In addition, it may not be
advantageous to replace existing life insurance coverage by purchasing a Park
Avenue VUL policy, particularly if the decision to replace existing coverage is
based primarily on a comparison of policy illustrations. For federal income tax
purposes, this policy may be treated as a modified endowment contract under
circumstances described in this prospectus. The policy may be examined and
returned for a full refund for a limited period after the Initial Premium has
been paid.
This prospectus sets forth information that a prospective purchaser should know
about Park Avenue VUL before investing, and should be retained for future
reference. This prospectus is not valid unless it is accompanied by the current
prospectuses for The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The
Guardian Bond Fund, The Guardian Cash Fund, Baillie Gifford International Fund,
Baillie Gifford Emerging Markets Fund, Value Line Centurion Fund, Value Line
Strategic Asset Management Trust, Gabelli Capital Asset Fund, MFS Emerging
Growth Series, MFS Total Return Series, MFS Growth With Income Series, MFS Bond
Series, American Century VP Value Fund, American Century VP International Fund,
AIM V.I. Value Fund, AIM V.I. Capital Appreciation Fund, Fidelity VIP III*
Growth Opportunities Portfolio, Fidelity VIP* Equity-Income Portfolio, Fidelity
VIP* High Income Portfolio, and Fidelity VIP II* Index 500 Portfolio.
*VIP, VIP II, and VIP III, as used throughout this prospectus, refer to Variable
Insurance Products Fund, Variable Insurance Products Fund II, and Variable
Insurance Products Fund III, respectively.
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. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
DEFINITIONS................................................................ 4
SUMMARY.................................................................... 6
Park Avenue VUL POLICY DIAGRAM............................................. 11
THE PARK AVENUE VUL POLICY................................................. 12
Insureds............................................................. 12
Premiums............................................................. 12
Policy Premiums................................................ 12
Allocation of Net Premiums..................................... 12
Crediting Payments............................................. 13
Backdating..................................................... 13
Deductions and Charges............................................... 14
Deductions From Premiums....................................... 14
Monthly Deductions From the Policy Account Value............... 15
Transaction Deductions From the Policy Account Value........... 16
Deductions From the Separate Account........................... 18
Deductions From the Mutual Funds............................... 18
Policy Values and Benefits........................................... 19
No Lapse Guarantee............................................. 19
Death Benefit Options.......................................... 19
Changing the Death Benefit Option.............................. 21
Policy Values.................................................. 21
Amounts In the Separate Account................................ 21
Net Investment Factor.......................................... 22
Other Policy Features................................................ 22
Policy Loans................................................... 22
Decreasing the Face Amount..................................... 23
Increasing the Face Amount..................................... 24
Partial Withdrawals............................................ 24
Surrender...................................................... 25
Transfers...................................................... 26
Transfers From the Fixed-Rate Option........................... 26
Dollar Cost Averaging Transfer Option.......................... 26
Policy Proceeds................................................ 27
Fixed-Benefit Insurance During the First 24 Months............. 27
Payment Options................................................ 28
Tax Effects.......................................................... 28
Treatment of Policy Proceeds................................... 28
Exchanges...................................................... 30
Diversification................................................ 30
Policy Changes................................................. 30
Tax Changes.................................................... 30
Estate and Generation Skipping Transfer Taxes.................. 30
Legal Considerations for Employers............................. 30
Other Tax Consequences......................................... 31
GIAC's Taxes................................................... 31
Income Tax Withholding......................................... 31
THE VARIABLE INVESTMENT OPTIONS............................................ 32
The Separate Account................................................. 32
The Funds............................................................ 32
Investment Objectives and Policies of the Funds................ 32
Investment Performance of the Funds............................ 32
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The Funds' Investment Advisers....................................... 34
Guardian Investor Services Corporation......................... 34
Guardian Baillie Gifford Limited............................... 35
Baillie Gifford Overseas Limited............................... 35
Value Line, Inc................................................ 35
Gabelli Funds, Inc............................................. 35
Massachusetts Financial Services Company....................... 35
American Century Investment Management, Inc.................... 35
A I M Advisors, Inc............................................ 35
Fidelity Management & Research Company......................... 35
THE FIXED-RATE OPTION...................................................... 37
General Information.................................................. 37
Amounts In the Fixed-Rate Option..................................... 37
VOTING RIGHTS.............................................................. 38
DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS.............. 39
LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY............................... 40
Incontestability..................................................... 40
Misstatement of Age or Sex........................................... 40
Suicide Exclusion.................................................... 40
GIAC'S MANAGEMENT.......................................................... 41
OTHER INFORMATION.......................................................... 44
Rights Reserved by GIAC.............................................. 44
Right to Cancel...................................................... 44
Policyowner and Beneficiary.......................................... 44
Assignment........................................................... 45
Communications From GIAC............................................. 45
Communications With GIAC............................................. 45
Special Provisions For Group or Sponsored Arrangements............... 45
Advertising Practices................................................ 45
Legal Proceedings.................................................... 46
Legal Matters........................................................ 46
Registration Statement............................................... 46
Financial and Actuarial Experts...................................... 46
FINANCIAL STATEMENTS OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC...... 47
APPENDIX A: POLICY ILLUSTRATIONS........................................... A-1
APPENDIX B: LONG TERM MARKET TRENDS........................................ B-1
APPENDIX C: USES OF LIFE INSURANCE......................................... C-1
APPENDIX D: ADDITIONAL BENEFITS BY RIDER................................... D-1
APPENDIX E: FIRST YEAR SURRENDER CHARGE RATES PER $1,000 OF FACE AMOUNT.... E-1
THE PARK AVENUE VUL POLICY MAY NOT BE AVAILABLE IN ALL STATES OR JURISDICTIONS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. GIAC DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED SUPPLEMENT
THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY GIAC.
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DEFINITIONS
Important terms used in this prospectus are defined below. Defined terms appear
in this prospectus with initial upper case letters.
Age: The insured's age on his or her birthday nearest the Policy Date.
Attained Age: The insured's Age plus the number of policy years completed since
the Policy Date.
Business Day: Each date on which the New York Stock Exchange or its successor is
open for trading and GIAC is open for business. GIAC's close of business is 4:00
p.m. New York City time.
Cash Surrender Value: The Policy Account Value minus any surrender charges.
Executive Office: GIAC's office at 201 Park Avenue South, Mail Station 215-B,
New York, New York 10003.
Face Amount: The Initial Face Amount plus any Policy Segments then in force. The
Minimum Face Amount for a policy is currently $100,000.
Initial Face Amount: The Face Amount in force on the Policy's Issue Date. The
Initial Face Amount may be affected by Face Amount decreases or Death Benefit
Option changes. The minimum Initial Face Amount for a policy is currently
$100,000.
Initial Premium: The premium that must be paid to put the policy in force. It
must be at least equal to one quarter of the Minimum Annual Premium. The Minimum
Annual Premium for each policy is set forth in the policy.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended, and its
related rules and regulations.
Issue Date: The date the policy is issued at the Executive Office.
Loan Collateral Account: An account within GIAC's general account to which
values from the Variable Investment Options and the Fixed-Rate Option are
transferred when the policyowner takes a policy loan.
Minimum Annual Premium: A measure of premium set forth in the policy used in
determining compliance with the No Lapse Guarantee Premium Test and in
determining the amount of the required Initial Premium. The Minimum Annual
Premium is equal to the Target Premium, as calculated for the policy and all
applicable riders.
Monthly Date: The same date of each calendar month as the Policy Date, or the
last date of a calendar month, if earlier.
Monthly Deductions: Deductions from the Policy Account Value attributable to the
Variable Investment Options and the Fixed-Rate Option which are processed on
each Monthly Date to pay the policy administration charge, cost of insurance
charge, and any applicable rider charges.
Net Amount at Risk: An amount calculated by dividing the amount of death benefit
provided under the death benefit option then in force by 1.0032737 and
subtracting the Policy Account Value.
Net Cash Surrender Value: The amount payable upon the surrender of a policy. The
Net Cash Surrender Value on any date is the Cash Surrender Value less any Policy
Debt.
Net Premium: The portion of a premium payment that is allocated to the Variable
Investment Options and/or the Fixed-Rate Option according to instructions
provided by the policyowner.
No Lapse Guarantee: A guarantee that, for the first three policy years, the
policy will not lapse even if the policy's Net Cash Surrender Value is
insufficient to meet the Monthly Deductions due on a policy's Monthly Date, if
the No Lapse Guarantee Premium Test is met.
No Lapse Guarantee Premium Test: A test that, if satisfied, will maintain the No
Lapse Guarantee. To satisfy this test, the sum of premiums paid as of the most
recent Monthly Date, less withdrawals and applicable surrender charges, and less
Policy Debt must equal or exceed the product of the Minimum Annual Premium
multiplied by the ratio of (1) to (2) where (1) is the number of days, measured
from the Policy Date in the first policy year or from the most recent policy
anniversary in the second and third policy years, to the Monthly Date and (2) is
365.
Planned Premium: The premium the policyowner designates in the application.
Policy Account Value: The sum of the values attributable to a policy which are
allocated to the Variable Investment Options, the Fixed-Rate Option and the Loan
Collateral Account.
Policy Anniversary: The same date of each calendar year as the Policy Date.
Policy Date: The date set forth in the policy that is used to measure policy
months, policy years, Policy Anniversaries, and Monthly Dates.
Policy Debt: All unpaid policy loans, plus accrued and unpaid loan interest.
Policy Segment: The additional coverage provided by each increase in the Face
Amount.
Premium Charge: A charge deducted from policy premiums. The Premium Charge will
be an amount ranging from 8.5% to 4%.
Target Premium: A measure of premium used to determine Premium Charges and agent
compensation. Target Premiums associated with the Initial Face Amount are based
on the insured's Age, the underwriting class for
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that portion of the Face Amount and sex (unless unisex rates are required by
law). Target Premiums associated with any Policy Segments are based on the
insured's Attained Age and the underwriting class for each Policy Segment. The
Target Premium for a policy is based on a rate per $1,000, which would provide a
Cash Surrender Value equal to the Face Amount of the policy on the Policy
Anniversary nearest the insured's 100th birthday based on (i) the policy's
current charges, (ii) a Face Amount of $250,000 and (iii) net interest on the
Policy Account Value at an annual rate of 4.5%. The Target Premium for any rider
(other than the guaranteed coverage rider) is 12 times the monthly deduction for
that rider during the first policy year.
Unloaned Policy Account Value: The Policy Account Value minus the Loan
Collateral Account.
Variable Investment Options: The investment divisions of the Separate Account
which correspond to the mutual funds in which the Separate Account invests.
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SUMMARY
The following summary is qualified in its entirety by: (1) the terms of the Park
Avenue VUL policy issued to the policyowner, exclusive of any riders; (2) the
more detailed information appearing elsewhere in this prospectus; and (3) the
accompanying prospectuses for the mutual funds in which the Separate Account
invests.
How does variable life insurance differ from conventional, fixed-benefit whole
life insurance?
Like conventional, fixed-benefit whole life insurance, variable life insurance
provides two important benefits: (1) an income tax-free death benefit and (2) a
cash value that can grow tax-deferred. What sets variable life insurance apart
from conventional whole life insurance is that the owner of a variable life
insurance policy can direct premiums and cash values to investment options that
provide variable, rather than fixed, returns. If investment results are
sufficiently favorable, the policyowner can experience an increase in a variable
life insurance policy's cash value and the amount of the death benefit. However,
the variable life insurance policyowner also bears the risk of investment losses
and no cash value is guaranteed. In contrast, a conventional whole life
insurance policy generally provides cash values that are fixed and guaranteed by
the issuing insurance company when the policy is issued.
How is Park Avenue VUL similar to universal life and variable life insurance
policies?
Like variable life insurance, variable universal life insurance allows the
policyowner to direct premiums and cash values to investment options that
provide variable rather than fixed rates of return. In addition a variable
universal life insurance policy typically allows the policyowner to select and
change the death benefit option that applies to his or her policy, increase or
decrease the Face Amount of insurance provided by the policy, and choose the
amount and frequency of premium payments. This flexibility permits a policyowner
to provide for changing insurance needs within a single policy. However, there
are risks that a variable universal life insurance policy will lapse without
cash value, if premiums are insufficient to support the policy's Face Amount and
other benefits when investment experience is unfavorable. This risk increases if
the policyowner chooses not to pay the Minimum Annual Premium according to the
recommended schedule.
Park Avenue VUL offers many of the features available under universal life
insurance policies. Policyowners may select and, within limits, change the death
benefit option, increase or decrease the Face Amount, and have flexibility in
payment of premiums. See "Premiums."
Who issues Park Avenue VUL?
The policy is issued through the Separate Account by The Guardian Insurance &
Annuity Company, Inc. ("GIAC"). GIAC is wholly owned by The Guardian Life
Insurance Company of America ("Guardian Life"). GIAC is a Delaware stock
insurance company. It was organized in 1970 and is licensed to sell life
insurance and annuities in all 50 states of the United States and the District
of Columbia. As of December 31, 1996, GIAC had total assets (statutory basis) in
excess of $6.0 billion. Guardian Life is a New York mutual insurance company.
Guardian Life and the Executive Offices of GIAC are located at 201 Park Avenue
South, New York, New York 10003. Written communications about Park Avenue VUL
should be directed to Mail Station 215-B at that address.
As of the date of this prospectus, GIAC and its parent, Guardian Life, have
consistently received exemplary ratings from Moody's Investors Service, Inc.,
Standard & Poor's Corporation, Duff & Phelps and A.M. Best. These ratings may
change at any time, and only reflect GIAC's ability to satisfy its
insurance-related obligations and meet its guarantee of the policy's Fixed-Rate
Option. These ratings do not apply to Park Avenue VUL's Variable Investment
Options, which are subject to the risks of investing in securities. Guardian
Life is not the issuer of Park Avenue VUL policies and does not guarantee the
benefits provided therein.
Who can buy a Park Avenue VUL Policy?
GIAC will issue a policy to a purchaser who resides in a state or jurisdiction
where the policy may be offered to insure the life of anyone Age 80 or under who
meets GIAC's underwriting requirements. Owners of certain fixed-benefit life
insurance policies issued by GIAC or its parent, Guardian Life, may be able to
purchase Park Avenue VUL (i) without evidence of insurability, by exchanging
their present policies or (ii) without evidence of insurability, or with
simplified underwriting, by exercising applicable riders to their fixed-benefit
life insurance policies. Policyowners of convertible term policies and whole
life policies with convertible term riders who elect to convert to a Park Avenue
VUL policy may receive a credit upon conversion in an amount up to one Minimum
Annual Premium. Interested policyowners should consult their legal and tax
advisers about the consequences of exchanging their existing policies for a Park
Avenue VUL policy. See "Deductions and Charges," "Tax Effects," and "Special
Provisions For Group or Sponsored Arrangements."
How are premiums set and when are they due?
The policyowner specifies a Planned Premium in the application. In addition to
the Planned Premium, the policy also specifies a Minimum Annual Premium which is
used to calculate the amount of premium that must be paid as of the most recent
Monthly Date to satisfy the No Lapse Guarantee Premium Test during the first
three
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policy years. See "No Lapse Guarantee." The Planned Premium is not required to
be paid as elected. However, the sum of the Planned Premiums elected by the
policyowner for each of the first two policy years must be equal to or greater
than the aggregate Minimum Annual Premium applicable to such policy years.
If the policyowner acquires additional insurance benefits by purchasing one or
more of the available riders to the policy, rider premiums are also assessed.
First year rider premiums (other than premiums for the guaranteed coverage
rider) are added to the policy premium in determining the Minimum Annual
Premium. Rider premiums are deducted from the Policy Account Value monthly.
An Initial Premium equal to at least one quarter of the Minimum Annual Premium
must be paid in order for the policy to be in force. After the Initial Premium
has been paid, premiums may be paid at any time and in any amount during the
lifetime of the insured, or pursuant to a pre-authorized payment plan, subject
to certain limitations. If the No Lapse Guarantee Premium Test is satisfied
during each of the first three policy years, the policy will not lapse during
the first three policy years even if the policy's Net Cash Surrender Value is
insufficient to meet Monthly Deductions on a Monthly Date. Once the No Lapse
Guarantee period has terminated, although premiums are not required to be paid,
they may be necessary to prevent lapse if Net Cash Surrender Value is not
sufficient to meet Monthly Deductions. See "Premiums" and "No Lapse Guarantee."
What charges are assessed in connection with the policy?
All of the charges, fees and deductions that a policyowner may pay directly or
indirectly under a Park Avenue VUL policy are summarized below and described
more fully under "Deductions and Charges."
Deductions From Premiums
Premium Charge
A charge is deducted from each premium paid under a policy (the "Premium
Charge"). This charge covers premium taxes, a portion of GIAC's federal income
tax burden, and a premium sales charge. The Premium Charge ranges from 8.5% to
4% of the premium paid.
Deductions From the Policy Account Value
Charges that are deducted from the Policy Account Value as of the Policy Date
and on each Monthly Date are called "Monthly Deductions." Amounts that are
deducted from the Policy Account Value if certain events occur are called
"Transaction Deductions." Monthly Deductions end on the Policy Anniversary
nearest the insured's 100th birthday.
Monthly Deductions
Policy Administration Charge
This is an administration charge deducted on each Monthly Date. It consists of
two components. The first component is a contract charge deducted at the rate of
$20 per month until the first Policy Anniversary and $6 per month thereafter.
The second component is a coverage charge deducted at the rate of $0.16 per
$1,000 of Face Amount until the first Policy Anniversary and $0.16 per $1,000 of
the amount of any Face Amount increase until the first anniversary of such
increase. The per $1,000 charge is lower for issue ages 0-15.
Charge For The Cost Of Insurance
This charge is based upon GIAC's current cost of insurance rates for the
insured's Attained Age, sex (unless unisex rates are required by law),
underwriting class, and any substandard risk charges. The maximum cost of
insurance rates that GIAC may charge per $1,000 of Net Amount at Risk are set
forth in the policy.
Transaction Deductions
Surrender Charges
During the first 15 policy years, GIAC assesses a surrender charge when the
policy lapses or is surrendered, or if the Face Amount is reduced by request or
as the result of a partial withdrawal. The amount of the surrender charge
depends upon the policy year in which the event occurs and declines each policy
year. The surrender charge is a flat charge per $1000 of Face Amount beginning
in policy year 1 and declining proportionally on an annual basis to $0 in policy
year 16. The charge per $1000 varies by issue age, sex and underwriting class.
The applicable surrender charge is set forth in the policy. See "Surrender" and
"Deductions and Charges." If a surrender charge is imposed as the result of a
partial withdrawal, the charge will apply only to that portion of the withdrawal
that exceeds the amount eligible for a free partial withdrawal. See "Partial
Withdrawals."
Transfer Charge
GIAC reserves the right to charge $25 for each transfer after the twelfth
transfer in a policy year. GIAC does not currently impose this charge.
Deductions From the Separate Account
Mortality And Expense Risk Charge
GIAC assesses a daily charge at an annual rate of 0.90% of the Separate
Account's assets for the mortality and expense risks it assumes for Park Avenue
VUL policies. This charge will be reduced to an annual rate of 0.60% of the
Separate Account's assets after the twentieth Policy Anniversary.
Income Tax Charge
GIAC has reserved the right to charge the Separate Account to cover its federal,
state or local income taxes that are attributable to the Separate Account or the
policies. GIAC does not currently impose this charge.
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Deductions From the Mutual Funds
Advisory Fees And Operational Expenses
Charges for investment advisory fees and operational expenses are deducted daily
from the assets of the mutual funds in which the Separate Account invests. As a
result, policyowners bear these fees and expenses indirectly. These fees and
expenses are described in more detail in the prospectuses for the mutual funds
that accompany this prospectus.
What is the difference between "guaranteed or maximum charges" and "current
charges"?
Certain charges made under a policy (for example, the cost of insurance charge)
can increase under certain circumstances. A guaranteed or maximum charge is the
highest amount that GIAC is entitled to charge for a particular item. A current
charge is the lower amount that GIAC is now charging for the same item.
Generally, GIAC intends to assess current charges for the indefinite future.
However, GIAC reserves the right to increase each current charge up to the
guaranteed charge when permissible under the policy. GIAC will provide notice of
any such increases if required by law. See "Deductions and Charges."
What Variable Investment Options are offered under Park Avenue VUL?
Park Avenue VUL offers Variable Investment Options that provide variable
returns. The Variable Investment Options are provided through the Separate
Account, which is a separate investment account of GIAC. Each Separate Account
investment division invests solely in the shares of a corresponding mutual fund
or series of a mutual fund. The Variable Investment Options currently available
are: The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian
Bond Fund, The Guardian Cash Fund, Baillie Gifford International Fund, Baillie
Gifford Emerging Markets Fund, Value Line Strategic Asset Management Trust,
Value Line Centurion Fund, Gabelli Capital Asset Fund, MFS Emerging Growth
Series, MFS Total Return Series, MFS Growth With Income Series, MFS Bond Series,
American Century VP Value Fund, American Century VP International Fund, AIM V.I.
Value Fund, AIM V.I. Capital Appreciation Fund, Fidelity VIP III Growth
Opportunities Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP High
Income Portfolio, and Fidelity VIP II Index 500 Portfolio. There is no minimum
guaranteed Policy Account Value for amounts held in the Variable Investment
Options.
Prospectuses for the mutual funds, which describe their respective investment
objectives, risks, and all of their fees and expenses, accompany this
prospectus. Those prospectuses should be read carefully before Policy Account
Values are allocated or transferred to or from the Variable Investment Options.
Summary information about the investment objectives of these mutual funds and
the risks and potential rewards of investing in securities appears in "The
Variable Investment Options" and Appendix C. The Separate Account and the mutual
funds are registered with the Securities and Exchange Commission ("SEC") as
investment companies under the Investment Company Act of 1940 (the "1940 Act").
What is the Fixed-Rate Option?
The Fixed-Rate Option is another allocation choice offered under Park Avenue
VUL. Amounts allocated or transferred to the Fixed-Rate Option are credited with
a fixed rate of interest that is guaranteed from the date of allocation or
transfer until the next succeeding Policy Anniversary. On each Policy
Anniversary, the entire Policy Account Value that is then attributable to the
Fixed-Rate Option (including earned interest) is aggregated to be credited with
the interest rate in effect on that Policy Anniversary. Such rate will remain in
effect for these monies until the next Policy Anniversary. The minimum
guaranteed annual interest rate provided by the Fixed-Rate Option is 4%. Amounts
attributable to the Fixed-Rate Option are held in GIAC's general account. See
"The Fixed-Rate Option."
Is it possible to change how the Policy Account Value is invested under a Park
Avenue VUL policy?
Yes. Presently, a policyowner may transfer all or part of the Unloaned Policy
Account Value among the Variable Investment Options and into the Fixed-Rate
Option at any time without charge. Currently, the maximum number of options in
which the Policy Account Value may be invested is 7. In addition, special limits
apply to transfers out of the Fixed-Rate Option. Currently, there is no charge
for transfers but GIAC reserves the right to charge $25 for each transfer after
the twelfth in a policy year. See "Transfers From The Fixed-Rate Option."
What insurance benefits are available under a Park Avenue VUL policy?
A prospective policyowner can obtain death benefits and optional rider benefits
through a Park Avenue VUL policy.
Death Benefits
GIAC will pay a policy's death proceeds to the beneficiary upon its receipt of
due proof that the insured died while the policy was in force. The policy
provides two death benefit options both of which provide insurance coverage
until the Policy Anniversary nearest the insured's 100th birthday:
Option 1 provides a death benefit that equals the policy's Face Amount
when the insured dies; and
Option 2 provides a variable death benefit that is equal to the Face
Amount of the policy plus the Policy Account Value.
After the Policy Anniversary nearest the insured's 100th birthday, the death
benefit is equal to the Policy Account Value.
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A higher death benefit may apply under either option to satisfy federal income
tax law requirements.
On or after the first Policy Anniversary, the policyowner can change death
benefit options if the insured is then living. Evidence of insurability is
required when the requested change is from Option 1 to Option 2. See "Death
Benefit Options."
Rider Benefits
Additional benefits can be provided by riders to the policy, subject to GIAC's
underwriting and issuance standards. The following additional benefit riders are
currently available, though perhaps not in every state: level target death
benefit term rider; accidental death benefit rider; guaranteed insurability
option rider; guaranteed coverage rider; waiver of monthly deductions rider; and
disability benefit rider. Premiums for additional rider benefits are deducted
from Policy Account Value monthly as part of the Monthly Deductions. There may
be circumstances in which it will be to the policyowner's economic advantage to
include a significant portion or percentage of insurance coverage under a term
rider. In many other circumstances, it may be advantageous to obtain a Policy
without term rider coverage. These circumstances will depend on many factors,
including the amount of premium the policyowner desires to pay and the amount
and duration of coverage chosen, as well as the Age, sex and risk classification
of the insured. Your registered representative can provide you more information
on the appropriateness of term rider coverage in conjunction with a Park Avenue
VUL Policy. All of the riders are briefly described in Appendix D.
Can the Face Amount be decreased or increased?
The policyowner may request a decrease in the Face Amount at any time on or
after the first Policy Anniversary. The decrease must be for at least $5,000.
Decreases may also result from partial withdrawals. Decreases in Face Amount
occurring at the request of the policyowner are subject to surrender charges if
the decrease occurs during the first 15 policy years. If the decrease is the
result of a partial withdrawal, it is subject to surrender charges if the
withdrawal occurs during the first 15 policy years after issue or after an
increase in face amount and the amount of the withdrawal exceeds the free
withdrawal amount. See "Decreasing the Face Amount," "Partial Withdrawals," and
"Transaction Deductions from the Policy Account Value."
The policyowner may request an increase in Face Amount on the first Policy
Anniversary or any Policy Anniversary thereafter up to and including the Policy
Anniversary nearest the insured's 70th birthday. An increase in Face Amount is
issued as a separate Policy Segment with its own underwriting class, cost of
insurance rates, surrender charges, policy administration charge and Target
Premium. Premiums paid subsequent to a Face Amount increase are allocated among
the Initial Face Amount and any in force Policy Segment as described in
"Increasing the Face Amount".
What is the amount of death proceeds payable under a Park Avenue VUL policy?
The amount of the death proceeds will be based on the benefit provided by the
death benefit option in effect when the insured dies and any insurance proceeds
provided by additional benefit riders. To determine the payable proceeds, GIAC
will deduct any outstanding Policy Debt and any due and unpaid Monthly
Deductions as of the policy month of death from the death benefit. Death
proceeds may be received in a lump sum or under one of the payment options
described in the policy. See "Policy Proceeds" and "Payment Options."
Does a policyowner have access to the monies invested in a Park Avenue VUL
policy?
The policyowner may, within limits, (1) after the first policy year make partial
withdrawals of Net Cash Surrender Value; and/or (2) borrow up to 90% of the
policy's Cash Surrender Value less the amount of any Policy Debt. Interest at an
annual rate of 8% accrues daily against outstanding policy loans. The annual
rate of interest on policy loans decreases to 5% after the later of the
twentieth Policy Anniversary or the insured's Attained Age 65. See "Partial
Withdrawals" and "Policy Loans."
Also, a policy may be surrendered at any time for its then Net Cash Surrender
Value. Upon surrender, insurance coverage ends and may not be reinstated.
See "Deductions and Charges" and "Tax Effects" for information about the
possible impact of these policy transactions on (1) policy benefits and (2) the
amounts invested in a policy.
Are increases in Policy Account Value or the death proceeds taxed under the
income tax provisions of the Internal Revenue Code?
Under current federal tax law, increases in Policy Account Value are not
generally subject to federal income tax unless they are distributed before the
insured dies. Death proceeds are not subject to federal income tax, but may be
subject to federal estate and/or generation skipping transfer taxes. See "Tax
Effects."
What is the federal income tax treatment of partial withdrawals, surrenders and
policy loans?
Each of these transactions results in a pre-death distribution from the policy.
The federal income tax treatment of the proceeds of a pre-death distribution
depends on whether a policy is treated as a "modified endowment contract" under
the Internal Revenue Code.
If a Park Avenue VUL policy is not treated as a modified endowment contract:
(1) Distributions through partial withdrawals or upon surrender will
generally be taxed only if the sum of all such distributions exceeds the
policyowner's "basis" in
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9
<PAGE>
the policy (i.e., the sum of the premiums paid minus any amounts
previously withdrawn through tax-free distributions). Amounts received in
excess of the policyowner's basis in the policy will be recognized and
taxable as ordinary income.
(2) Policy loans should be treated as indebtedness, not as taxable
distributions, so long as the policy remains in force. Generally, policy
loan interest payments are not tax deductible by the policyowner. There
may be adverse tax consequences if a policy lapses with Policy Debt
outstanding.
If a Park Avenue VUL policy is treated as a modified endowment contract:
All pre-death distributions, including policy loans, will be taxed first as
ordinary income, to the extent of gain in the policy, and then treated as a
return of the basis in the policy. With few exceptions, a 10% penalty tax will
also apply to the taxable portion of a distribution from a modified endowment
contract.
Under the circumstances which are summarized under "Tax Effects," a policy could
be treated as a modified endowment contract. A legal or tax adviser should be
consulted before taking actions that could cause a policy to be treated as a
modified endowment contract. Neither GIAC nor its agents are authorized to
provide this type of advice to policyowners.
When would a policy lapse?
Except for periods when the No Lapse Guarantee Test is satisfied during the
first three policy years, the policy will go into default if the Net Cash
Surrender Value at the beginning of any policy month would go below zero after
deducting the current Monthly Deductions. A policy will lapse 61 days after the
Monthly Date that the Net Cash Surrender Value is less than the current Monthly
Deductions when due unless a required premium payment, described in more detail
in "Grace Period," is made. A policy can also lapse if a required loan repayment
remains unpaid 61 days after the Monthly Date that Policy Debt exceeds the Cash
Surrender Value. GIAC will provide the policyowner with at least 30 days notice
of an impending policy lapse and the amount of the required premium payment or
loan repayment, and will maintain the policy in force if the amount specified in
the notice is received on a timely basis at the Executive Office. See "Grace
Period."
Can a policy be exchanged for a fixed-benefit life insurance policy?
A policyowner has the right to exchange a Park Avenue VUL policy for a
fixed-benefit whole life insurance policy on the life of the insured that is
issued by GIAC or one of its affiliates, without evidence of insurability,
within 24 months of the Issue Date.
See "Fixed-Benefit Insurance During the First 24 Months."
Can the policy be cancelled after the Issue Date?
A policyowner may cancel a policy by returning the policy and a written
cancellation notice to GIAC's Executive Office or the agent from whom such
policy was purchased by the later of: 10 days after receiving the policy; or 45
days from the date Part 1 of the completed application for the policy was
signed. GIAC will promptly refund all premiums submitted before cancellation.
Longer periods may apply in certain states. A policy that is returned for
cancellation will be void from the beginning. See "Right to Cancel."
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10
<PAGE>
[DIAGRAM OMITTED]
* This diagram excludes the Transfer Charge which is not being imposed
currently. Interest on Policy Debt and repayments of Policy Debt are also not
reflected in the diagram.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
THE PARK AVENUE VUL POLICY
This section of the prospectus provides an overview of the policy's provisions
exclusive of any riders. Since GIAC is subject to the insurance laws and
regulations of every jurisdiction in which Park Avenue VUL is sold, some of the
policy's terms may vary from jurisdiction to jurisdiction. Specific variations
to a policy will be set forth in the policy issued to the policyowner.
INSUREDS
GIAC will issue a policy with an Initial Face Amount of at least $100,000 to
anyone who resides in a state or jurisdiction where the policy may be offered.
The policy can be issued to insure the life of anyone Age 80 or under. The
insured and the policyowner may be the same person or different individuals.
GIAC requires satisfactory evidence of insurability before it will issue or
reinstate a policy. Owners of certain fixed-benefit life insurance policies
issued by GIAC or its parent, Guardian Life, may be able to purchase Park Avenue
VUL (i) without evidence of insurability, by exchanging their present policies
or (ii) without evidence of insurability, or with simplified underwriting, by
exercising applicable riders to their fixed-benefit life insurance policies.
Policyowners of convertible term policies and whole life policies with
convertible term riders who elect to convert to a Park Avenue VUL Policy may
receive a credit upon conversion in an amount up to one Minimum Annual Premium.
Interested policyowners should consult their legal and tax advisers about the
consequences of exchanging their existing policies for Park Avenue VUL. See
"Deductions and Charges," "Tax Effects," and "Policyowner and Beneficiary."
PREMIUMS
Policy Premiums
The policy will be in force when the Initial Premium is paid, but not before the
Issue Date. The Initial Premium must be at least equal to one quarter of the
Minimum Annual Premium. Once the policy is in force, premiums may be paid at any
time and in any amount during the lifetime of the insured subject to certain
limitations described below. After the Initial Premium, all premiums must be
paid to GIAC's Executive Office. Premiums are not payable at specified intervals
or in specified amounts. Each policy will specify a Planned Premium which is
based on the amount of premium the policyowner wishes to pay on a periodic
basis. Each policy will also specify a Minimum Annual Premium which is used to
calculate the amount of aggregate premium that must be paid as of the most
recent Monthly Date to satisfy the No Lapse Guarantee Premium Test during the
first three policy years. The Planned Premium is not required to be paid as
elected. However, the sum of the Planned Premiums elected by the policyowner for
each of the first three policy years must be equal to or greater than the
aggregate Minimum Annual Premium applicable to such policy years.
No premiums may be paid after the Policy Anniversary nearest the insured's 100th
birthday.
GIAC will send notices to the policyowner setting forth the Planned Premium at
the payment interval selected by the policyowner, unless payment is being made
pursuant to a pre-authorized checking plan. However, the policyowner is under no
obligation to make the indicated payment.
GIAC will not accept any premium which is less than $100, unless the premium is
payable pursuant to a pre-authorized checking plan. In that case, GIAC will
accept a payment of at least $25.
The policy also limits the sum of premiums that may be paid at any time in order
to preserve the qualification of the policy as life insurance for federal tax
purposes. These limitations are set forth in the policy. GIAC reserves the right
to refuse or refund any premiums that may cause the policy to fail to qualify as
life insurance under the applicable tax law. GIAC also reserves the right to
refuse any premium that would result in an increase in the death proceeds as a
result of the requirements of Section 7702 of the Internal Revenue Code.
However, such premium may be accepted if satisfactory evidence of insurability
is submitted to GIAC
Allocation of Net Premiums
A Net Premium is the portion of a premium that is available for allocation among
the Variable Investment Options and the Fixed-Rate Option after the deduction of
the Premium Charge described under "Deductions and Charges." See "Crediting
Payments" for information about when Net Premiums and other payments are
credited and allocated under a policy. Upon allocation, each Net Premium becomes
part of the Policy Account Value. See "Deductions and Charges" for information
on how premiums are allocated among the Initial Face Amount and in force Policy
Segments for purposes of determining premium and cost of insurance charges.
EXAMPLE -- Policy Year 1
Male insured, Age 45
Preferred Plus Premium Class - Nonsmoker
Face Amount $250,000
Premium Payment ("PP") .................................... $3,185.00
Premium Charge (8.5% of PP) .............................. 270.73
---------
Net Premium Allocated ..................................... $2,914.27
---------
The policyowner provides his or her initial allocation instructions for Net
Premiums in the policy application. All percentage allocations must be in whole
numbers. The total of all percentage allocations must be 100%. The policyowner
may change the allocation instructions at any time. The new allocation
instructions will be effective for Net Premiums that are allocated after GIAC
receives the changed instructions at its Executive Office. Allocation
instructions can only be changed in writing.
The allocation of amounts already held under a policy will
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12
<PAGE>
not be affected by changing the allocation instructions for Net Premiums.
Policyowners may transfer Unloaned Policy Account Value among the Variable
Investment Options and the Fixed-Rate Option as described under "Transfers,"
"Transfers From the Fixed-Rate Option" and "Dollar Cost Averaging". Currently,
the maximum number of options in which the Policy Account Value may be invested
or held at any one time is 7. GIAC reserves the right to change this number from
time to time.
If premiums in excess of $100,000 are received from the policyowner prior to the
later of (i) 45 days from the date Part 1 of the completed application is signed
or (ii) 15 days after the Issue Date, GIAC will allocate any Net Premium in
excess of $100,000 ("Excess Net Premium") to The Guardian Cash Fund. On the
later of (i) or (ii), any Excess Net Premium allocated to The Guardian Cash Fund
pursuant to this provision, and any earnings attributable thereto, will be
re-allocated in accordance with the policyowner's current allocation
instructions. See "Transfers." Any amounts which the policyowner has allocated
to the Fixed-Rate Option or The Guardian Cash Fund will not be counted towards
the $100,000 limit and will be allocated to the Fixed-Rate Option and/or The
Guardian Cash Fund as of the Business Day of receipt.
Crediting Payments
The policyowner may provide specific crediting instructions for each payment he
or she submits. If a payment is received without specific crediting
instructions, GIAC will use the payment:
o to pay any outstanding Policy Debt; and
o then, as a premium payment.
GIAC normally credits and allocates each Net Premium as of the Business Day of
receipt, if it receives the payment before the close of business at its
Executive Office. An exception to this practice is that GIAC credits and
allocates any Net Premium received prior to the Issue Date on the Issue Date.
GIAC's close of business is 4:00 p.m. New York City time. See "Allocation of Net
Premiums" and "Policy Loans" for information about how payments are allocated
among the Variable Investment Options and the Fixed-Rate Option.
Backdating
Under certain circumstances, GIAC will permit a policy to be backdated, upon
request, but only to a Policy Date not earlier than six months prior to the date
the application is signed. Backdating may be desirable, for example, so that a
policyowner can purchase insurance coverage for a lower premium based on younger
Age at policy issuance. To backdate a policy, on the Issue Date, all Monthly
Deductions for the period from the backdated Policy Date to the Issue Date will
be deducted.
Default
Except for periods when the No Lapse Guarantee Test is satisfied during the
first three policy years, the policy will go into default if the Net Cash
Surrender Value at the beginning of any policy month is not at least equal to
the Monthly Deductions then due. GIAC will allow a 61-day grace period (which
begins on the date of default) in which the policyowner may make a premium
payment sufficient to bring the policy out of default and will mail to the
policyowner a notice of the default and of the required premium payment at least
30 days before the end of the grace period. During the first three policy years
when the No Lapse Guarantee Test is not satisfied, the required payment to bring
the policy out of default will be equal to the amount necessary to satisfy the
No Lapse Guarantee Test. In addition GIAC reserves the right, during the first
three policy years, to require an additional payment of up to one quarter of the
Minimum Annual Premium. After the first three policy years, (a) if the net cash
surrender value is less than zero, the required payment is equal to the amount
necessary to bring the Net Cash Surrender Value to zero prior to taking into
account the Monthly Deductions then due, plus an amount equal to three current
Monthly Deductions and (b) if the net cash surrender value is greater than zero
but not sufficient to satisfy the Monthly Deductions then due, the amount
required will be an amount equal to three Monthly Deductions. If the required
payment is not received by the end of the grace period, the policy will lapse
without value.
The policy will also go into default if a required loan repayment is not made.
If the Policy Debt exceeds the policy's Cash Surrender Value on a Monthly Date,
GIAC will notify the policyowner that a loan repayment is required to continue
the policy in force. The policy will lapse 61 days after the default date set
forth in the notice if GIAC does not receive the required loan repayment. If the
insured dies after a loan repayment notice is mailed but before the 61 days have
expired, GIAC will pay the beneficiary the death proceeds minus the unpaid
Policy Debt. See "Policy Loans" and "Policy Proceeds."
Reinstatement
A lapsed policy that has not been surrendered for cash may be eligible for
reinstatement for up to 3 months after the date of default. A written
application for reinstatement, including satisfactory evidence of insurability
must be received at GIAC's Executive Office and approved by GIAC. It will not be
approved unless the insured is living on the date reinstatement takes effect. In
addition, GIAC requires:
o repayment or reinstatement of any outstanding Policy Debt as of the
date of default with interest at the loan interest rate then in
effect from the date of default to the date of reinstatement; and
o payment of any unpaid Monthly Deductions on the date of default with
interest at an annual rate of 6% from the date of default to the
date of reinstatement; and
o payment of an amount equal to the greater of three 3 Monthly
Deductions or an amount that provides a positive Net Cash Surrender
Value.
A reinstated policy has the same Policy Date, Face Amount
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13
<PAGE>
and death benefit option as the policy that lapsed. Surrender charges on the
date of reinstatement will not be greater than the surrender charges on the date
of default. The No Lapse Guarantee will not be reinstated.
DEDUCTIONS AND CHARGES
GIAC deducts the amounts detailed below from: premiums; the Policy Account
Value; or the Separate Account. In addition, the mutual funds that are offered
through the Separate Account's investment divisions incur advisory fees and
other expenses that are reflected in the prices of their shares each day. Once
amounts are deducted under a policy, they are unavailable for investment in the
Variable Investment Options and the Fixed-Rate Option. See "Special Provisions
For Group or Sponsored Arrangements."
Deductions From Premiums
Premium Charge
This charge is initially equal to 8.5% of each premium payment. The Premium
Charge percentage will decrease to 6.0% after premium payments equal to 10
Target Premiums have been paid, and decrease to 4.0% after premium payments
equal to 15 Target Premiums have been paid. Since there is a separate Target
Premium associated with the Initial Face Amount and each Policy Segment, the
Premium Charge will be applied separately to premiums applied to the Initial
Face Amount and each Policy Segment in the order in which they were issued. For
the purpose of calculating Premium Charge assessments in any policy year, GIAC
will allocate premium payments to the Initial Face Amount until such payments
equal the Target Premium associated with the Initial Face Amount. GIAC will then
allocate premium payments to each in force Policy Segment in the order in which
they were issued, if any, until the total premium payments equal the sum of all
Target Premiums associated with such segments. Thereafter, GIAC will allocate
premium payments proportionately (based on Target Premium) to the Initial Face
Amount and any in force Policy Segments. An example of how this premium
allocation works follows:
- --------------------------------------------------------------------------------
EXAMPLE
A male 45, Preferred Plus buys a policy for $250,000 on January 1, 1998. Three
years later, on January 1, 2001, as a male, 48, Preferred Plus, he requests an
increase for $100,000. The initial Target Pemium is $3,185, and the Target
Premium for the increase is $1,470. Assume he pays $4,000 per year for 10 years,
and $5,000 per year for the next 10. The following chart shows the allocation of
premiums and calculation of loads.
<TABLE>
<CAPTION>
Premium Allocation
------------------
Initial Face Amount First Face Amount Increase
-------------------------------------------- -------------------------------------------
Cumulative Premium Cumulative Premium
Date Premium Allocation Charge Premium Allocation Charge
- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998 $4,000 $ 4,000 $340 $ 0 $ 0 $ 0
1999 4,000 8,000 340 0 0 0
2000 4,000 12,000 340 0 0 0
2001 3,185 15,185 271 815 815 69
2002 3,185 18,370 271 815 1,630 69
2003 3,185 21,555 271 815 2,445 69
2004 3,185 24,740 271 815 3,260 69
2005 3,185 27,925 271 815 4,075 69
2006 3,185 31,110 271 815 4,890 69
2007 3,185 34,295 210 815 5,705 69
2008 3,421 37,716 205 1,579 7,284 134
2009 3,421 41,137 205 1,579 8,863 134
2010 3,421 44,558 205 1,579 10,442 134
2011 3,421 47,979 201 1,579 12,021 134
2012 3,421 51,400 137 1,579 13,600 134
2013 3,421 54,821 137 1,579 15,179 122
2014 3,421 58,242 137 1,579 16,758 95
2015 3,421 61,663 137 1,579 18,337 95
2016 3,421 65,084 137 1,579 19,916 95
2017 3,421 68,505 137 1,579 21,495 95
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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14
<PAGE>
A portion of this charge is used by GIAC to pay premium taxes that are assessed
against GIAC by the states and jurisdictions where the policy is sold. Premium
taxes vary from jurisdiction to jurisdiction and currently range from 0% to 4%.
A portion of the Premium Charge is also used to pay certain federal income taxes
("DAC Taxes") imposed on GIAC by Section 848 of the Internal Revenue Code or
interpretations thereof. See "GIAC's Taxes."
Since premium taxes and DAC Taxes are incurred by GIAC, no portion of the
Premium Charge that is used to pay these taxes is deductible by policyowners for
federal income tax purposes.
A portion of the Premium Charge also compensates GIAC for sales and promotional
expenses that it incurs in connection with selling the policies. Such expenses
may include commissions, advertising, and the cost of preparing and printing
sales literature and prospectuses. See "Deductions From The Separate Account"
and "Transaction Deductions From the Policy Account Value."
Monthly Deductions From the Policy Account Value
As of the Policy Date and on each Monthly Date thereafter, GIAC deducts the
following charges proportionately from the Policy Account Value attributable to
the Variable Investment Options and the Fixed-Rate Option. Monthly Deductions
end on the Policy Anniversary nearest the insured's 100th birthday.
Policy Administration Charge
This is an administration charge deducted on each Monthly Date. It consists of
two components. At issues ages 16 and above, the first component is a contract
charge deducted at the rate of $20 per month until the first Policy Anniversary
and $6 per month thereafter. The second component is a coverage charge deducted
at the rate of $0.16 per $1,000 of Face Amount until the first Policy
Anniversary and $0.16 per $1,000 of any Face Amount increase until the first
anniversary of such increase.
At issues ages 15 and below, the contract charge component is also deducted at
the rate of $20 per month month until the Policy Anniversary and $6 per month
thereafter. At issue age 15, the coverage component is deducted at the rate of
$0.1525 per $1,000 of Face Amount until the first Policy Anniversary and $0.1525
per $1,000 of the amount of any Face Amount increase until the first anniversary
of such increase. For each issue age below 15, the amount deducted for the
coverage component is decreased by $0.0075 per $1,000 of Face Amount or Face
Amount increase, scaling down proportionately to $0.04 per $1,000 of Face Amount
or Face Amount increase, scaling down proportionately to $0.04 per $1,000 of
Face Amount at issue age 0.
Initially, this charge compensates GIAC for the cost of underwriting and issuing
a policy. In later policy years, GIAC uses amounts collected through these
charges to defray the ongoing costs of maintaining a policy, such as: preparing
and sending premium billing notices, reports and statements to policyowners;
communications with insurance agents; and other policy-related overhead costs.
Charge For The Cost Of Insurance
This monthly charge is based upon GIAC's current monthly cost of insurance rates
for the insured's Attained Age, sex (unless unisex rates are required by law),
Face Amount, and underwriting class. Any additional rating charges applicable to
the insured because he or she does not satisfy GIAC's underwriting requirements
for standard insurance are added to the cost of insurance rate. The maximum cost
of insurance rate that GIAC may charge per $1,000 of Net Amount at Risk per
policy year is set forth in the policy. The maximum rates are based upon (i) the
Commissioner's 1980 Standard Ordinary Mortality Table, male or female,
aggregate, for attained ages 0-14; (ii) the Commissioner's 1980 Standard
Ordinary Mortality Table, male or female, non-smoker, for attained ages 15-19;
or (iii) the Commissioner's 1980 Standard Ordinary Mortality Table, male or
female, smoker or non-smoker, for attained ages 20 and over.
Cost of insurance rates are currently lower than GIAC's current monthly cost of
insurance rates for policies with a current Face Amount of at least $500,000 and
(i) where the Initial Face Amount was equal to or greater than $500,000, or (ii)
where there has been a Face Amount increase of at least $500,000. If the policy
is eligible for the lower rates, they will apply to the Initial Face Amount and
all Policy Segments.
Cost of insurance charges enable GIAC to pay death benefits, particularly in
early policy years when the death benefit will be significantly larger than the
Policy Account Value. GIAC calculates the cost of insurance charge by
multiplying the Net Amount at Risk applicable to the Initial Face Amount and
each in force Policy Segment on a Monthly Date by the cost of insurance rate
applicable to the Initial Face Amount or a Policy Segment, respectively, and in
effect on that Monthly Date, and dividing the result by 1,000. GIAC determines
the Net Amount at Risk on a Monthly Date after it has processed the other
Monthly Deductions, excluding cost of insurance, for such date. Policy Account
Value is allocated first to the Initial Face Amount and then to each Policy
Segment in the order that it was acquired. The maximum amount of Policy Account
Value allocated to any one Policy Segment or the Initial Face Amount is the
amount of death benefit provided by the applicable segment divided by 1.0032737.
For purposes of determining the Net Amount at Risk, any increase in death
benefit required by Internal Revenue Code Section 7702 is allocated to the
Initial Face Amount.
GIAC's current monthly cost of insurance rates are lower than the guaranteed
maximum rates set forth in the policy. Generally, cost of insurance rates
increase with advancing age.
GIAC may use its discretion to change its current cost of insurance rates,
subject to the guaranteed maximum rates. GIAC will not change its current cost
of insurance rates if the insured's health deteriorates. Rather, GIAC will only
change its rates for all insureds of the same underwriting
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15
<PAGE>
class, Attained Age and sex because it expects: increased mortality among such
insureds; higher expenses or federal income taxes; declining persistency for
Park Avenue VUL policies; lower investment earnings; changes in the federal
income tax burden imposed on GIAC by Section 848 of the Internal Revenue Code;
or changes in premium taxes paid by GIAC. Any changes in the cost of insurance
rates that GIAC chooses to implement will only be effective prospectively and
will apply to all affected Park Avenue VUL policies in the same manner.
The dollar amount of the cost of insurance charge deducted from a policy varies
from month to month with changes in the Net Amount at Risk. Generally, reducing
the Net Amount at Risk results in lower cost of insurance charges. Under an
Option 1 policy where the death benefit is the Face Amount, paying premiums can
reduce the Net Amount at Risk by increasing the Policy Account Value. Under an
Option 2 policy, where the death benefit can increase over the Face Amount,
paying premiums will not affect the Net Amount at Risk.
The Net Amount at Risk increases, for example, when the death benefit for any
policy increases to satisfy Internal Revenue Code requirements, as discussed
under "Death Benefit Options." Increasing the Net Amount at Risk results in
higher cost of insurance charge deductions.
Different cost of insurance rates may apply to each Policy Segment; therefore,
the Net Amount at Risk will be calculated separately for each level of
insurance.
Transaction Deductions from the Policy Account Value
GIAC makes transaction deductions only when certain events occur at the
policyowner's direction. Except as explained below, GIAC makes transaction
deductions proportionately from the Policy Account Value attributable to the
Variable Investment Options until exhausted, and then from the Fixed-Rate
Option.
Surrender Charge
During the first 15 policy years of the Initial Face Amount and each Policy
Segment, GIAC assesses a surrender charge when the policy lapses or is
surrendered, if the Face Amount is reduced by request or through a partial
withdrawal, or the policy is in default. GIAC will not deduct a surrender charge
for a Face Amount decrease that results from a change in Death Benefit Option.
In addition, reductions in or elimination of term rider coverage do not trigger
the imposition of a surrender charge. See "Reducing the Face Amount" and
"Partial Withdrawals." The amount of the surrender charge depends upon the
policy year in which the event occurs.
The surrender charge is expressed as a flat charge per $1,000 of Face Amount for
the first year, and that charge will vary from $4.50 to $54.95 per $1,000 of
coverage based upon the issue age, sex and underwriting class of the insured.
The applicable charge will be set forth in the policy. At the time a new Policy
Segment is created, a new surrender charge is calculated based on the coverage
provided by the Policy Segment and the insured's then Attained Age. Therefore, a
different charge may be in effect for the Initial Face Amount and each Policy
Segment. The surrender charge applicable to a portion of Face Amount will
decrease proportionally on an annual basis over 15 policy years so that the
surrender charge beginning in year 16 of the Initial Face Amount and each Policy
Segment is $0. The charge per $1000 for a particular issue age, sex (including
unisex) and underwriting class is set forth in Appendix F. Total surrender
charges under this policy will equal the sum of the surrender charges for the
Initial Face Amount and each Policy Segment.
After imposition of the surrender charge, a policy's Net Cash Surrender Value
may be zero, particularly in the early policy years.
The surrender charge is intended to compensate GIAC for certain administrative
and sales related expenses.
EXAMPLE (Policy with Initial Face Amount only)
The example below shows how the surrender charge declines over a fifteen year
period so that in year 16 it equals $0.
Male Insured, Age 45
Preferred Plus Underwriting Class - Nonsmoker
Face Amount $250,000
Surrender Charge per $1,000 of Face Amount in policy year one (from Appendix E):
$22.49
Surrender charge in policy year one is the surrender charge per $1,000 x
$250,000, divided by 1,000 or ($22.49 x $250,000) divided by 1,000 = $5,622.50.
Proportional reduction in surrender charge over 15 year period: $22.49 divided
by 15 or $1.499333 per year ($1.499333 is rounded to $1.50)
Per $1,000 Surrender
Charge Rate x
Surrender Charge Face Amount
per $1,000 (Actual Surrender
Policy Year of Face Amount Charge)
- ------------------------------------------------------------
1 $22.49 $5,622.50
2 20.99 5,247.50
3 19.49 4,872.50
4 17.99 4,497.50
5 16.49 4,122.50
6 14.99 3,747.50
7 13.49 3,372.50
8 11.99 2,997.50
9 10.50 2,625.00
10 9.00 2,250.00
11 7.50 1,875.00
12 6.00 1,500.00
13 4.50 1,125.00
14 3.00 750.00
15 1.50 375.00
16 0 0
EXAMPLE (Policy with Initial Face Amount and Face Amount Increases)
Assume in the above example the insured effects a Face Amount increase of
$200,000 at the beginning of policy year 6 (Attained Age 50) and another Face
Amount increase of $100,000 at the beginning of policy year 8
- --------------------------------------------------------------------------------
16
<PAGE>
(Attained Age 52). At the time of the first increase, the insured is again
classified Preferred Plus, but at the time of the second increase he is
classified as Preferred.
For purposes of calculating the applicable surrender charges, each Face Amount
increase is treated separately based on the insured's Attained Age and
underwriting class at the time of the increase. Therefore, for each increase the
policy will incur a new set of surrender charges. Surrender charges are
calculated as if the policyowner has purchased a policy with the amount of the
increase being the Face Amount; in other words, they are calculated just as in
the foregoing example. The total surrender charge for a particular policy year
equals the sum of the surrender charge for the Initial Face Amount and the
applicable surrender charge for each Policy Segment.
The following is a calculation of the surrender charge for this example. Note
that the surrender charges are shown for policy years 1 through 30 only as,
after the 30th policy year, surrender charges equal zero for the Initial Face
Amount as well as for the two Face Amount increases.
<TABLE>
<CAPTION>
Age at 1st Yr Annual
Beginning Beginning Policy Surrender Charge Surrender Charge
of Year of Year Face Rate/$1,000 Decrease
----------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Initial Face Amount 1 45 250,000 22.49 1.4993333
1st Increase 6 50 200,000 23.66 1.5773333
2nd Increase 8 52 100,000 29.63 1.9753333
</TABLE>
<TABLE>
<CAPTION>
Surrender Charge Per $1,000 Surrender Charge Rates
Per $1,000 of Face Amount x Face Amount (Actual Surrender Charge)
-------------------------- ----------------------------------------
Total
Policy
Policy Initial First Second Initial First Second Surrender
Year Coverage Increase Increase Coverage Increase Increase Charge
- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $22.49 N/A N/A $5,622.50 N/A N/A $ 5,622.50
2 20.99 N/A N/A 5,247.50 N/A N/A 5,247.50
3 19.49 N/A N/A 4,872.50 N/A N/A 4,872.50
4 17.99 N/A N/A 4,497.50 N/A N/A 4,497.50
5 16.49 N/A N/A 4,122.50 N/A N/A 4,122.50
6 14.99 $23.66 N/A 3,747.50 $4,732.00 N/A 8,479.50
7 13.49 22.08 N/A 3,372.50 4,416.00 N/A 7,788.50
8 11.99 20.51 $29.63 2,997.50 4,102.00 $2,963.00 10,062.50
9 10.50 18.93 27.65 2,625.00 3,786.00 2,765.00 9,176.00
10 9.00 17.35 25.68 2,250.00 3,470.00 2,568.00 8,288.00
11 7.50 15.77 23.70 1,875.00 3,154.00 2,370.00 7,399.00
12 6.00 14.20 21.73 1,500.00 2,840.00 2,173.00 6,513.00
13 4.50 12.62 19.75 1,125.00 2,524.00 1,975.00 5,624.00
14 3.00 11.04 17.78 750.00 2,208.00 1,778.00 4,736.00
15 1.50 9.46 15.80 375.00 1,892.00 1,580.00 3,847.00
16 0.00 7.89 13.83 0.00 1,578.00 1,383.00 2,961.00
17 0.00 6.31 11.85 0.00 1,262.00 1,185.00 2,447.00
18 0.00 4.73 9.88 0.00 946.00 988.00 1,934.00
19 0.00 3.15 7.90 0.00 630.00 790.00 1,420.00
20 0.00 1.58 5.93 0.00 316.00 593.00 909.00
21 0.00 0.00 3.95 0.00 0.00 395.00 395.00
22 0.00 0.00 1.98 0.00 0.00 198.00 198.00
23 0.00 0.00 0.00 0.00 0.00 0.00 0.00
24 0.00 0.00 0.00 0.00 0.00 0.00 0.00
25 0.00 0.00 0.00 0.00 0.00 0.00 0.00
26 0.00 0.00 0.00 0.00 0.00 0.00 0.00
27 0.00 0.00 0.00 0.00 0.00 0.00 0.00
28 0.00 0.00 0.00 0.00 0.00 0.00 0.00
29 0.00 0.00 0.00 0.00 0.00 0.00 0.00
30 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
GIAC pro-rates the surrender charges in connection with a reduction in Face
Amount (including a reduction resulting from a partial withdrawal), by Policy
Segment, by multiplying the surrender charge determined as described above by
the following fraction to reduce the payable charges:
the amount of the reduction
----------------------------------------
the Face Amount just before the reduction
The adjusted surrender charge is paid by deductions from the Unloaned Policy
Account Value.
- --------------------------------------------------------------------------------
17
<PAGE>
Transfer Charge
Presently, GIAC does not impose a charge on transfers among the Variable
Investment Options and the Fixed-Rate Option. However, GIAC reserves the right
to charge $25 for each transfer after the twelfth transfer in a policy year.
GIAC will deduct the transfer charge from the option(s) from which amounts are
transferred and use the proceeds to pay its processing costs. If a charge is
instituted, transfers under the Dollar Cost Averaging program will not count
against the twelve free transfers per policy year.
GIAC will not assess the transfer charge against the transfer from The Guardian
Cash Fund of Excess Net Premium and related earnings. See "Allocation of Net
Premiums." GIAC will also not assess the transfer charge against transfers
effected under the policy's Dollar Cost Averaging feature, or in connection with
taking or repaying policy loans. In addition, no transfer charge will apply to
transfers effected when a policyowner transfers out of a Variable Investment
Option because fundamental investment policies of its corresponding mutual fund
have been materially changed. See "Transfers," "Dollar Cost Averaging Transfer
Option," "Policy Loans," and "Rights Reserved by GIAC."
Deductions From the Separate Account
Mortality And Expense Risk Charge
GIAC charges the Separate Account for the mortality and expense risks it assumes
under the policies. The charge is made daily at a current annual rate of 0.90%
of the Separate Account's average daily net assets. This charge will be reduced
to 0.60% of the Separate Account's average daily net assets after the twentieth
Policy Anniversary. The mortality and expense risk charge is not assessed
against Policy Account Values deposited in the Fixed-Rate Option. The mortality
and expense risk charge will continue to be deducted after the Policy
Anniversary nearest the insured's 100th birthday.
The mortality risk that GIAC assumes is that insureds may live for shorter
periods of time than GIAC estimated when setting its cost of insurance rates for
Park Avenue VUL. The expense risk that GIAC assumes is that GIAC's expenses for
issuing and administering policies may be higher than GIAC estimated when
setting the administrative charges for Park Avenue VUL.
Income Tax Charge
GIAC currently makes no specific charge for federal, state or local income taxes
attributable to the Separate Account or the policies. However, GIAC reserves the
right to impose additional charges if the income tax treatment of variable life
insurance changes for insurance companies, or if there is a change in GIAC's tax
status, or if GIAC becomes subject to any other tax-related economic burdens
that are attributable to the Separate Account or the policies. See "Tax
Effects."
Deductions From the Mutual Funds
Advisory Fees And Operational Expenses
Charges for investment advisory fees and operational expenses are deducted daily
from the assets of the mutual funds offered through the Separate Account. As a
result, policyowners bear these fees and expenses indirectly. Investment
advisory fees compensate the investment advisers of the mutual funds for the
services and facilities they provide to the funds. The following chart shows
each fund's expenses for the year ended December 31, 1996, expressed as a
percentage of average daily net assets.
ADVISORY OR OPERATIONAL TOTAL
MANAGEMENT FEE EXPENSES EXPENSES
(after applicable waivers and
FUND NAME expense reimbursements)
- -------------------------------------------------------------------------------
Guardian
Stock Fund 0.50% 0.03% 0.53%
Guardian Small
Cap Stock Fund 0.75% 0.55%* 1.30%
Guardian
Bond Fund 0.50% 0.04% 0.54%
Guardian
Cash Fund 0.50% 0.04% 0.54%
Baillie Gifford
International
Fund 0.80% 0.18% 0.98%
Baillie Gifford
Emerging
Markets Fund 1.00% 0.53% 1.53%
Value Line
Centurion Fund 0.50% 0.10%* 0.60%
Value Line
Strategic Asset
Mgt. Trust 0.50% 0.08%* 0.58%
Gabelli Capital
Asset Fund 1.00% 0.31% 1.31%
MFS Emerging
Growth Series 0.75% 0.25%* 1.00%*
MFS Total
Return Series 0.75% 0.25%* 1.00%*
MFS Growth With
Income Series 0.75% 0.25%* 1.00%
MFS Bond Series 0.60% 0.40%* 1.00%*
American Century
VP Value Fund 1.00% 1.00%
American Century
VP International
Fund 1.50% 1.50%
AIM V.I.
Value Fund 0.64% 0.09% 0.73%
AIM V.I. Capital
Appreciation Fund 0.64% 0.09% 0.73%
Fidelity VIP III
Growth Oppor-
tunities Portfolio 0.61%* 0.15%* 0.76%
Fidelity VIP Equity-
Income Portfolio 0.51%* 0.05%* 0.56%
Fidelity VIP High
Income Portfolio 0.59%* 0.12% 0.71%
Fidelity VIP II Index
500 Portfolio 0.28%* 0.00%* 0.28%
*See explanation below.
- --------------------------------------------------------------------------------
18
<PAGE>
Expenses that relate to the investment operations of the funds vary from year to
year. These percentages reflect the actual fees and expenses incurred by each
fund during the year ended December 31, 1996, except that the percentages for
The Guardian Small Cap Stock Fund are estimated, since the fund did not commence
operations until 1997.
The percentages for MFS Growth With Income Series, MFS Emerging Growth Series,
MFS Total Return Series, and MFS Bond Series reflect the agreement by the
series' Adviser to bear expenses for the series, subject to reimbursement by the
series, such that the series' operational expenses shall not exceed 0.25% of the
average daily net assets of the Growth With Income Series, Emerging Growth
Series and Total Return Series and 0.40% of the average daily net assets of the
Bond Series for the fiscal year ended December 31, 1996. These agreements are
also in effect for the current fiscal year. (In the absence of such agreements,
operational expenses and total expenses for each of the series for the year
ended December 31, 1996 would be (i) 1.32% and 2.07%, respectively, for the MFS
Growth With Income Series, (ii) 0.41% and 1.16%, respectively, for the MFS
Emerging Growth Series, (iii) 1.35% and 2.10%, respectively, for the MFS Total
Return Series, and (iv) 8.85% and 9.45%, respectively, for the MFS Bond Series.)
The percentages for Fidelity VIP II Index 500 Portfolio reflect the agreement by
the portfolio's Adviser to bear expenses for the portfolio, subject to
reimbursement, such that the Index 500 Portfolio's total expenses shall not
exceed 0.28% (0.24% after December 31, 1996). In the absence of such agreement,
total expenses for the Index 500 Portfolio would have been .43%. Agreements are
also in place between the Growth Opportunities and Equity-Income Portfolios and
their Adviser to limit total expenses to 1.00%, also subject to reimbursement.
In addition, the Equity-Income Portfolio and Growth Opportunities Portfolio have
entered into arrangements with their custodian and transfer agent whereby
interest earned on uninvested cash balances is used to reduce custodian and
transfer agent expenses. In the absence of these agreements, total expenses for
the Equity-Income Portfolio and the Growth Opportunities Portfolio would have
been 0.58% and 0.77%, respectively. The Fidelity management fees for the Growth
Opportunities, Equity-Income and High Income Portfolios consist of a group fee
rate and an individual fee rate. The fee shown here is the result of adding
these components together and multiplying the result by the portfolio's average
net assets. Please see the Fidelity prospectuses for a complete explanation of
the applicable portfolio management fee.
The operational expenses for Value Line Strategic Asset Management Trust and
Value Line Centurion Fund reflect the effects of expense reimbursements paid by
those funds to GIAC for certain administrative and shareholder servicing
expenses incurred by GIAC on their behalf. For the year ended December 31, 1996,
GIAC was reimbursed $601,135 by Value Line Strategic Asset Management Trust, and
$406,412 by Value Line Centurion Fund.
GIAC has also entered into agreements pursuant to which it will be reimbursed
for certain administrative costs and expenses it incurs as a result of offering
the MFS and American Century funds to its policyowners.
POLICY VALUES AND BENEFITS
No Lapse Guarantee
The policyowner will be entitled to the benefit of the No Lapse Guarantee. The
No Lapse Guarantee provides that during the first three policy years, if the No
Lapse Guarantee Premium Test is satisfied, the policy will not lapse, even if
the policy's Net Cash Surrender Value is insufficient to meet the Monthly
Deductions due at the beginning of a policy month.
The No Lapse Guarantee Premium Test is satisfied if, as of the most recent
Monthly Date, the sum of all premiums paid through such Monthly Date less any
Policy Debt and less the sum of any partial withdrawals and applicable surrender
charges is equal to or greater than the product of the policy's Minimum Annual
Premium multiplied by the ratio of (1) to (2) where: (1) is the number of days,
measured from the Policy Date in the first policy year or from the most recent
Policy Anniversary in the second and third policy year, to the Monthly Date; and
(2) is 365.
If the Face Amount is increased or decreased on or after the first Policy
Anniversary, the policy will not lapse if the sum of all premiums paid as of the
most recent Monthly Date less any Policy Debt and less the sum of all partial
withdrawals and related surrender charges is equal to or greater than the
product of the policy's Minimum Annual Premium, plus the new Minimum Annual
Premium after giving effect to the increase or decrease, multiplied by the ratio
of (1) to (2) where: (1) is the number of days measured from the date of the
Face Amount increase or decrease to the Monthly Date; and (2) is 365.
The No Lapse Guarantee will terminate if the No Lapse Guarantee Premium Test is
not satisfied and a required premium (specified in a notice of default) is not
received by GIAC by the end of the grace period. The No Lapse Guarantee cannot
be reinstated after the No Lapse Guarantee Test is not met.
Death Benefit Options
Park Avenue VUL provides two death benefit options. A policyowner must choose an
option on the policy application. Regardless of which death benefit option is
chosen by the policyowner, after the Policy Anniversary nearest to the insured's
100th birthday, the death benefit is equal to the Policy Account Value on the
date of death.
The death benefit provided under Option 1 is the greater of:
- --------------------------------------------------------------------------------
19
<PAGE>
o the Face Amount in effect on the date of the insured's death; or
o the minimum death benefit then required under Section 7702 of the
Internal Revenue Code on the Monthly Date preceding the insured's
date of death.
The death benefit provided under Option 2 is the greater of:
o the Face Amount on the date of the insured's death plus the Policy
Account Value as of the Monthly Date preceding the insured's date of
death; or
o the minimum death benefit then required under Section 7702 of the
Internal Revenue Code on the Monthly Date preceding the insured's
date of death.
Any partial withdrawals taken between the Monthly Date preceding the date of
death and the insured's date of death will reduce the death benefit under Option
1 or Option 2 by the amount of the partial withdrawal and any applicable
surrender charge.
Under an Option 1 policy, when favorable investment performance and the making
of on-going premium payments in excess of the Minimum Annual Premium increase
the Policy Account Value, the Net Amount at Risk under the policy will decrease.
When the Net Amount at Risk is reduced, the dollar amount of the cost of
insurance charges deducted on each Monthly Date may also decline. See "Monthly
Deductions From the Policy Account Value."
Under an Option 2 policy, favorable investment performance and the making of
on-going premium payments in excess of the Minimum Annual Premium increase the
Policy Account Value and increase the death benefit. But until such time as the
death benefit is increased to comply with Section 7702, because the death
benefit has increased by the value of the Policy Account Value, the Net Amount
at Risk will not change. Unfavorable investment performance can reduce an Option
2 policy's death benefit, but the benefit will never be lower than the Face
Amount plus Policy Account Value.
Prospective policyowners should select the death benefit option that best meets
their needs and objectives. Those who prefer to have the opportunity to increase
their insurance coverage over the Face Amount should choose Option 2. Those who
prefer to have insurance coverage that generally does not vary with investment
experience and lower monthly cost of insurance charges should choose Option 1.
To qualify as life insurance under the Internal Revenue Code, the amount of
death benefit provided under Option 1 or Option 2 must equal at least the
minimum death benefit required under Section 7702. The minimum death benefit
required under Section 7702 is determined, at the election of the policyowner in
the application, by either the Cash Value Accumulation Test ("Cash Value Test")
or the Guideline Premium and Cash Value Corridor Test ("Guideline Premium
Test"). This test, once elected, cannot be changed.
In choosing between the Cash Value Test and the Guideline Premium Test, the
policyowner should note that the Cash Value Test will allow a policyowner to
make more premium payments than the Guideline Premium Test will permit. Also,
the Cash Value Test increases the death benefit earlier than the Guideline
Premium Test. On the other hand the Guideline Premium Test allows later death
benefit increases than the Cash Value Test and, consequently, it develops larger
Policy Account Values.
To satisfy the Cash Value Test, the Policy Account Value must not at any time
exceed the net single premium which would be necessary to fund future benefits
under the policy. Essentially, this means the death benefit must be at least
equal to the Policy Account Value divided by the net single premium. The table
of net single premiums appears in the policy.
The Guideline Premium Test consists of two tests -- the Guideline Premium Test
and the Cash Value Corridor Test. To satisfy the Guideline Premium Test,
cumulative premiums paid are subject to certain maximums. The sum of premiums
paid less partial withdrawals must not be greater than the larger of (a) the
Guideline Single Premium ("GSP") as of the date of determination; or (b) the sum
of the Guideline Annual Premiums ("GLP") to the date of determination. For
purposes of the Guideline Premium Test the GSP is the premium necessary to fund
future benefits under the policy, determined at the time the policy is issued
using the mortality charges specified in the policy, other current charges
specified in the policy and a 6% annual effective interest rate. The GLP is the
level annual premium payable over a period not ending before the insured becomes
age 95, composed using the same factors as the GSP but with a 4% annual
effective interest rate. Annual premiums paid may exceed the Guideline Premium
Test if such premiums are required to keep the policy in force.
To satisfy the Cash Value Corridor Test, the death benefit payable under the
policy at any time must at least equal the applicable percentage of the Policy
Account Value as follows:
Attained Percentage
Age (decreasing uniformly)
-------- -----------------------
0 - 40 250%
40 - 45 250% - 215%
45 - 50 215% - 185%
50 - 55 185% - 150%
55 - 60 150% - 130%
60 - 65 130% - 120%
65 - 70 120% - 115%
70 - 75 115% - 105%
75 - 90 105%
90 - 95 105% - 100%
95+ 100%
- --------------------------------------------------------------------------------
20
<PAGE>
The minimum death benefit required on any Monthly Date is:
(1) for the Cash Value Test, 1,000 times the Policy Account Value on the
Monthly Date divided by the net single premium per $1,000 for the
insured's Attained Age, sex (unless unisex rates are required by law) and
underwriting class. The net single premium is adjusted to the Monthly Date
preceding the date of death. A table of net single premiums is set forth
in the policy.
(2) for the Guideline Premium Test, the Policy Account Value on the Monthly
Date preceding the insured's date of death multiplied by the factor shown
in the Table of Death Benefit Factors in the policy.
Changing The Death Benefit Option
If a policyowner's personal circumstances change, at any time on or after the
first Policy Anniversary he or she may change the then effective death benefit
option if the insured is alive. Proper written notice must be received at the
Executive Office of GIAC. A change in the death benefit option will be effective
on the Business Day that GIAC approves the change.
A change in death benefit option will result in a change in the policy's Face
Amount by an amount that results in the amount of death benefit remaining
exactly the same immediately after the change. GIAC will not approve a request
to change the option if Monthly Deductions are then being waived under a waiver
of monthly deductions rider. Evidence of insurability that is satisfactory to
GIAC must be submitted with any request to change from Option 1 to Option 2. The
Face Amount will decrease by the amount of the Policy Account Value on the date
the change takes effect. The Face Amount will increase by the amount of the
Policy Account Value if the change is from Option 2 to Option 1. GIAC will not
deduct a surrender charge or impose new surrender charges in connection with
changes in death benefit option.
Death proceeds are payable to the beneficiary(ies) upon GIAC's receipt of due
proof that the insured died while the policy was in force. GIAC may delay
payment of the death proceeds if it contests a policy. See "Policy Proceeds" and
"Incontestability."
Policy Values
The Policy Account Value is the sum of the values attributable to the Variable
Investment Options, the Fixed-Rate Option and the Loan Collateral Account. While
a policy is in force, such values are comprised of:
o the Net Premiums credited under a policy; plus or minus
o the cumulative effects of the net investment experience of amounts
held in the Variable Investment Options; plus
o any interest paid on amounts in the Fixed-Rate Option or on amounts
transferred to and held in the Loan Collateral Account; minus
o cumulative Monthly Deductions; minus
o any previously effected partial withdrawals; minus
o the surrender charges assessed upon previously effected partial
withdrawals; minus
o the surrender charges assessed upon any Face Amount decreases; minus
o any transfer charges that may have been assessed.
A Park Avenue VUL policy's Cash Surrender Value is the Policy Account Value
minus the policy's surrender charges. Surrender charges will apply for the first
15 Policy Years of the Initial Face Amount and of each Policy Segment.
The Net Cash Surrender Value is the amount that may be obtained upon surrender
of a policy. The Net Cash Surrender Value is calculated by subtracting any
Policy Debt from the Cash Surrender Value.
Values held in the Variable Investment Options may increase or decrease daily
depending on the net investment experience of such options. The combination of
partial withdrawals, policy loans, unfavorable investment performance and
ongoing Monthly Deductions can cause a policy's Net Cash Surrender Value to drop
below zero (i.e., become negative). Even if this occurs, the policy will not
lapse during the first two policy years if the No Lapse Guarantee is in effect
and the No Lapse Guarantee Premium Test is satisfied. See "No Lapse Guarantee."
Certain rider benefits available under a policy may also prevent lapse. See
Appendix E.
Amounts In the Separate Account
Amounts allocated, transferred or added to a Variable Investment Option are used
to purchase units of the applicable Separate Account investment division. Units
are redeemed and cancelled when amounts are withdrawn or transferred as a result
of policyowner transactions, or when GIAC effects Monthly Deductions, Dollar
Cost Averaging transfers or policy loans. The number of units purchased or
redeemed in an investment division is calculated by dividing the dollar amount
of the transaction by the division's unit value for the Business Day of the
transaction. Each Separate Account Investment Division has two different unit
values. One Unit value applies during the first 20 policy years when the
policy's mortality and expense risk charge is .90%; the other unit value applies
after the 20th Policy Anniversary, when the mortality and expense risk charge is
reduced to .60%.
To effect this reduction in the mortality and expense risks charge from .90% to
.60% per annum, on the 20th Policy Anniversary GIAC will do the following for
each Variable Investment Option to which Policy Account Value is allocated: (1)
redeem all units for which the .90% charge applies and (2) purchase new units
that use a .60% charge with the proceeds. On any given day, a policyowner's
value in an investment division is the division's current applicable unit value
multiplied by the number of units credited to the policy for that division.
- --------------------------------------------------------------------------------
21
<PAGE>
Unit values change daily, reflecting investment results and daily deductions of
the charge for mortality and expense risks. GIAC determines unit values for the
investment divisions of the Separate Account as of the end of each day.
Policyowners bear the entire investment risk with respect to amounts held in the
Separate Account.
Net Investment Factor
GIAC calculates two unit values for each investment division. One applies for
the first 20 policy years and the other applies thereafter. Each unit value is
determined by multiplying the division's immediately preceding applicable unit
value by the applicable net investment factor for the subject day.
On any Business Day, the net investment factor for a Variable Investment Option
is determined by dividing the sum of (a) and (b) by (c), and subtracting (d)
from the result, where:
(a) is the net asset value per share of the Variable Investment Option's
corresponding mutual fund at the close of the current Business Day;
(b) is the per share amount of any dividends or capital gains
distributed by the mutual fund on the current Business Day;
(c) is the net asset value per share of such mutual fund at the close of
the Business Day immediately preceding the current Business Day;
(d) is the sum of the daily charges GIAC deducts from the Variable
Investment Options for:
- the mortality and expense risks assumed by GIAC. The daily
deduction for mortality and expense risks will be (i)
.00002477 or the equivalent of a charge equal to .90% annually
until the 20th Policy Anniversary and (ii) .00001649, or the
equivalent of a charge equal to .60% annually thereafter; and
- any federal, state or local taxes.
On any day that is not a Business Day, the net investment factor for a Variable
Investment Option is determined by subtracting the sum of the daily charges in
(d) from 1.0.
The accompanying prospectuses for the funds describe the procedures used by the
funds to calculate their respective net asset values per share. Currently, there
is no daily deduction from the Separate Account for income taxes. See
"Deductions From the Separate Account."
OTHER POLICY FEATURES
Policy Loans
While the insured is alive, a policyowner may borrow all or part of a policy's
"loan value," by assigning the policy to GIAC as security for the loan. A
policy's loan value is 90% of the Cash Surrender Value on the date that GIAC
receives a proper written loan request (which includes an assignment of the
policy) at its Executive Office, minus any then outstanding Policy Debt. The sum
of any outstanding loan amounts plus accrued loan interest (including accrued
interest on unpaid policy loan interest) is the Policy Debt. Policy loan
proceeds will ordinarily be paid to the policyowner within seven days of the
Business Day that GIAC received the loan request. For exceptions to this general
rule, see "Policy Proceeds." The minimum loan amount is $500 or, if less, the
Net Cash Surrender Value.
When a policyowner takes a loan, GIAC transfers the amount of the loan from the
Variable Investment Options and the Fixed-Rate Option into a Loan Collateral
Account within GIAC's general account. GIAC will first transfer amounts held in
the Variable Investment Options in proportion to the Policy Account Value held
in such options as of the date it received the loan request. If the requested
loan exceeds the Policy Account Value held in the Variable Investment Options,
GIAC will transfer the excess amount from any Policy Account Value then held in
the Fixed-Rate Option.
GIAC charges the policyowner interest on all outstanding loans at an annual rate
of 8% payable in arrears, until the later of the twentieth Policy Anniversary or
the insured's Attained Age 65, at which time the annual rate decreases to 5%,
payable in arrears, for all existing and new loans. Interest accrues daily and
is due on Policy Anniversaries. If loan interest is not paid when due, GIAC
automatically increases the outstanding loan by transferring amounts from the
Variable Investment Options and the Fixed-Rate Option to the Loan Collateral
Account, in the manner and order described above, so that the Loan Collateral
Account will be equal to the Policy Debt as of the Policy Anniversary that loan
interest was not paid. Amounts in the Loan Collateral Account earn interest from
the date of transfer at a rate equal to the difference between the loan interest
rate then in effect and the Loan Spread then in effect. The "Loan Spread" will
not exceed 2%.
Amounts transferred to the Loan Collateral Account in connection with policy
loans no longer share in the investment experience of (for Variable Investment
Options) or interest paid by (for the Fixed-Rate Option) the options from which
they were transferred. Accordingly, a policy loan will have a permanent effect
on Policy Account Value and the benefits provided under a policy, even if the
loan is repaid. The effect could be favorable or unfavorable, depending on the
investment experience of the Variable Investment Options or the rate of interest
credited under the Fixed-Rate Option while the loan is outstanding. In addition,
the amounts available for withdrawal or surrender and the death proceeds payable
under the policy are reduced dollar-for-dollar by the amount of any outstanding
Policy Debt.
The policyowner may repay all or part of the Policy Debt at any time while the
insured is alive and while the policy is in force. Loan repayments are credited
as of the Business Day on which it is received at GIAC's Executive Office. The
minimum loan repayment amount is the lesser
- --------------------------------------------------------------------------------
22
<PAGE>
of $100, or the total outstanding Policy Debt. See "Crediting Payments." If the
death proceeds have not already been paid in cash or applied under a payment
option, outstanding Policy Debt may also be repaid within 60 days after the
insured's death. The proceeds payable to the beneficiary will then be increased
by the amount of the repayment.
When GIAC credits and allocates a loan repayment, it first determines the ratio
that the amount of the repayment bears to the outstanding Policy Debt on that
date. It then applies this ratio to the Policy Debt, accrued loan interest and
the Loan Collateral Account interest and transfers from the Loan Collateral
Account the amount of the repayment, minus the resulting proportional amount of
accrued loan interest, plus the resulting proportional amount of accrued Loan
Collateral Account interest, as follows:
o first, into the Fixed-Rate Option to repay all loans provided by
Policy Account Value that had been attributable to the Fixed-Rate
Option; and
o then, into the Variable Investment Options and Fixed-Rate Option in
accordance with the Net Premium allocation instructions then in
effect.
No transfer in or out of the Loan Collateral Account in connection with policy
loans will be subject to transfer charges. Loan repayment amounts that are
allocated to the Fixed-Rate Option will be credited with the Fixed-Rate Option
interest rate then in effect until the next Policy Anniversary.
If Policy Debt is outstanding, it may be more advantageous to repay the debt
than to make a premium payment. Unlike premiums, loan repayments are not subject
to the Premium Charge. See "Deductions From Premiums" and "Crediting Payments."
If the Policy Debt exceeds a policy's Cash Surrender Value on a Monthly Date,
GIAC will notify the policyowner that a loan repayment is required to continue
the policy in force. The policy will lapse without value 61 days after the
default date set forth in the notice if GIAC does not receive the required loan
repayment specified in the notice, which will be the sum of
o the amount by which the Policy Debt exceeded the Cash Surrender
Value as of the Monthly Date that GIAC identified the shortfall,
plus
o 10% of the Cash Surrender Value on that Monthly Date.
If the insured dies after a loan repayment notice is mailed but before the 61
days have expired, GIAC will pay the beneficiary the death proceeds minus the
unpaid Policy Debt. See "Default" and "Policy Proceeds."
There may be adverse tax consequences if a policy lapses with Policy Debt
outstanding.
If a policy is treated as a modified endowment contract under the Internal
Revenue Code, there may be tax consequences associated with taking a policy
loan. See "Tax Effects" for a discussion of the circumstances under which a
policy may be treated as a modified endowment contract and the corollary effects
on policy loans.
Decreasing the Face Amount
At any time on or after the first Policy Anniversary, a policyowner may request
a decrease in the Face Amount of his or her policy. GIAC will process a Face
Amount decrease upon receipt of a proper written request at its Executive
Office. GIAC additionally requires:
o that the insured be living on the date that GIAC receives the
request;
o that the decrease be for at least $5,000, unless it is caused by a
partial withdrawal (in which case, the partial withdrawal rules
apply);
o that the resulting Face Amount will not be lower than $100,000; and
o that Monthly Deductions are not currently being waived under a
waiver of monthly deduction rider.
The decrease will take effect on the Monthly Date coinciding with or next
following the date that GIAC approves the change. GIAC will deduct a surrender
charge from the Policy Account Value in the manner described under "Transaction
Deductions From the Policy Account Value" if the Face Amount is reduced during
the first 15 policy years or the first 15 years of each increase. The amount of
the surrender charge for this transaction will equal the sum of surrender
charges associated with the Initial Face Amount and any Policy Segment being
decreased. A partial withdrawal from an Option 1 policy will typically result in
an immediate Face Amount reduction. A partial withdrawal from an Option 2 policy
will not reduce the Face Amount; however, the Option 2 death benefit will
decline with each partial withdrawal. See "Death Benefit Options" and "Partial
Withdrawals."
When the Face Amount of a policy is based on one or more increases subsequent to
issuance of the policy, a requested decrease in Face Amount will be applied
against the portion of the Face Amount provided by the most recent in force
Policy Segment, then against the next most recent in force Policy Segments
successively and finally against the Initial Face Amount. Reducing the Face
Amount could cause a policy to be treated as a modified endowment contract under
the Internal Revenue Code. See "Tax Effects."
If the Face Amount is decreased, GIAC will monitor premium payments for
compliance with the requirements of Section 7702.
The Minimum Annual Premium, Policy Account Value, Monthly Deductions, surrender
charge, Target Premiums, and any benefits provided under additional benefit
riders
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<PAGE>
that relate to the policy's Face Amount will generally decrease when a Face
Amount reduction takes effect.
Upon a Face Amount increase, GIAC will send the owner revised policy pages
reflecting the resulting changes.
A policyowner may also reduce or cancel coverage under the level target death
benefit term rider separately from the Face Amount of a policy. Likewise, the
Face Amount of a Policy may be decreased without reducing the coverage of the
term rider. Because no surrender charge is imposed in connection with a
reduction of coverage under a term rider, such a reduction may be less expensive
than a decrease in Face Amount of a policy if a surrender charge would apply. On
the other hand, by continuing coverage under the policy, the policyowner may
incur cost of insurance charges that are higher than charges for the same amount
of coverage under the term rider. A policyowner should consult his or her sales
representative when deciding whether to reduce the Face Amount of the policy or
any applicable term coverage. The level target death benefit term rider is
discussed briefly in Appendix D.
Increasing the Face Amount
On the first Policy Anniversary or any Policy Anniversary thereafter until the
Policy Anniversary nearest the date of the insured's 70th birthday, a
policyowner may request an increase in the Face Amount of his or her policy. The
request must be in writing and received at GIAC's Executive Office at least 30
days prior to a Policy Anniversary. To process a requested increase in Face
Amount, GIAC requires:
o that the increase be for at least $10,000;
o that the insured provide evidence of insurability satisfactory to
GIAC; and
o that Monthly Deductions are not currently being waived under a
waiver of monthly deduction riders.
If GIAC approves the increase, it will take effect on the Policy Anniversary
following GIAC's receipt of the request, provided the insured is alive on that
date. The increase will be issued as a separate Policy Segment. Each Policy
Segment will have a separate and distinct underwriting class, cost of insurance
rates, surrender charges, Policy Administration Charge, Premium Charge, and
Target Premium. Subsequent to a Face Amount increase, premiums paid will be
allocated first to the Initial Face Amount and then to each Policy Segment
resulting from increases in Face Amount in the order in which each Policy
Segment was acquired. Premiums will be allocated to the Initial Face Amount and
each Policy Segment in amounts not to exceed the Target Premium for each on an
annual basis, such that when the sum of premiums paid during the policy year
exceeds the Target Premium for the Initial Face Amount, the premium will then be
allocated to the first Policy Segment. When, in a policy year, the sum of
premiums paid exceeds the sum of all applicable Target Premiums, the excess
premium will be allocated pro-rata to the Target Premium for the Initial Face
Amount and each Policy Segment.
An increase in the Face Amount will result in the policy's being subject to new
surrender charges. The new surrender charges will be computed as if a new policy
were being purchased for the increase in Face Amount and a new 15 year surrender
charge period will apply to the Policy Segment resulting from the increase. The
policyowner will be notified of the new surrender charge after a Face Amount
increase.
As with the purchase of a policy, a policyowner will have a Right to Cancel with
respect to a Face Amount increase. See "Right to Cancel."
No additional premium is required for a Face Amount increase. However, a premium
payment may be necessary to prevent the policy from going into default, since
new surrender charges resulting from an increase would automatically reduce the
Net Cash Surrender Value of the policy.
Upon a Face Amount increase, GIAC will send the owner revised policy pages
reflecting the resulting changes.
Partial Withdrawals
After the first policy year and while the insured is living, the policyowner may
withdraw portions of the policy's Net Cash Surrender Value. Any such withdrawal
must be requested in writing, and is subject to GIAC's approval. GIAC will
process an approved partial withdrawal as of the Business Day on which it
receives a proper written request at its Executive Office. The minimum net
partial withdrawal amount is $500. GIAC reserves the right to limit the number
of partial withdrawals to 12 in a policy year.
GIAC will not approve or process a partial withdrawal if, after withdrawing the
requested amount and imposing all applicable charges,
o the remaining Net Cash Surrender Value would be insufficient to
cover three Monthly Deductions; or
o if Death Benefit Option 1 is in effect, the Face Amount remaining
after the reduction resulting from the partial withdrawal would be
less than GIAC's then current minimum Face Amount
GIAC will notify the policyowner if a requested partial withdrawal cannot be
effected.
GIAC assesses a pro rata surrender charge if the partial withdrawal causes a
Face Amount reduction during the first 15 policy years of the Initial Face
Amount or Policy Segment affected. See "Transaction Deductions From the Policy
Account Value" and "Reducing the Face Amount." Any portion of a partial
withdrawal which exceeds the amount eligible for a free partial withdrawal will
reduce the Face Amount. The Face Amount will be reduced by the amount of the
partial withdrawal in excess of the free partial withdrawal amount and any
applicable
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<PAGE>
surrender charge. When the Face Amount of a policy is based on one or
more increases subsequent to issuance of the policy, a reduction resulting from
a partial withdrawal will be applied against the Face Amount provided by the
most recent increase, then against the next most recent increases successively,
and finally against the Initial Face Amount.
GIAC will calculate the amount eligible for a free partial withdrawal on the
date it receives the policyowner's written request for a partial withdrawal as
follows:
If the Cash Value Test is in effect, the amount of a free partial withdrawal
will equal the excess, if any, of (a) over (b) where:
(a) is the Policy Account Value; and
(b) is the Face Amount times the applicable net single premium as set
forth in the policy. If GIAC receives the request for a partial
withdrawal on other than a Policy Anniversary, the net single
premium shall be determined by interpolation between net single
premiums on the Policy Anniversaries immediately preceding and
immediately succeeding the date of receipt.
If the Guideline Premium Test is in effect, the amount of a free partial
withdrawal will equal the excess, if any, of (a) over (b) where:
(a) is the Policy Account Value; and
(b) is the Face Amount divided by the applicable death benefit factor
set forth in the policy.
To effect a partial withdrawal, GIAC will deduct the requested partial
withdrawal amount and any applicable charges from the Policy Account Value held
in the Variable Investment Options specified in the policyowner's request as of
the Business Day it received the partial withdrawal request. If the sum of the
requested withdrawal amount and all applicable charges exceeds the amounts held
in the specified Variable Investment Options, GIAC will deduct the excess amount
proportionately from the Policy Account Value held in the other Variable
Investment Options. If this is still insufficient to provide the requested
partial withdrawal amount, GIAC will withdraw the remaining excess amount from
any Policy Account Value that is then held in the Fixed-Rate Option.
If the policyowner has not specified the allocation options from which the
partial withdrawals should be deducted, GIAC will deduct the requested partial
withdrawal amount and any applicable charges proportionately from the Policy
Account Value held in the Variable Investment Options as of the Business Day it
received the request. If the sum of the requested withdrawal amount and all
applicable charges exceeds the Policy Account Value held in the Variable
Investment Options, GIAC will withdraw the excess amount from any Policy Account
Value that is then held in the Fixed-Rate Option.
The proceeds of a partial withdrawal will ordinarily be paid within seven days
of the Business Day that GIAC receives the withdrawal request. For exceptions to
this general rule, see "Policy Proceeds."
In addition to reducing the Net Cash Surrender Value of a policy, a partial
withdrawal reduces the death benefit on a dollar-for-dollar basis. Under an
Option 1 policy, the Face Amount will generally be reduced with each partial
withdrawal. Under an Option 2 policy, the death benefit reduction will generally
mirror the Net Cash Surrender Value reduction. See "Death Benefit Options," and
"Tax Effects."
Surrender
A Park Avenue VUL policy may be surrendered for its Net Cash Surrender Value at
any time while the insured is living. GIAC will compute the Net Cash Surrender
Value as of the Business Day on which it receives a written surrender request in
proper and complete form at its Executive Office. A surrender request is
incomplete if it is not accompanied by the policy or an acceptable affidavit
confirming the policy's loss. The Net Cash Surrender Value equals:
o the Policy Account Value, minus
o any surrender charge, minus
o any Policy Debt, plus
o any Monthly Deduction paid beyond the date of surrender.
Total surrender charges under this policy will equal the sum of the surrender
charges for the Initial Face Amount and any Policy Segments. See "Deductions and
Charges." A surrender is not eligible for the free partial withdrawal benefit
discussed above.
EXAMPLE - Surrender in Policy Year 5
Male insured, Age 35
Preferred Plus Underwriting Class
Face Amount $250,000
Annual Policy Premium $2,007.50
Assuming, 6% hypothetical gross return; 4.29% net return
See "Appendix A"
Policy Account Value $8,217.54
Surrender Charge 2,750.00
Policy Debt -0-
---------
Net Cash Surrender Value $5,467.54
---------
The Net Cash Surrender Value will ordinarily be paid within seven days of the
date that GIAC receives a proper and complete surrender request. For exceptions
to this general rule, see "Policy Proceeds." All insurance coverage ends as of
the Business Day that GIAC computes the Net Cash Surrender Value in response to
a proper and complete surrender request. See "Tax Effects" for a discussion of
the tax consequences of surrendering a policy.
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<PAGE>
Transfers
The policyowner may request transfers of Unloaned Policy Account Value in and
out of the Variable Investment Options or into the Fixed-Rate Option at any
time. However, the number of allocation options in which the Policy Account
Value may be invested or held at any one time cannot currently exceed 7.
Restrictions on transfers out of the Fixed-Rate Option are discussed under
"Transfers From The Fixed-Rate Option." Transfer requests may be submitted to
GIAC's Executive Office in writing or by telephoning 1-800-935-4128. Presently,
transfers may be effected without charge or tax consequences.
The minimum transfer amount is the lesser of $500 or the entire amount held in
the option from which GIAC effects a transfer. Transfers are effective as of the
end of the Business Day on which the request is received. Written transfer
requests received after 4:00 p.m. New York City time on a Business Day will be
treated as received on the next succeeding Business Day. GIAC reserves the right
to limit the frequency of transfers to not more than once every 30 days. GIAC
also reserves the right to charge $25 for each transfer after the twelfth in a
policy year. See "Deductions and Charges."
GIAC accepts telephone transfer instructions between 9:00 a.m. and 3:30 p.m. New
York City time on each day that it is open for business. GIAC effects telephone
transfer instructions at the unit values calculated at the close of business on
the Business Day such instructions are received. GIAC will not honor telephone
transfer instructions unless it has received a written authorization form from
the policyowner. Callers are asked to provide precise identification and the
personal security code for the policy. GIAC will accept telephone transfer
instructions from any person who can provide the requested information, and is
not responsible for any loss, damage, cost or expense resulting from following
the foregoing procedures to implement telephone transfer instructions that it
reasonably believes to be genuine. This means that the policyowner bears the
risk of loss when unauthorized or fraudulent transfers are requested by
telephone and GIAC has followed its procedures. Telephone transfer requests may
be recorded without prior disclosure to the caller.
During periods of extreme market activity or drastic economic change, it may be
very difficult to contact GIAC by telephone to request a transfer. If this
occurs, a written transfer request should be sent to the Executive Office. The
rules for telephone transfers are subject to change, and GIAC reserves the right
to suspend or withdraw this privilege without notice.
Transfers From the Fixed-Rate Option
Transfers from the Fixed-Rate Option are permitted once per policy year during
the period starting on a Policy Anniversary and ending 30 days thereafter.
Requests received on or within the 30 days before a Policy Anniversary will be
effected on the Policy Anniversary. Requests received within the 30 days
following a Policy Anniversary will be effected on the Business Day of receipt.
GIAC will not honor requests for transfers out of the Fixed-Rate Option that are
received at other times during a policy year.
GIAC transfers amounts from the Fixed-Rate Option in the same order as the
amounts were allocated to such option. This means that amounts on deposit in the
Fixed-Rate Option for the longest period of time will be the first amounts
transferred out. The maximum amount that may be transferred out of the
Fixed-Rate Option each policy year is the greater of 33 1/3% of the Policy
Account Value in the Fixed-Rate Option on the Policy Anniversary on or
immediately preceding the date of transfer, or $2,500.
Dollar Cost Averaging Transfer Option
The policyowner may elect to have designated dollar amounts automatically
transferred on each Monthly Date from The Guardian Cash Fund investment division
of the Separate Account to one or more of the other options offered under the
policy. GIAC will not implement automatic transfers unless it has received a
properly completed authorization form. Currently, no charge is imposed for this
option.
The period selected for the Dollar Cost Averaging option to be in effect must be
at least 12 months, and the minimum amount that may be transferred into another
option on each Monthly Date is $100 per transfer. Before the policyowner's
Dollar Cost Averaging transfer program goes into effect, the Policy Account
Value attributable to The Guardian Cash Fund investment division must be at
least equal to the product of the number of months in the selected duration
multiplied by the aggregate amount designated for transfer each month (e.g., 12
x $100 = $1,200). GIAC will notify the policyowner if this minimum is not
satisfied. No Dollar Cost Averaging transfers will be effected until the minimum
is satisfied. The policyowner may add to the Policy Account Value attributable
to the Cash Fund investment division to extend the period that the Dollar Cost
Averaging transfer program remains in effect.
Automatic transfers can be initiated, reinstated or changed, subject to the
rules described above, if GIAC receives a new authorization form within three
Business Days before the Monthly Date on which the commencement, reinstatement
or change is to be effective.
Automatic transfers under a Dollar Cost Averaging program will end when:
o the period set forth in the Dollar Cost Averaging authorization form
ends; or
o the Policy Account Value attributable to The Guardian Cash Fund
investment division is less than the amount designated for transfer
on a Monthly Date (though GIAC will transfer the remaining amount on
a
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26
<PAGE>
pro-rata basis to the options that were last designated by the
policyowner for automatic transfers, leaving a zero balance in the
Cash Fund investment option); or
o a written request to terminate the program is received at GIAC's
Executive Office at least three Business Days prior to the next
scheduled transfer; or
o the policy is surrendered or lapses.
Periodic investing of the same dollar amount permits a policyowner to acquire
more units in a receiving Variable Investment Option when the unit value of the
variable investment option is low, and fewer when such price is high.
Accordingly, this strategy may reduce the impact of fluctuations in the
receiving Variable Investment Option's unit value over the period that automatic
transfers are effected. However, there can be no assurance of profit or
protection against loss in a declining market.
Policy Proceeds
Death proceeds are determined as set forth in "Death Benefit Options" and become
payable upon GIAC's receipt at the Executive Office of due proof that the
insured died while the policy was in force. The amount(s) involved in all other
policy transactions will be determined as of the end of the Business Day during
which GIAC receives satisfactory information, instructions or documentation at
its Executive Office. See "Communications With GIAC." GIAC will ordinarily pay
any Net Cash Surrender Value, policy loan, partial withdrawal, death proceeds or
other policy transaction proceeds (including transfers) from the Variable
Investment Options within seven days after it has received the information it
needs to determine the payable amount. However, GIAC may delay transfers, loans
or other payments from some or all of the Variable Investment Options when: (1)
the NYSE is closed for other than weekends or holidays; (2) the SEC restricts
trading or determines that a state of emergency exists; or (3) at any other time
when one or more of the Variable Investment Options' corresponding mutual funds
lawfully suspends payment or redemption of their shares. GIAC will pay interest
on the death proceeds as specified in the policy from the date of the insured's
death to the date the proceeds are paid or applied under a payment option.
Requests for transfers, loans or any other payment out of the Fixed-Rate Option
will normally be effected promptly after GIAC receives the required information
or documentation. However, GIAC has the right to delay such transfers, loans or
payments for up to six months from the date of a request. GIAC will pay interest
at a rate not less than 3% per year on payments out of the Fixed-Rate Option
deferred 30 days or more. Requests for transfers out of the Fixed-Rate Option
may only be made during certain periods. See "Transfers From the Fixed-Rate
Option."
The death proceeds actually paid to the beneficiary(ies) of a Park Avenue VUL
policy will include any proceeds provided by additional benefit riders. Any
outstanding Policy Debt and any due and unpaid Monthly Deductions as of the
policy month of death will be deducted from the death proceeds paid. If the
insured is Attained Age 100 or older at death, the death proceeds will be the
Policy Account Value minus any Policy Debt as of the date of death.
Death proceeds may also be adjusted as a result of: (1) a misstatement of the
insured's Age or sex on the application for a policy; (2) the insured's suicide
within two years from (a) the Issue Date, (b) the date of an increase in Face
Amount, or (c) the effective date of a change in the death benefit from Option 1
to Option 2 (but only to the extent of any increase in the death benefit over
the Face Amount that resulted from the change in options); or (3) any limits
imposed by a rider to the policy. See "Limits to GIAC's Right to Challenge a
Policy."
Fixed-Benefit Insurance During the First 24 Months
During the first 24 policy months, the policyowner has the right to exchange his
or her Park Avenue VUL policy and replace it with a fixed-benefit whole life
insurance policy issued by GIAC or an affiliate of GIAC (the "new policy"). No
evidence of insurability will be required. Policy values under the new policy
will be held in the issuer's general account. The new policy's Face Amount will
be the same as the Park Avenue VUL policy's Face Amount as of the exchange date.
The insured's Age under the original policy will be retained under the new
policy. The policyowner must repay all outstanding Policy Debt before the
exchange is effected.
There may be a cost or credit to be paid upon this type of exchange depending on
the amount applied to the new policy. The amount applied to the new policy is
the greater of (1) or (2) where:
o (1) is the cumulative premiums for the new policy with an annual
interest rate of 6% minus the cumulative policy premiums for the
exchanged Park Avenue VUL policy with an annual interest rate of at
6%; and
o (2) is the cash value of the new policy minus the Cash Surrender
Value of the exchanged Park Avenue VUL policy on the exchange date.
The cash value will depend on the new policy's face amount, premium
class, and the insured's Age and sex on the Policy Date.
If this amount is less than zero, the issuer of the new policy will pay an
exchange credit to the policyowner. If this amount is more than zero, the
policyowner must pay the exchange cost to the issuer of the new policy.
The exchange date is the date that the new policy is issued. The new policy will
be issued upon the later of:
o the Business Day GIAC receives the policyowner's written exchange
request and his or her Park Avenue VUL policy at its Executive
Office; or
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<PAGE>
o the Business Day any exchange cost payable by the policyowner is
received by the issuer of the new policy.
Additional benefit riders are only available upon the consent of the issuer of
the new policy and are subject to the issuer's rules on the exchange date.
Competent legal and tax advice should be sought in connection with exchanging a
policy.
Payment Options
The death proceeds or Net Cash Surrender Value of a Park Avenue VUL policy will
be paid in a lump sum, or under one or more of the payment options described
below and selected by the policyowner. The policyowner may select the payment
option(s) while the insured is living. If no election has been made when policy
proceeds become payable, the payee may select the payment option(s). A payment
option election for death proceeds must be made by the payee within one year of
the insured's death. The payment election for other proceeds must be made by the
payee within 60 days after the proceeds become payable. A payee under any
payment option must be a natural person. The policyowner may appoint a secondary
payee to receive any payments remaining after the death of the initial payee.
Amounts applied to a payment option will not share in the income, gains or
losses of the Variable Investment Options, nor be credited interest in the
amount or manner provided by the Fixed-Rate Option. At least $5,000 must be
applied under each option selected. See "Death Benefit Options," "Partial
Withdrawals," "Surrender" and "Policy Proceeds" for information about when the
proceeds of a Park Avenue VUL policy are payable.
Under Option 1, GIAC will hold the proceeds and make monthly interest payments
at a guaranteed annual rate of at least 3%.
Under Option 2, GIAC will make monthly payments of a specified amount until the
proceeds and interest are fully paid. At least 10% of the original proceeds must
be paid each year. Guaranteed interest of 3% will be added to the proceeds each
year.
Under Option 3, GIAC will make monthly payments for a specified number of years.
The amount of the payments will include interest at 3% per year.
Under Option 4, GIAC will make monthly payments for the longer of the life of
the payee or 10 years. The guaranteed amount of each payment will include
interest at 3% per year.
Under Option 5, GIAC will make monthly payments until the total amount paid
equals the proceeds settled, and for the remaining life of the payee. The
guaranteed amount of each payment will include interest at 3% per year.
Under Option 6, GIAC will make monthly payments for 10 years and for the
remaining life of the last surviving of two payees. The guaranteed amount of
each payment will include interest at 3% per year.
Payment option tables for Options 4, 5, and 6 are based on the Annuity 2000
Mortality Tables (male and female) projected 20 years to the year 2020 by 100%
of the male scale G Factors (for males) and 50% of the female scale G Factors
(for females).
Monthly payments under a payment option must be at least $50. The policy sets
forth the amount payable each month per $1,000 of proceeds applied under Options
3, 4, 5 and 6, as well as the amount payable upon the termination of a payment
option.
TAX EFFECTS
This discussion is based on GIAC's understanding of the effects of current
federal income tax laws, as currently interpreted, on Park Avenue VUL policies.
This discussion is general in nature, and should not be considered to be tax
advice. Anyone interested in purchasing a policy or effecting policy
transactions should consult a legal or tax adviser regarding such person's
particular circumstances. There can be no guarantee that the federal income tax
laws, including related rules and regulations, or interpretations of them, will
not change while this prospectus is in use or while a policy is in force.
Treatment of Policy Proceeds
GIAC believes that a Park Avenue VUL policy will be treated as "life insurance"
as defined in the Internal Revenue Code. Accordingly, under federal income tax
law:
o the death proceeds received by a beneficiary will not be subject to
federal income tax; and
o increases in the Policy Account Value resulting from interest or
investment experience will not be subject to federal income tax
unless they are distributed from the policy before the insured's
death.
Income recognized when a pre-death distribution is taken will be characterized
and taxed as "ordinary income."
The definition of "life insurance" under the Code can be met if a life insurance
policy satisfies either one of two tests that are set forth in the Code. The
manner in which these tests should be applied to certain features of the Policy
is not clearly addressed by the Code, regulations or pertinent authorities
thereunder. The presence of these policy features, and the absence of any
pertinent interpretations of the tests, thus creates some uncertainty about the
application of the tests to the policy.
The federal income tax consequences of taking distributions from a policy will
depend on whether the policy is determined to be a "modified endowment
contract."
A modified endowment contract is an insurance policy that fails to meet a
"seven-pay" test. In general, a policy will fail the seven-pay test if the
cumulative amount of
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<PAGE>
premiums paid under the policy at any time during the first seven policy years
exceeds a calculated premium level. The calculated seven-pay premium level is
based on a hypothetical policy issued on the same insured and for the same
initial death benefit that, under specified conditions (including the absence of
expense, administrative and surrender charges), would be fully paid for after
seven level annual payments.
A Park Avenue VUL policy could be treated as a modified endowment contract if
the cumulative premiums paid at any time during the first seven policy years
exceeds the cumulative seven-pay premiums that can be paid under the
hypothetical policy.
Whenever there is a "material change" under a policy, the policy will generally
be treated as a new contract and become subject to a new seven-pay period and
new seven-pay limit. A materially changed policy would become a modified
endowment contract if it failed to satisfy the new seven-pay limit. Increasing a
policy's future benefits might result in a material change. Future benefits can
increase, for example, if the death benefit is changed from Option 1 to Option
2, benefits are added by rider, or a lapsed policy is reinstated. An exchange is
treated as a material change.
If the benefits under a policy are reduced during the first seven policy years
(or within seven years after a material change), the applicable seven-pay limit
must be redetermined based on the reduced level of benefits and applied
retroactively for purposes of the seven-pay test. If the premiums previously
paid are greater than the recalculated seven-pay limit, the policy will become a
modified endowment contract. Policy benefits are reduced, for example, when the
Face Amount is reduced or when certain partial withdrawals are taken.
A life insurance policy received in exchange for a modified endowment contract,
or a modified endowment contract that lapses and is reinstated, will be treated
as a modified endowment contract.
Once a policy becomes a modified endowment contract, it will remain a modified
endowment contract unless the violating transaction is reversed within 30 days
of its occurrence. The policyowner will be notified if a transaction has caused
or will cause the policy to be classified as a modified endowment contract, and
the policyowner will be given the option of reversing the transaction, where
possible, not later than 30 days from the date of notification.
The rules relating to whether a policy will be treated as a modified endowment
contract are extremely complex and cannot be adequately described in the limited
confines of this summary. Therefore, a current or prospective policyowner should
consult with a competent adviser to determine whether a transaction will cause
the policy to be treated as a modified endowment contract.
Pre-death distributions from a Park Avenue VUL policy that is NOT a modified
endowment contract will generally receive the following federal income tax
treatment:
(1) Section 7702(f)(7) of the Internal Revenue Code describes a special
situation during the first 15 years where, for policies that are not
modified endowment contracts, distributions may be treated as
taxable income, even when there is basis remaining.
(2) If a policy is surrendered, the excess, if any, of the Cash
Surrender Value (which includes the amount of any Policy Debt) over
the basis will be subject to federal income tax. Any loss incurred
upon surrender is generally not deductible. The tax consequences of
surrender may differ if the proceeds are received under a payment
option.
(3) Loans will ordinarily be treated as indebtedness, and no part of a
loan will be subject to current federal income tax, as long as the
policy remains in force. Upon lapse, however, cancellation of a loan
will be treated as a distribution and may be taxed. Generally,
policy loan interest is not tax deductible by the policyowner.
Pre-death distributions from a Park Avenue VUL policy that IS or BECOMES a
modified endowment contract will generally receive the following federal income
tax treatment:
(1) Any distribution will be taxed on an "income-first" basis to the
extent that the Policy Account Value exceeds the basis in the
policy. For this purpose, distributions include partial withdrawals,
surrenders, assignments and policy loans. Loans that are treated as
taxable income are added to the basis of modified endowment
contracts.
(2) For purposes of determining the taxable portion of any distribution,
all modified endowment contracts issued by GIAC or its affiliates to
a policyowner during any calendar year shall be treated as one
modified endowment contract.
(3) A 10% penalty tax will also apply to any taxable distribution,
unless the distribution is: (a) made to a taxpayer who is 59 1/2
years of age or older; (b) attributable to disability (as defined in
the Internal Revenue Code); or (c) received as part of a series of
substantially equal periodic payments for the taxpayer's life (or
life expectancy) or the joint lives (or joint life expectancies) of
the taxpayer and a beneficiary.
The Secretary of the Treasury is authorized to prescribe additional rules to
prevent avoidance of income-first taxation on distributions from modified
endowment contracts.
If a policy becomes a modified endowment contract, distributions that occurred
during the policy year in which such policy became a modified endowment
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contract, and distributions in any subsequent policy year will be taxed as
described above. In addition, distributions that occurred within the preceding
two years will be subject to such tax treatment. This means that a distribution
made from a policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment contract. The Secretary of
the Treasury is authorized to prescribe rules that would similarly treat other
distributions made in anticipation of a policy becoming a modified endowment
contract.
Exchanges
Typically, there are no federal income tax consequences when one life insurance
policy is exchanged for another to cover the same insured. However, the new
policy will be subject to the seven-pay test from the date of the exchange, and
can be treated as a modified endowment contract if it fails to satisfy such
test. Additionally, a policy may lose any privileges to be excused by
"grandfathering" from statutory or regulatory changes made after its issuance if
it is exchanged for another policy. For these reasons, anyone who is (1)
considering exchanging another life insurance policy to obtain a Park Avenue VUL
policy, or (2) considering exchanging a Park Avenue VUL policy to obtain a
different life insurance policy should consult a competent tax adviser.
Diversification
If a policy does not qualify as "life insurance" under the Internal Revenue
Code, the policyowner can become immediately subject to federal income tax on
the income under his or her policy. For variable life insurance policies to
qualify as life insurance, section 817(h) of the Internal Revenue Code requires
their underlying investments to be adequately diversified. Treasury Department
regulations specify the diversification requirements. The Separate Account,
through its investment in underlying mutual funds, intends to comply with these
requirements. Each of the underlying mutual funds is obligated to comply with
the diversification requirements specified in the Treasury Department
regulations.
To date, no regulations or rulings have been issued to provide guidance
regarding the circumstances under which a policyowner's ability to control his
or her investments under a policy by exercising premium allocation and transfer
privileges would cause him or her to be treated as the owner of a pro-rata
portion of the assets in an insurance company's separate account. If a Park
Avenue VUL policyowner was considered the owner of assets in the Separate
Account, the income and gains attributable to his or her Policy Account Value in
the Variable Investment Options would be included in his or her gross income.
GIAC currently believes that it, and not its policyowners, is considered to own
the Separate Account's assets. However, GIAC cannot predict when the Treasury
Department or the Internal Revenue Service ("IRS") will issue guidance regarding
these matters, nor the nature of any such guidance.
Policy Changes
GIAC may, to the extent it deems necessary, make changes to the policy or its
riders (1) to assure that Park Avenue VUL initially qualifies and continues to
qualify as life insurance under the Internal Revenue Code; or (2) to attempt to
prevent a policyowner from being considered the owner of a pro-rata portion of
the Separate Account's assets (see above). Any such change will apply uniformly
to all policies that are affected. If required by state insurance regulatory
authorities, advance written notice of such changes will be provided.
Tax Changes
From time to time the United States Congress considers legislation that, if
enacted, could change the tax treatment of life insurance policies prospectively
or even retroactively. In addition, the Treasury Department and IRS may amend
existing regulations, issue new regulations, or adopt new interpretations of
existing laws or regulations. Also, state or local tax laws that relate to
owning or benefiting from a policy can be changed from time to time without
notice. It is impossible to predict whether, when or how any such change would
be adopted. Anyone with questions about such matters should consult a legal or
tax adviser.
Estate and Generation Skipping Transfer Taxes
If the policyowner is also the insured, the death benefit under a Park Avenue
VUL policy will generally be included in the policyowner's estate for purposes
of federal estate tax. If the policyowner is not the insured, under certain
circumstances only the Cash Surrender Value would be so included. In general,
estates of U.S. citizens or residents that are valued at less than the credit
equivalent amount (in 1997 it is equal to $600,000 and gradually increases to
$1,000,000 in 2006) will not incur federal estate tax liability, and an
unlimited marital deduction may be available for federal estate and gift tax
purposes. Federal estate tax is integrated with federal gift tax under a unified
rate schedule.
As a general rule, designating a beneficiary or paying proceeds to a person who
is two or more generations younger than the policyowner, may cause a generation
skipping transfer ("GST") tax to be payable. The GST tax is imposed at a rate
that equals the maximum estate tax rate. Individuals are generally allowed an
aggregate GST tax exemption of $1 million. Because these rules are complex, a
legal or tax adviser should be consulted for specific information.
The particular situation of each policyowner or beneficiary will determine how
ownership or receipt of policy proceeds will be treated for purposes of federal
estate and GST taxes, as well as state and local estate, inheritance and other
taxes.
Legal Considerations for Employers
In 1983, the United States Supreme Court held that optional annuity benefits
provided under an employer's
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deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. The Court applied its
decision to benefits derived from contributions made on or after August 1, 1983.
Lower federal courts have since held that the Title VII prohibition of
sex-distinct benefits may apply at an earlier date. In addition, some states
prohibit using sex-distinct mortality tables.
The Policy uses sex-distinct actuarial tables, unless state or federal law
requires the use of sex-neutral actuarial tables. As a result, the Policy
generally provides different benefits to men and women of the same age.
Employers and employee organizations which may consider buying Policies in
connection with any employment-related insurance or benefits program should
consult their legal advisers to determine whether the Policy is appropriate for
this purpose.
Other Tax Consequences
The policy may be used in various arrangements, including non-qualified deferred
compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if a policyowner is
contemplating the use of a policy in any arrangement the value of which depends
in part on its tax consequences, the policyowner should consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
GIAC's Taxes
Under the current life insurance company tax provisions of the Internal Revenue
Code, an insurer's variable life insurance business is treated in a manner
consistent with a fixed-benefit life insurance business. Accordingly, GIAC pays
no income tax on investment income and capital gains reflected in its variable
life insurance policy reserves, and no charge is currently being made to any
investment division of the Separate Account for taxes. GIAC reserves the right
to assess a charge against the Separate Account in the future for taxes or other
tax-related economic burdens which it incurs that are attributable to the
Separate Account or allocable to the policy. The operations of the Separate
Account are reported on GIAC's federal income tax return, which is then
consolidated with that of GIAC's parent, Guardian Life.
GIAC may have to pay state, local and other taxes in addition to premium taxes.
At present, these taxes are not substantial. If they increase, charges may be
made for such taxes that are attributable to the Separate Account or allocable
to the policy.
Income Tax Withholding
GIAC is generally required to withhold for income taxes applicable to taxable
distributions. A policyowner can elect in writing to not have income taxes
withheld. If income tax is not withheld for a taxable distribution, or if an
insufficient amount is withheld, tax payments may be required from the
policyowner later. Under the applicable tax rules, penalties may be assessed
against the policyowner if withholding or estimated tax payments are
insufficient. GIAC may also be required to withhold GST taxes if it does not
receive satisfactory written notification that no such taxes are due.
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31
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THE VARIABLE INVESTMENT OPTIONS
THE SEPARATE ACCOUNT
The Separate Account was established by resolution of GIAC's Board of Directors
on February 27, 1997 under the insurance law of the state of Delaware, and meets
the definition of "separate account" under the federal securities laws. The
Separate Account is registered with the SEC as a unit investment trust, which is
a type of investment company under the Investment Company Act of 1940 (the "1940
Act"). A unit investment trust invests its assets in specified securities, such
as the shares of one or more registered mutual funds, rather than a portfolio of
unspecified securities. Registration under the 1940 Act does not involve any
supervision by the SEC of the investment management or programs of the Separate
Account or GIAC. Under Delaware law, however, both GIAC and the Separate Account
are subject to regulation by the Delaware Insurance Commissioner. GIAC is also
subject to the insurance laws and regulations of all states and jurisdictions
where it is authorized to conduct business.
GIAC owns the assets held in the Separate Account. The assets equal to the
reserves and other liabilities of the Separate Account are used only to support
the variable life insurance policies issued through the Separate Account.
Delaware insurance law provides that such assets may not be used to satisfy
liabilities arising from any other business that GIAC may conduct. This means
that the assets supporting Policy Account Values maintained in the Variable
Investment Options are not available to meet the claims of GIAC's general
creditors. GIAC may also retain in the Separate Account assets that exceed the
reserves and other liabilities of the Separate Account. Such assets can include
GIAC's direct contributions to the Account, accumulated charges for mortality
and expense risks or the investment results attributable to GIAC's retained
assets. Because such retained assets do not support Policy Account Values, GIAC
may transfer them from the Separate Account to its general account.
The Separate Account presently has several investment divisions, each of which
invests in shares of a corresponding mutual fund. The funds are briefly
described below. More complete information about the mutual funds, including all
fees and expenses, appear in the prospectuses which accompany this prospectus.
THE FUNDS
Each of the funds is an open-end diversified management investment company, and
is registered with the SEC under the 1940 Act. Such registration does not
involve any supervision by the SEC of the investment management or policies of
the funds. The funds do not impose a sales charge or "load" for buying and
selling their shares, so GIAC buys and sells shares at net asset value in
response to policyowner-requested and other policy transactions.
Presently, policy and contract values attributable to both variable life
insurance policies and variable annuities may be invested in the funds through
GIAC's separate accounts. While each fund's Board of Directors intends to
monitor events in order to identify and, if deemed necessary, act upon any
material irreconcilable conflicts that may possibly arise, GIAC may also take
action to protect policyowners. See "Rights Reserved by GIAC" and the
accompanying prospectuses for the mutual funds.
Investment Objectives and Policies of the Funds
Each fund has a different investment objective that it tries to achieve by
following specified investment policies. The objective and policies of each fund
will affect its potential returns and its risks. There is no guarantee that a
fund will achieve its investment objective. The following chart states each
fund's objective and lists typical portfolio investments.
FUND INVESTMENT OBJECTIVE TYPICAL INVESTMENTS
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Guardian Long-term growth of capital U.S. common stocks and
Stock Fund convertible securities
Guardian Long-term growth of capital U.S. common stocks and
Small Cap convertible securities
Stock Fund
Guardian Maximum income with- investment grade
Bond Fund out undue risk of debt obligations and
principal U.S. government securities
Guardian High level of current money market
Cash Fund income; preservation instruments
of capital
Baillie Gifford Long-term capital common stocks and
International appreciation convertible securities
Fund issued by foreign
companies
Baillie Gifford Long-term capital common stocks and
Emerging appreciation convertible securities
Markets Fund issued by companies
that are organized in,
generally operate in,
or which principally
sell their securities in
emerging market
countries.
Value Line Long-term growth of U.S. common stocks
Centurion capital ranked 1 or 2 by
Fund the Value Line
Ranking System*
Value Line High total investment U.S. common stocks,
Strategic Asset return consistent ranked 1 or 2 by
Management with reasonable risk the Value Line
Trust Ranking System,*
bonds and money
market instruments
Gabelli Growth of capital; current U.S. common stocks and
Capital Asset income as a secondary convertible securities
Fund objective
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<PAGE>
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MFS Emerging Long-term growth of U.S. common stocks of
Growth capital emerging growth
Series companies
MFS Total Above-average income equity securities and non-
Return Series (compared to a portfolio convertible fixed income
invested entirely in equity securities
securities) consistent with
prudent employment of
capital, and secondarily to
provide a reasonable
opportunity for growth
of capital and income
MFS Growth Reasonable current common stocks and
With income and long-term convertible securities
Income Series growth of capital issued by U.S. and foreign
and income companies
MFS Bond To provide as high a level convertible and non-
Series of current income as is convertible debt
believed consistent with securities and preferred
prudent investment risk stocks; U.S. government
and secondarily to protect securities; commercial
shareholders' capital paper; repurchase
agreements and
cash or cash equivalents
American Long-term capital growth equity securities of well-
Century VP with income as a established intermediate-
Value Fund secondary objective to-large companies
whose securities are
believed to be
undervalued
American Capital growth international common
Century VP stocks with potential
International for appreciation
Fund
AIM V.I. Seeks long-term growth common stocks ,conver-
Value Fund of capital by investing tible bonds and conver-
primarily in undervalued tible preferred stock,
stocks with income as preferred stock and debt
a secondary objective instruments believed to
be undervalued relative
to the overall market.
AIM V.I. Seeks capital appreciation common stocks of
Capital by investing in stocks with medium-sized and smaller
Appreciation emphasis on medium-sized emerging growth
Fund and smaller emerging companies
growth companies
Fidelity VIP III Capital growth common stocks and
Growth convertibles
Opportunities
Portfolio
Fidelity VIP Reasonable income with income-producing
Equity-Income capital appreciation as a equity securities
Portfolio secondary objective
Fidelity VIP High level of current high-yielding debt
High Income income securities with an
Portfolio emphasis on lower-quality
securities
Fidelity VIP II Total return that equity securities of
Index 500 corresponds to that of companies that compose
Portfolio the Standard & Poor's the Standard & Poor's 500
500 Index and in other instruments
that are based on the
value of the Index
* The Value Line Ranking System has been used substantially in its present
form since 1965. The System ranks stocks on a scale of 1 (highest) to 5
(lowest) for year-ahead relative performance (timeliness).
Investment Performance of the Funds
The average annual total returns shown below are based on the actual investment
performance of the mutual funds for years ended December 31, 1996 and the 12
months period ended September 30, 1997. They reflect the deduction of investment
advisory fees and operating expenses, and assume the reinvestment of all
dividends and capital gains distributed by the funds. These returns are not
illustrative of how actual investment performance will affect the benefits
provided by a Park Avenue VUL policy because they do not reflect the effects of
the deductions and charges that GIAC makes under the policy's terms. Moreover,
these returns are not an estimate or prediction of future performance. They may
be useful, though, in assessing the past performance of the funds. Total returns
for The Guardian Small Cap Stock Fund (which commenced operation in 1997) and
The Guardian Cash Fund are not presented.
FUND NAME YEARS ENDED DECEMBER 31, 1996
AND Since
INCEPTION DATE 1 Year 5 Years 10 Years Inception
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Guardian Stock Fund 26.90% 19.43% 16.00% 16.72%
(4/13/83)
Guardian Bond Fund 2.88% 6.68% 8.03% 9.40%
(5/1/83)
Baillie Gifford 15.41% N/A N/A 12.34%
International Fund
(2/8/91)
Baillie Gifford (0.60)% N/A N/A (10.53)%
Emerging
Markets Fund
(10/17/94)
Value Line 17.34% 13.21% 15.17% 13.59%
Centurion Fund
(11/15/83)
Value Line 15.87% 12.76% N/A 14.23%
Strategic Asset
Management Trust
(10/1/87)
Gabelli Capital 11.00% N/A N/A 11.70%*
Asset Fund
(5/1/95)
MFS Emerging 17.02% N/A N/A 24.67%
Growth Series**
(7/24/95)
MFS Total Return 14.37% N/A N/A 20.74%
Series**
(1/3/95)
MFS 24.46% N/A N/A 25.88%
Growth With
Income Series**
(10/9/95)
MFS Bond Series** 2.09% N/A N/A 4.34%
(10/24/95)
American Century VP N/A N/A N/A 12.28%
Value Fund
(5/1/96)
American Century VP 14.41% N/A N/A 7.73%
International Fund
(5/1/94)
AIM V.I. Value Fund 15.02% N/A N/A 18.70%
(5/5/93)
AIM V.I. Capital 17.58% N/A N/A 20.10%
Appreciation Fund
(5/5/93)
Fidelity VIP III Growth 18.27% N/A N/A 25.26%
Opportunities
Portfolio***
(1/3/95)
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Fidelity VIP Equity- 14.28% 17.98% 13.74% 13.42%
Income Portfolio***
(10/9/86)
Fidelity VIP High 14.03% 14.96% 11.22% 12.00%
Income Portfolio***
(8/19/85)
Fidelity VIP II Index 22.71% N/A N/A 17.07 %
500 Portfolio***
(8/27/92)
FUND NAME YEARS ENDED SEPTEMBER 30, 1997
AND Since
INCEPTION DATE 1 Year 5 Years 10 Years Inception
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Guardian Stock Fund 45.69% 25.04% 16.25% 18.07%
(4/13/83)
Guardian Bond Fund 9.94% 6.38% 9.34% 9.38%
(5/1/83)
Baillie Gifford 25.34% 13.92% N/A 10.25%
International Fund
(2/8/91)
Baillie Gifford 28.49% N/A N/A 8.84
Emerging
Markets Fund
(10/17/94)
Value Line 30.06% 19.81% 14.77% 14.79%
Centurion Fund
(11/15/83)
Value Line 16.05% 15.03% N/A 14.60%
Strategic Asset
Management Trust
(10/1/87)
Gabelli Capital 34.40% N/A N/A 21.90%
Asset Fund*
(5/1/95)
MFS Emerging 23.87% N/A N/A 28.49%
Growth Series**
(7/24/95)
MFS Total Return 24.73% N/A N/A 21.78%
Series**
(1/3/95)
MFS 33.88% N/A N/A 29.23%
Growth With
Income Series**
(10/9/95)
MFS Bond Series** 10.83% N/A N/A 6.26%
(10/24/95)
American Century VP 37.74% N/A N/A 28.21%
Value Fund
(5/1/96)
American Century VP 30.36% N/A N/A 12.65%
International Fund
(5/1/94)
AIM V.I. Value Fund 34.80% N/A N/A 21.43%
(5/5/93)
AIM V.I. Capital 25.01% N/A N/A 22.19%
Appreciation Fund
(5/5/93)
Fidelity VIP III Growth 36.01% N/A N/A 27.62%
Opportunities
Portfolio***
(1/3/95)
Fidelity VIP Equity- 33.92% 21.48% 14.04% 14.81%
Income Portfolio***
(10/9/86)
Fidelity VIP High 19.01% 13.89% 12.66% 12.63%
Income Portfolio***
(8/19/85)
Fidelity VIP II Index 39.82% 20.42% N/A 20.29 %
500 Portfolio***
(8/27/92)
* For the period from May 1, 1995 through December 31, 1995, the Manager and
the Adviser of Gabelli Capital Asset Fund absorbed a portion of the fund's
operating expenses. Total returns for this period would have been lower if
these expenses had not been absorbed.
** Total returns for the MFS Growth With Income Series, Emerging Growth
Series, Bond Series and Total Return Series reflect the agreement by the
series' Adviser to bear expenses for the series, subject to reimbursement
by the series, such that the operational expenses shall not exceed, for
the Growth With Income, Emerging Growth, and Total Return Series, 0.25% ,
and for the Bond Series, 0.40% of the average daily net assets of the
series for each fiscal year since inception. Total returns would be lower
in the absence of this agreement.
*** Total returns for the Fidelity Growth Opportunities, Fidelity
Equity-Income, Fidelity High Income, and Fidelity Index 500 Portfolios
reflect the reimbursement of certain fund expenses by the Adviser during
certain periods and/or the effects of varying arrangements with third
parties who either paid or reimbursed a portion of the fund's expenses. In
the absence of these arrangements total returns would have been lower.
THESE TOTAL RETURNS ARE FOR THE FUNDS ONLY AND DO NOT REFLECT THE EFFECTS OF
DEDUCTIONS FROM POLICY PREMIUMS AND UNSCHEDULED PAYMENTS, MONTHLY DEDUCTIONS,
TRANSACTION DEDUCTIONS OR DEDUCTIONS FROM THE SEPARATE ACCOUNT. INCLUDING THE
EFFECTS OF THESE DEDUCTIONS REDUCES RETURNS. SEE ALSO "DEFINITIONS" AND
"DEDUCTIONS AND CHARGES" FOR ADDITIONAL INFORMATION.
THE FUNDS' INVESTMENT ADVISERS
Guardian Investor Services Corporation
The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian Bond
Fund and The Guardian Cash Fund, (the "Guardian funds") are advised by Guardian
Investor Services Corporation ("GISC"), 201 Park Avenue South, New York, New
York 10003. GISC is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act"). GISC is wholly owned by GIAC. Each of
the Guardian funds, except the Small Cap Stock Fund, pays GISC an investment
advisory fee at an annual rate of 0.50% of the fund's average daily net assets
for the services and facilities GISC provides to the fund. The Small Cap Stock
Fund pays GISC 0.75% of the Fund's average daily net assets. GISC also serves as
the investment adviser to six of the eight series comprising The Park Avenue
Portfolio, a family of mutual funds, and serves as manager of Gabelli Capital
Asset Fund.
Guardian Baillie Gifford Limited
Baillie Gifford International Fund and Baillie Gifford Emerging Markets Fund are
advised by Guardian Baillie Gifford Limited ("GBG"), 1 Rutland Court, Edinburgh,
EH3 8EY, Scotland. GBG is registered as an investment adviser under the Advisers
Act and is a member of Great Britain's Investment Management Regulatory
Organization Limited ("IMRO"). GBG was incorporated in Scotland by GIAC and
Baillie Gifford Overseas Limited ("BG Overseas") in November 1990. GBG is also
the investment adviser of two of the eight series comprising The Park Avenue
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34
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Portfolio and the Baillie Gifford Emerging Markets Fund series of GIAC Funds,
Inc. Baillie Gifford International Fund and Baillie Gifford Emerging Markets
Fund pay GBG an investment advisory fee at an annual rate of 0.80% and 1.00%,
respectively, of the average daily net assets of the fund for the services and
facilities GBG provides to the fund.
Baillie Gifford Overseas Limited
GBG has appointed BG Overseas to serve as sub-investment adviser to Baillie
Gifford International Fund. Like GBG, BG Overseas is located at 1 Rutland Court,
Edinburgh, EH3 8EY, Scotland. BG Overseas is also registered under the Advisers
Act and is a member of IMRO. BG Overseas is wholly owned by Baillie Gifford &
Co., which is currently one of the largest investment management partnerships in
the United Kingdom. BG Overseas advises several institutional clients situated
outside of the United Kingdom, and is also the sub-investment adviser to the two
series of The Park Avenue Portfolio that are advised by GBG. One half of the
investment advisory fee paid by Baillie Gifford International Fund and Baillie
Gifford Emerging Markets Fund to GBG is payable by GBG to BG Overseas for its
services as the fund's sub-investment adviser. No separate or additional fee is
paid by either fund to BG Overseas.
Value Line, Inc.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund are
advised by Value Line, Inc. ("Value Line"), 220 East 42nd Street, New York, New
York 10017. Value Line is registered as an investment adviser under the Advisers
Act. Each of the Value Line funds pays Value Line an investment advisory fee at
an annual rate of 0.50% of the fund's average daily net assets for the services
and facilities Value Line provides to the fund. Value Line also serves as the
investment adviser to its own family of mutual funds and publishes The Value
Line Investment Survey and The Value Line Mutual Fund Survey.
Gabelli Funds, Inc.
Gabelli Capital Asset Fund is managed by GISC, which has appointed Gabelli
Funds, Inc. ("GFI") as the investment adviser to the Fund. GFI has its principal
offices at One Corporate Center, Rye, New York 10580, and is registered as an
investment adviser under the Advisers Act. The Fund pays GISC a management fee
at an annual rate of 1.00% of its average daily net assets for services and
facilities which GISC provides to the Fund. For its services as investment
adviser, GISC pays GFI .75% of the management fee which GISC receives from the
Fund. No separate or additional fee is paid by the Fund to GFI. GFI also serves
as investment adviser to other open-end mutual funds and closed-end mutual
funds.
Massachusetts Financial Services Company
MFS Growth With Income Series, MFS Emerging Growth Series, MFS Bond Series, and
MFS Total Return Series are advised by Massachusetts Financial Services Company
("MFS"), 500 Boylston Street, Boston, MA. MFS is registered as an investment
adviser under the Advisers Act and is a subsidiary of Sun Life of Canada (U.S.)
which is itself an indirect wholly owned subsidiary of Sun Life Assurance
Company of Canada. MFS provides advisory services to other open- and closed-end
registered investment companies, as well as private and institutional investors.
As compensation for its services to the Series, MFS receives a fee, payable
monthly, at an annual rate of 0.75%, 0.75%, 0.60%, and 0.75% of the average
daily net assets of the Growth With Income Series, Emerging Growth Series, Bond
Series and Total Return Series, respectively.
American Century Investment Management, Inc.
The American Century VP Value Fund and the American Century VP International
Fund are advised by American Century Investment Management, Inc. ("ACIM"),
American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. ACIM, a
registered investment adviser under the Advisers Act, has been providing
investment advisory services to investment companies and institutional investors
since it was founded in 1958. Each of the American Century funds pays ACIM an
investment advisory fee at an annual rate of 1.00% and 1.50% of the average
daily net assets of the VP Value Fund and the VP International Fund,
respectively.
A I M Advisors, Inc.
AIM V.I. Value Fund and AIM V.I. Capital Appreciation Fund are advised by A I M
Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046. AIM,
a registered investment adviser under the Advisers Act, was organized in 1976
and, together with its subsidiaries, manages or advises numerous investment
company portfolios. AIM is a wholly-owned subsidiary of A I M Management Group
Inc. which in turn is an indirect subsidiary of AMVESCAP plc, (formerly AMVESCO
plc and, prior thereto, INVESCO plc). AMVESCAP plc and its subsidiaries are an
independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. The AIM V.I. Value Fund and V.I. Capital Appreciation Fund
each pay AIM an investment advisory fee at an annual rate of 0.64% of the fund's
average daily net assets.
Fidelity Management & Research Company
The Fidelity VIP III Growth Opportunities Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP High Income Portfolio, and Fidelity VIP II Index 500
Portfolio are advised by Fidelity Management & Research Company ("FMR"), 82
Devonshire Street, Boston, Massachusetts 02109. FMR, a registered investment
adviser under the Advisers Act, is the management arm of Fidelity Investments,
which was established in 1946. Each of the Fidelity portfolios pays FMR an
investment advisory fee at annual rates of 0.61%, 0.51%, 0.59%, and 0.28% (0.24%
after December 31, 1996) for the Growth Opportunities, Equity-Income, High
Income, and Index 500 Portfolios, respectively.
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On behalf of the High Income and Growth Opportunities Portfolios, FMR has
sub-investment advisory agreements with two affiliates, FMR U.K. and FMR Far
East. FMR U.K. and FMR Far East are compensated for providing FMR with
investment research and advice with fees equal to 110% and 105%, respectively,
of the costs of providing these services. On behalf of the High Income
Portfolio, the sub-investment advisers may also provide investment management
services in return for which they receive a fee equal to 50% of FMR's management
fee rate. No separate or additional fee is paid by the portfolios to the
sub-adviser.
Effective December 1, 1997 Bankers Trust Company ("BT") has been appointed
sub-investment adviser to the Index 500 Portfolio. BT, a New York Banking
Corporation with principal offices at 130 Liberty Street, New York, New York
10006, is a wholly owned subsidiary of Bankers Trust New York Corporation. For
investment management, Securities lending and custodial services to the Index
500 portfolio, FMR pays BT fees at an annual rate of 0.006% of the average net
assets of the Portfolio. No separate or additional fee is paid by the Portfolio
to BT.
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THE FIXED RATE OPTION
GENERAL INFORMATION
The policyowner may allocate some or all of the Net Premiums paid under a policy
or transfer some or all of the Policy Account Value that is attributable to the
Variable Investment Options to Park Avenue VUL's Fixed-Rate Option. As described
elsewhere in this prospectus, certain restrictions apply to transfers out of the
Fixed-Rate Option, and GIAC will use amounts in the Fixed-Rate Option as the
last source of funds for certain policy transactions. The Fixed-Rate Option is
backed by GIAC's general account.
Because of exemptive and exclusionary provisions, interests in the Fixed-Rate
Option are not registered under the Securities Act of 1933, and neither the
Fixed-Rate Option nor GIAC's general account are registered as investment
companies under the 1940 Act. GIAC has been advised that the staff of the SEC
does not review prospectus disclosures relating to unregistered allocation and
transfer options, but such disclosures may be subject to certain generally
applicable provisions of the federal securities laws regarding the accuracy and
completeness of statements made in prospectuses.
The Fixed-Rate Option is only available under the policy in states where it has
been approved by the state insurance department.
AMOUNTS IN THE FIXED-RATE OPTION
The sources of the Policy Account Value attributable to the Fixed-Rate Option
are:
o Net Premiums and loan repayments that have been allocated and remain
credited to the option, plus
o amounts transferred to the option from the Variable Investment
Options which remain credited to the Fixed-Rate Option, plus
o interest paid on amounts held in the option.
GIAC guarantees that amounts invested in the Fixed-Rate Option will accrue
interest daily at an effective annual rate of at least 4%. GIAC is not obligated
to credit interest at a rate higher than 4%, although it may do so at its sole
discretion. GIAC declares the current interest rate for the Fixed-Rate Option
periodically.
The Policy Account Value attributable to the Fixed-Rate Option on the Policy
Date or any Policy Anniversary will earn interest at the annual rate in effect
on that day for the next 12 months, when it will be accumulated together with
the following amounts to earn the interest rate then in effect for the next 12
months:
o amounts allocated or transferred to the Fixed-Rate Option during
such 12 months; and
o interest credited on all amounts attributable to the Fixed-Rate
Option during such 12 months
Amounts allocated or transferred to the Fixed-Rate Option on a date other than
the Policy Date or a Policy Anniversary will earn interest at the rate in effect
on the date of the applicable transaction until the next Policy Anniversary.
Accordingly, the effective interest rate credited at any time to a policy with
amounts in the Fixed-Rate Option will be a weighted average of all the
Fixed-Rate Option interest rates which then apply to the Policy Account Value in
the Fixed-Rate Option.
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VOTING RIGHTS
As explained under "The Variable Investment Options," GIAC invests the assets of
the Separate Account's investment divisions in shares of certain corresponding
mutual funds. GIAC is the record owner of such shares and will attend and has
the right to vote at any meeting of a fund's shareholders.
To the extent required by applicable law, GIAC will vote the fund shares that it
owns through the Separate Account according to instructions received from Park
Avenue VUL policyowners. GIAC will vote shares for which no instructions are
received in the same proportion as it votes shares for which it has received
instructions. GIAC will vote any mutual fund shares that it is entitled to vote
directly due to amounts it has contributed or accumulated in the applicable
investment division in the same proportion as all of its policyowners and
contractowners vote, including those who participate in other GIAC separate
accounts. If the applicable law or interpretations thereof change so as to
permit GIAC to vote a fund's shares in GIAC's own right or to restrict
policyowner voting, GIAC reserves the right to do so.
GIAC will seek voting instructions from Park Avenue VUL policyowners for the
number of shares attributable to their policies. Policyowners are entitled to
provide instructions if, on the applicable record date, they have allocated
Policy Account Values to the investment division that corresponds to the mutual
fund for which a shareholder meeting is called. GIAC determines the number of
shares attributable to a policy by dividing the Policy Account Value in the
applicable investment division by the net asset value per fund share as of the
record date. Fractional shares are counted.
If permitted by state insurance regulatory authorities, GIAC may disregard
voting instructions relating to changes in a mutual fund's investment adviser,
investment advisory contract, investment objective or investment policies. GIAC
will only take such action if it reasonably disapproves the proposed changes,
and, in the case of a change in investment adviser or an investment policy, if
it makes a good faith determination that the proposed change is contrary to
state law or otherwise inappropriate in view of the fund's investment objective
and purpose. GIAC will explain its actions in the next semi-annual report to
policyowners.
Certain actions which GIAC may take relating to the operations of the Separate
Account may require policyowner approval. See "Rights Reserved by GIAC." If a
vote is required, each policyowner will be entitled to one vote for every $100
of value held in the Separate Account's investment divisions. GIAC will cast
votes attributable to its direct investments in the investment divisions in the
same proportion as votes cast by policyowners.
There are no voting rights with respect to the Fixed-Rate Option.
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DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS
In its capacity as a broker-dealer registered under the Securities and Exchange
Act of 1934 (the "1934 Act") and as a member of the National Association of
Securities Dealers, Inc., GISC has entered into a distribution agreement with
GIAC to serve as the principal underwriter of the policies and the other
variable annuity contracts and variable life insurance policies issued by GIAC
through its separate accounts. The amounts paid or accrued to GISC by GIAC under
the distribution agreement totalled $1,709,799, $1,409,708 and $1,851,468 during
the years ended December 31, 1994, 1995 and 1996, respectively. GISC is a New
York corporation.
GIAC agents who are licensed by state insurance authorities to sell variable
life insurance policies must also be registered representatives of GISC or of
broker-dealer firms which have entered into sales agreements with GISC and GIAC
to sell Park Avenue VUL. GIAC's agents receive sales commissions that are paid
from GIAC's resources, including amounts collected as Premium Charges and
surrender charges. If a policy is returned pursuant to the Right to Cancel
provision of the policy, some or all of the sales commission paid may be
recovered by GIAC from the agent.
The maximum commission that GIAC will pay to an agent for selling a policy is
(i) 45% of the policy premium paid for the first policy year up to one Target
Premium and 3.0% of the policy premiums in excess of one Target Premium; (ii) 3%
of the premiums paid for policy years two through ten up to nine Target Premiums
and 3.0% of policy premiums in excess of nine Target Premiums; and (iii) 2.0% of
policy premiums paid after policy year 10. GIAC may also pay commission
overrides, expense allowances, bonuses, wholesaler fees and training allowances
in connection with the marketing and sale of Park Avenue VUL policies. In
addition, agents who meet specified production levels may qualify for non-cash
compensation such as merchandise and expense-paid trips or educational seminars.
GIAC has entered into an administrative services agreement with its parent,
Guardian Life. Under this agreement, GIAC is billed quarterly by Guardian Life
for the time spent by Guardian Life's employees on GIAC's business, and for
GIAC's use of Guardian Life's centralized services and sales force.
GIAC has also entered into an agreement with Value Line, Inc. pursuant to which
Value Line compensates GIAC for marketing the Value Line Centurion Fund and the
Value Line Strategic Asset Management Trust to GIAC's policyowners. For the year
ended December 31, 1996, GIAC received $153,151 from Value Line on behalf of the
Centurion Fund and $259,361 from Value Line on behalf of the Strategic Asset
Management Trust. Similar agreements have been entered into with MFS and
American Century.
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LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY
Incontestability
Generally, GIAC may not challenge the validity of a policy that has been in
force during the insured's lifetime for two years from the Issue Date. It will
not contest the validity of an increase in face or the addition of a
supplementary benefit after such increase or addition has been in force during
the insured's lifetime for two years. If the death benefit is changed from
Option 1 to Option 2, GIAC may challenge any increase in the death benefit that
has been effective during the insured's lifetime for less than two years from
the effective date of the change. If GIAC successfully contests a change from
Death Benefit Option 1 to 2 or an increase in Face Amount, the death benefit
will be what would have been payable had such change not taken effect.
Misstatement of Age or Sex
If the insured's Age or sex was misstated in the application for a Park Avenue
VUL policy, the death benefit under the policy will be that which would be
purchased by the most recent deduction for the cost of insurance at the correct
Age and sex (unless unisex rates are required). The death benefit for any rider
will be that which would have been purchased at the correct Age and sex by the
most recent charge for that rider at the correct Age and sex.
Suicide Exclusion
If the insured commits suicide, while sane or insane, within two years from the
Issue Date, GIAC's liability will be limited to the greater of the policy's Net
Cash Surrender Value on the date of death, or an amount equal to:
o the policy premiums paid, minus
o any Policy Debt; and minus
o any partial withdrawals made and surrender charges deducted in
connection with such withdrawals.
If the insured commits suicide, while sane or insane, within two years from the
effective date of any increase in the Face Amount, GIAC's liability with respect
to such increase will be limited to the cost of insurance for such increase.
If the insured commits suicide, while sane or insane, within 2 years from the
effective date of any increase in death benefit due to a change from Option 1 to
2, GIAC's liability will be limited to the death benefit that would have been
payable had such change not taken effect.
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GIAC'S MANAGEMENT
The directors and officers of GIAC are named below together with information
about their principal occupations and affiliations during the past five years.
The business address of each director and officer is 201 Park Avenue South, New
York, New York 10003. The "Guardian Fund Complex" referred to in the
biographical information is comprised of (1) The Guardian Stock Fund, (2) The
Guardian Bond Fund, (3) The Guardian Cash Fund, (4) The Park Avenue Portfolio (a
series trust that issues its shares in eight series) and (5) GIAC Funds, Inc. (a
series fund that issues its shares in three series).
Name Title Business History
CHARLES E. ALBERS Vice President, Senior Vice President, The
Equity Securities Guardian Life Insurance
Company of America 1/91 -
present. Executive Vice
President of Guardian Investor
Services Corporation and
Guardian Asset Management
Corporation. Senior Vice
President, GIAC Funds, Inc.
Officer of various mutual
funds within the Guardian Fund
Complex; Director, Guardian
Baillie Gifford Limited.
JOSEPH A. CARUSO Secretary Vice President and Corporate
Secretary, The Guardian Life
Insurance Company of America
3/96 present; Second Vice
President and Corporate
Secretary 1/95 - 2/96;
Corporate Secretary 10/92 -
12/94; Secretary, Guardian
Investor Services Corporation,
Guardian Asset Management
Corporation, Guardian Baillie
Gifford Limited and various
mutual funds within the
Guardian Fund Complex.
PHILIP H. DUTTER Director Management Consultant
(self-employed). Director of
The Guardian Life Insurance
Company of America 3/88 -
present. Director of Guardian
Investor Services Corporation.
EARL C. HARRY Treasurer Treasurer, The Guardian Life
Insurance Company of America
11/96 - present. Assistant
Treasurer prior thereto.
Treasurer of Guardian Investor
Services Corporation.
ARTHUR V. FERRARA Director Retired. Chairman of the Board
and Chief Executive Officer,
The Guardian Life Insurance
Company of America 1/93 -
12/95; President and Chief
Executive Officer prior
thereto. Director 1/81 -
present. Director (Trustee) of
Investor Services Corporation,
Guardian Asset Management
Corporation, Gabelli Guardian
Capital Asset Fund and various
mutual funds within the
Guardian Fund Complex.
CHARLES G. FISHER Vice President Second Vice President and
Actuary, The Guardian and
Actuary Life Insurance Company
of America 12/86 - present.
LEO R. FUTIA Director Retired. Former Chairman of
the Board and Chief Executive
Officer, The Guardian Life
Insurance Company of America;
Director 5/70 - present.
Director (Trustee) of Guardian
Investor Services Corporation
and various mutual funds
within the Guardian Fund
Complex. Director (Trustee) of
various mutual funds sponsored
by Value Line, Inc.
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Name Title Business History
THOMAS R. HICKEY, JR. Vice President, Vice President, Equity
Operations Operations, The Guardian Life
Insurance Company of America
3/92 - present. Vice
President, Guardian Investor
Services Corporation. Vice
President of various mutual
funds within the Guardian Fund
Complex.
PETER L. HUTCHINGS Director Executive Vice President and
Chief Financial Officer, The
Guardian Life Insurance
Company of America 5/87 -
present. Director of Guardian
Investor Services Corporation
and Guardian Asset Management
Corporation.
RYAN W. JOHNSON Vice President and Second Vice President, Equity
National Sales Sales, The Guardian Life
Director Insurance Company of America
3/95 - present; Regional Sales
Director for Equity Products,
Western Division, prior
thereto.
FRANK J. JONES Executive Vice Executive Vice President and
President, Chief Chief Investment Officer, The
Investment Officer Guardian Life Insurance
and Director Company of America
1/94-present; Senior Vice
President and Chief Investment
Officer prior thereto.
Director, Guardian Investor
Services Corporation and
Guardian Baillie Gifford
Limited. Director and
President, Guardian Asset
Management Corporation.
Officer of various mutual
funds within the Guardian Fund
Complex.
EDWARD K. KANE Director Executive Vice President, The
Guardian LifeInsurance Company
of America 1/97 - present;
Senior Vice President and
General Counsel prior thereto;
Director 11/88-present.
Director, Guardian Asset
Management Corporation.
GARY B. LENDERINK Vice President, Vice President, Group
Group Pensions Pensions, The Guardian Life
Insurance Company of America
1/95-present; Second Vice
President prior thereto.
FRANK L. PEPE Vice President Vice President and Controller,
and Controller Equity Products, The Guardian
Life Insurance Company of
America 1/96-present; Second
Vice President and Controller,
Equity Products prior thereto.
Vice President and Controller
of Guardian Investor Services
Corporation. Officer of
various mutual funds within
the Guardian Fund Complex.
RICHARD T. POTTER, JR. Vice President Vice President and Equity
and Counsel Counsel, The Guardian Life
Insurance Company of America
1/96 - present; Second Vice
President and Equity Counsel
1/93 - 12/95; Counsel prior
thereto. Vice President and
Counsel of Guardian Investor
Services Corporation. Counsel
of Guardian Asset Management
Corporation and various mutual
funds within the Guardian Fund
Complex.
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<PAGE>
Name Title Business History
JOSEPH D. SARGENT President, Chief President, Chief Executive
Executive Officer Officer and Director, The
and Director Guardian Life Insurance
Company of America 1/96 -
present; President 1/93 -
12/95; Executive Vice
President prior thereto;
Director 1/93-present.
Chairman of the Board of
Guardian Investor Services
Corporation and Guardian Asset
Management Corporation and
various mutual funds within
the Guardian Fund Complex.
Director of Guardian Baillie
Gifford Limited.
JOHN M. SMITH Executive Vice ecutive Vice President, The
President and Guardian Life Insurance
Director Company of America 1/95 -
present; Senior Vice
President, Equity Products
prior thereto. President and
Director, Guardian Investor
Services Corporation and
Guardian Asset Management
Corporation President, GBG
Funds, Inc.; Director,
Guardian Baillie Gifford
Limited.
DONALD P. SULLIVAN, JR. Vice President Second Vice President, The
Guardian Life Insurance
Company of America
1/95-present; Assistant Vice
President prior thereto. Vice
President of Guardian Investor
Services Corporation.
WILLIAM C. WARREN Director Retired. Dean Emeritus,
Columbia Law School. Former
Chairman of the Board, Sandoz,
Inc.; Director of The Guardian
Life Insurance Company of
America since 1/57 and
Director of Guardian Investor
Services Corporation.
No officer or director of GIAC receives any compensation from the Account. No
separately allocable compensation has been paid by GIAC, or any of its
affiliates, to any person listed above for services rendered to the Account.
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OTHER INFORMATION
Rights Reserved by GIAC
GIAC reserves the right to make certain changes or take actions that it deems to
serve the best interests of its Park Avenue VUL policyowners and their
beneficiaries, or which it deems appropriate to carry out the purposes of the
policy. GIAC will only exercise its reserved rights to the extent and in the
manner permitted by applicable laws. Also, when required by law, GIAC will
obtain approval of its changes or actions from appropriate regulatory
authorities and/or policyowners. Examples of the changes or actions that GIAC
may implement include:
o Operating the Separate Account in any form permitted under the 1940
Act, or in any other form permitted by law.
o Taking any action necessary to comply with or obtain and continue
any exemptions from the 1940 Act.
o Deregistering the Separate Account under the 1940 Act.
o Transferring assets in a Separate Account investment division to
another investment division, or to one or more separate accounts, or
to GIAC's general account.
o Adding, combining or removing investment divisions in the Separate
Account.
o Substituting, for the mutual fund shares held in any investment
division, the shares of another class issued by such mutual fund or
the shares of another investment company or any other investment
permitted by law.
o Adding to, eliminating or suspending the policyowner's ability to
allocate Net Premiums or transfer amounts to any Variable Investment
Option or the Fixed-Rate Option.
o Changing the way GIAC deducts or collects charges under a policy,
but without increasing the charges unless and to the extent
permitted by other provisions of the policy.
o Modifying the policy as necessary to ensure that it continues to
qualify as life insurance under the Internal Revenue Code.
o Making any other technical changes in the policy required to conform
it with any action permitted to be taken by GIAC.
GIAC will notify policyowners who have allocated Policy Account Values to a
Variable Investment Option if any action taken by GIAC results in a material
change in that Investment Option's investments. An affected policyowner who
objects to the change may request a transfer from such Variable Investment
Option to any of the other options offered under the policy, including the
Fixed-Rate Option, within 60 days of the postmark on the notice. GIAC will
effect the transfer as described under "Transfers," without charge.
Right to Cancel
A policyowner may cancel a policy by returning it and a written cancellation
notice to GIAC's Executive Office or the agent from whom it was purchased
within: 10 days after receiving it; or 45 days from the date Part 1 of the
completed application for the policy was signed; whichever is later. Any mailed
notice given by the policyowner or GIAC shall be effective when it is
postmarked. GIAC will promptly refund all policy premiums submitted before
cancellation, but may delay refunding amounts paid by check until the check has
cleared. Longer periods in which the policy may be cancelled may apply in
certain states for some or all Park Avenue VUL policies issued there. Policies
issued in such states will state the applicable period. A policy that is
returned for cancellation under this provision will be void from the beginning.
The policyowner will also have a Right to Cancel for each Policy Segment.
Policyowner and Beneficiary
The policyowner is named in the application for a Park Avenue VUL policy, but
can be changed from time to time. While the insured is living and subject to any
assignment shown on GIAC's records, only the policyowner named on GIAC's records
has the right to receive benefits or exercise the rights granted by the policy,
including the right to change the policyowner. See "Assignment." When the
policyowner dies, his or her estate becomes the policyowner, unless a successor
owner is named. Since the policyowner's rights terminate when the insured dies,
no successor owner is permitted when the insured and the policyowner are the
same person.
Joint policyowners are permitted. With the exception of transfer requests, all
requests for policy transactions and policy changes must be signed by all of the
joint owners named on GIAC's records. When a joint policyowner dies, the
surviving joint owner(s) succeed equally to the deceased owner's interest,
unless otherwise provided. The estate of the last surviving joint owner becomes
the policyowner on such owner's death, unless otherwise provided. The
beneficiary is named in the application for a Park Avenue VUL policy, but can be
changed from time to time before the insured's death. Contingent and concurrent
beneficiaries are permitted. A beneficiary has no rights under a policy until
the insured dies. An individual must survive the insured to qualify as a
beneficiary, as specified in the policy. If no beneficiary survives the insured,
the policyowner (or his or her estate) is the beneficiary.
Any request to change the policyowner or beneficiary must be made in written
form satisfactory to GIAC, and must be signed and dated by the policyowner(s)
then named on GIAC's records. The change will be effective as of the date the
change request was signed. However, the change will not apply to any payments
made or actions taken by GIAC under the policy on or before the date the change
request is received at GIAC's Executive Office.
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Assignment
A Park Avenue VUL policy may be assigned. However, GIAC will not be bound by an
assignment unless and until the original or a copy of the assignment (which has
been signed and dated by the assignor and the assignee and, as applicable, the
beneficiary(ies)) is received at its Executive Office. Assignments are subject
to all payments made or actions taken by GIAC on or before the date it receives
the assignment. GIAC is not responsible for determining the validity of any
assignment.
Unless otherwise provided, the assignee may exercise all rights granted by the
policy except:
o the right to change the owner or beneficiary;
o the right to elect a payment option; or
o the right to allocate or transfer amounts among the Variable
Investment Options and the Fixed-Rate Option.
Communications From GIAC
Shortly after each Policy Anniversary, GIAC will send the policyowner a
statement that shows the following information as of the most recent Policy
Anniversary: (1) the amount of death benefit provided by the then effective
death benefit option; (2) the allocation instructions for Net Premium payments;
(3) the Policy Account Value, Cash Surrender Value, and Net Cash Surrender
Value; (4) the amount of the Policy Account Value attributable to each of the
options offered under the policy; (5) the amount of Policy Premiums received,
and charges deducted, since the last annual statement; (6) transfers and partial
withdrawals effected since the last annual statement; (7) loans made and loan
repayments received since the last annual statement; (8) the outstanding Policy
Debt; and (9) the interest rate in effect for the Fixed-Rate Option. Also, twice
each year, policyowners will receive reports containing financial statements for
the Separate Account and the mutual funds. Of these, the annual report will
contain audited financial statements.
GIAC will send notices to confirm the receipt of policy premiums, transfers and
certain other policy transactions, or to request a premium or loan repayment to
prevent policy lapse.
Communications With GIAC
GIAC cannot act upon requests for policy transactions or changes, or credit
Policy Premiums and unscheduled payments, unless such items are received at the
Executive Office in a form that is acceptable to GIAC. All written
communications to GIAC must include the policy number, full name(s) of the
policyowner(s) and insured, and the policyowner's current address.
Also, policyowners can call 1-800-935-4128 during normal business hours, New
York City time, for information about policy values.
Special Provisions For Group or Sponsored Arrangements
Where permitted by state insurance laws, GIAC may permit policies to be
purchased under group or sponsored arrangements, as well as on an individual
basis. A "group arrangement" includes a program under which a trustee, employer
or similar entity purchases policies covering a group of individuals on a group
basis. Where required by law, all participants of group arrangements will be
individually underwritten. A "sponsored arrangement" includes a program under
which an employer permits group solicitation of its employees or an association
permits group solicitation of its members for the purchase of policies on an
individual basis.
The charges and deductions described elsewhere in this prospectus may be reduced
for policies issued in connection with group or sponsored arrangements. Such
arrangements may include the sale of policies without surrender charges and/or
with reduced or eliminated fees and charges to employees, officers, directors
and agents of Guardian Life and its subsidiaries and immediate family members of
the foregoing. GIAC will reduce the above charges and deductions in accordance
with its rules in effect as of the date an application for a policy is approved.
To qualify for such a reduction, a group or sponsored arrangement must satisfy
certain criteria as to, for example, size of the group, expected number of
participants and anticipated premium payments from the group. Generally, the
sales contacts and efforts, administrative costs and mortality cost per policy
vary based on such factors as the size of the group or sponsored arrangements,
the purposes for which policies are purchased and certain characteristics of its
members. The amount of reduction and the criteria for qualification will reflect
the reduced sales effort and administrative costs resulting from, and the
different mortality experience expected as a result of, sales to qualifying
groups and sponsored arrangements.
GIAC may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification. Reductions in these charges will
not be unfairly discriminatory against any person, including the affected
policyowners and all other policyowners funded by the Separate Account.
In addition, GIAC may permit groups and persons purchasing under a sponsored
arrangement to apply for simplified issue and multi-life underwriting.
Advertising Practices
Advertisements or sales materials for Park Avenue VUL may refer to or reprint
all or portions of articles, or reports about variable life insurance generally
and Park Avenue VUL specifically. In addition, information that appears in
financial, business or general interest publications may be referred to or
reprinted in Park Avenue VUL's promotional materials. None of the contents of
these materials will be
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<PAGE>
indicative of the future performance or results that may be obtained by
purchasers of the policy.
Advertisements and sales materials for Park Avenue VUL may compare the
performance or independent ranking of one or more of the Variable Investment
Options or their corresponding mutual funds to: (1) other insurance company
separate accounts and the mutual funds offered through them; (2) other mutual
funds having similar investment objectives and policies; (3) relevant indices of
investment securities or of peer groups of funds; or (4) other investment
vehicles, including accounts or certificates that, unlike the policy, are
guaranteed by governmental entities. Such comparable information may be provided
by Lipper Analytical Services, Inc., Morningstar, Inc. and others.
Advertisements and sales materials about variable life insurance, Park Avenue
VUL, the Separate Account or the funds may feature an individual fund or
describe asset levels and sales volumes achieved by GIAC, GISC or others within
the financial services industry. References to personnel of the investment
advisers who have portfolio management responsibilities for the mutual funds
offered through the Separate Account and their investment styles may be
included.
The advertising and sales literature for the policy and the Separate Account may
refer to historical, current and prospective economic trends within the United
States and overseas. In addition, topics of general investor interest, including
college or retirement planning, reasons for investing and historical examples of
the performance of various types of securities or markets may be included.
Legal Proceedings
GIAC is not involved in any legal proceedings which would materially affect its
financial position or the Separate Account.
Legal Matters
The legal validity of the policy described in this prospectus has been passed
upon by Richard T. Potter, Jr., Vice President and Counsel of GIAC.
Registration Statement
This prospectus omits certain information contained in the registration
statement filed with the SEC on behalf of the Separate Account and relating to
the variable life insurance policy described in this prospectus. Copies of such
additional information may be obtained from the SEC's main office in Washington,
DC upon payment of the prescribed fee.
Financial and Actuarial Experts
The statutory balance sheets of GIAC as of December 31, 1996 and December 31,
1995 and the related statutory basis statements of operations, of changes in
common stock and of cash flows for the three years in the period ended December
31, 1996 that are included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing. Price Waterhouse
LLP is located at 1177 Avenue of the Americas, New York, New York 10036.
GIAC's statutory basis financial statements contained in this prospectus should
be considered only as bearing upon GIAC's ability to meet its obligations under
the Park Avenue VUL policies. They should not be considered as bearing upon the
investment experience of the Separate Account's investment divisions.
Actuarial matters in this prospectus have been examined by Charles G. Fisher,
FSA, Vice President and Actuary of GIAC. His opinion on actuarial matters is
filed as an exhibit to the registration statement filed with the SEC.
- --------------------------------------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
==================================================================================================
September 30, December 31,
1997 1996
Unaudited Audited
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds ......................................................... $ 472,411,606 $ 490,445,948
Affiliated mutual funds ....................................... 31,313,509 2,755,672
Investment in Subsidiary ...................................... 13,907,406 7,746,643
Policy loans -- variable life insurance ....................... 71,035,866 68,143,068
Investment in joint venture ................................... 647,881 285,874
Cash and short-term investments ............................... 32,949,108 17,825,039
Accrued investment income receivable ............................. 9,570,737 10,553,405
Due from parent and affiliates ................................... 14,611,582 6,507,913
Other assets ..................................................... 10,360,133 12,173,268
Receivable from separate accounts ................................ 9,851,137 11,606,587
Variable annuity and EISP/CIP separate account assets ............ 6,724,420,850 5,248,159,777
Variable life separate account assets ............................ 415,627,184 342,921,803
-------------- --------------
TOTAL ADMITTED ASSETS ....................................... $7,806,706,999 $6,219,124,997
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves ....................................... $ 338,372,953 $ 329,681,355
Fixed immediate reserves ...................................... 6,728,127 5,874,894
Life reserves ................................................. 65,388,252 65,462,693
Minimum death benefit guarantees .............................. 1,035,945 1,257,777
Policy loan collateral fund reserve ........................... 69,030,420 65,762,820
Accrued expenses, taxes & commissions ............................ 1,207,443 2,712,360
Due to parent and affiliates ..................................... 16,799,684 15,304,638
Federal income taxes payable ..................................... 9,477,350 4,743,446
Other liabilities ................................................ 26,488,252 30,079,434
Asset valuation reserve .......................................... 27,103,873 15,121,269
Variable annuity and EISP/CIP separate account liabilities ....... 6,657,680,137 5,193,574,218
Variable life separate account liabilities ....................... 403,116,491 335,769,185
-------------- --------------
TOTAL LIABILITIES ........................................... $7,622,428,927 6,065,344,089
-------------- --------------
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized, issued and
outstanding ................................................... $ 2,000,000 $ 2,000,000
Additional paid-in surplus ....................................... 137,398,292 137,398,292
Assigned and unassigned surplus .................................. 44,879,780 14,382,616
-------------- --------------
184,278,072 153,780,908
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS ................. $7,806,706,999 $6,219,124,997
============== ==============
</TABLE>
See notes to unaudited financial statements.
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
========================================================================================
Period Ended September 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
REVENUES:
Premiums and annuity considerations:
Variable annuity considerations .................... $ 708,260,171 $ 537,329,653
Life insurance premiums and fixed
annuity considerations ........................... 66,340,734 56,878,670
Net investment income ................................ 33,941,935 32,014,920
Amortization of IMR .................................. 73,631 793,150
Net gain from operations from separate accounts ...... 13,571,600 --
Service fees ......................................... 54,774,233 39,807,929
Variable life -- cost of insurance ................... 4,009,431 3,598,152
Reserve adjustments on reinsurance ceded ............. 2,728,667 (2,145,265)
Commissions and expense allowances ................... 11,191,618 10,544,001
Other income ......................................... 425,486 3,970,842
------------- -------------
$ 895,317,506 $ 682,792,052
------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Death benefits ..................................... $ 2,656,091 $ 4,571,951
Annuity benefits ................................... 476,289,937 305,955,220
Surrender benefits ................................. 12,525,763 13,167,446
Increase in reserves ............................... 12,190,284 44,415,700
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ...................... 278,649,172 265,294,047
Variable life ...................................... 2,014,437 (9,104,053)
Commissions .......................................... 30,322,444 29,496,838
General insurance expenses ........................... 41,136,148 29,428,699
Taxes, licenses and fees ............................. 2,282,618 2,846,845
Reinsurance terminations ............................. 182,535 (15,470,015)
------------- -------------
$ 858,249,429 $ 670,602,678
------------- -------------
INCOME BEFORE INCOME
TAXES AND REALIZED GAINS
FROM INVESTMENTS .............................. $ 37,068,077 $ 12,189,374
Federal income taxes ................................. 9,657,622 2,885,006
------------- -------------
INCOME BEFORE REALIZED
GAINS FROM INVESTMENTS ........................ 27,410,455 9,304,368
Realized gains from investments, net of federal income
taxes, net of transfer to IMR ...................... (416,041) (5,343)
------------- -------------
NET INCOME ...................................... $ 26,994,414 $ 9,299,025
============= =============
</TABLE>
See notes to unaudited financial statements.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
For the Years Ended December 31, 1995 (Audited) and 1996 (Audited) and
the Nine Months Ended September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
==========================================================================================================================
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 .................... 2,000,000 137,398,292 (1,817,759) 137,580,533
------------ ------------- ------------ ------------
Net income from operations ....................... 4,956,175 4,956,175
Increase in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes ....................... 3,024,930 3,024,930
Decrease in unrealized appreciation of
Company's investment in joint venture ......... (6,803) (6,803)
Increase in unrealized appreciation of
Company's investment in subsidiary ............ 298,534 298,534
Increase in non-admitted assets .................. (7,078) (7,078)
Disallowed interest maintenance reserve .......... 143,080 143,080
Net increase in asset valuation reserve .......... (4,111,444) (4,111,444)
------------ ------------- ------------ ------------
Balances at December 31, 1995 .................... 2,000,000 137,398,292 2,479,635 141,877,927
------------ ------------- ------------ ------------
Net income from operations ....................... 19,695,433 19,695,433
Tax on prior years separate account
seed investment unrealized gains .............. (104,732) (104,732)
Increase in unrealized appreciation of
Company's investment in joint venture ......... 241,456 241,456
Increase in unrealized appreciation of
Company's investment in subsidiary ............ 142,201 142,201
Decrease in unrealized appreciation of
Company's investment in other assets .......... (9,384) (9,384)
Increase in non-admitted assets .................. (80,815) (80,815)
Disallowed interest maintenance reserve .......... (128,107) (128,107)
Surplus changes resulting from reinsurance ....... (2,073,155) (2,073,155)
Net increase in asset valuation reserve .......... (5,779,916) (5,779,916)
------------ ------------- ------------ ------------
Balances at December 31, 1996 .................... $ 2,000,000 $ 137,398,292 $ 14,382,616 $153,780,908
------------ ------------- ------------ ------------
Net income from operations ....................... 26,994,413 26,994,413
Increase in unrealized appreciation of
Company's investment in joint venture ......... 362,007 362,007
Increase in unrealized appreciation of
Company's investment in subsidiary ............ 14,620,763 14,620,763
Decrease in unrealized appreciation of
Company's investment in other assets .......... 9,383 9,383
Increase in non-admitted assets .................. 165,391 165,391
Disallowed interest maintenance reserve .......... (326,023) (326,023)
Surplus changes resulting from reinsurance ....... 653,833 653,833
Net increase in asset valuation reserve .......... (11,982,604) (11,982,604)
------------ ------------- ------------ ------------
Balances at September 30, 1997 ................... $ 2,000,000 $ 137,398,292 $ 44,879,779 $184,278,071
============ ============= ============ ============
</TABLE>
See notes to unaudited financial statements.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW (Unaudited)
<TABLE>
<CAPTION>
=========================================================================================
Period Ended September 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and deposit funds .... $ 777,273,589 $ 596,999,353
Investment income ..................................... 35,256,938 31,350,992
Commissions and expense allowances on reinsurance ceded 12,906,388 7,563,282
Other income .......................................... 54,886,131 34,177,664
Life claims ........................................... (4,158,907) (5,114,656)
Surrender benefits .................................... (12,621,409) (13,385,038)
Annuity benefits ...................................... (477,782,637) (305,348,470)
Commissions, other expenses and taxes (excluding FIT) . (70,999,702) (57,645,439)
Net transfers to separate accounts .................... (280,694,531) (256,194,179)
Federal income taxes (excluding tax on capital gains) . (5,094,779) 0
Increase in policy loans .............................. (2,892,798) (3,744,656)
Other operating expenses and sources .................. (14,350,034) 15,459,121
------------- -------------
NET CASH PROVIDED BY INSURANCE
ACTIVITIES ..................................... 11,728,249 44,117,974
------------- -------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities ... 256,383,313 145,142,356
Purchases of investment securities .................... (259,384,494) (206,271,111)
Net proceeds from short-term investments .............. 0 0
Federal income tax on capital gains ................... (355,657) 0
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES ............ (3,356,838) (61,128,755)
------------- -------------
NET INCREASE (DECREASE) IN CASH ..................... 15,085,087 (17,010,781)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR ................................. 17,825,037 17,983,650
------------- -------------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR ....................................... $ 32,910,124 $ 972,869
============= =============
</TABLE>
See notes to unaudited financial statements.
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
Note 1 -- Basis of Presentation
The information set forth in the balance sheet as of September 30, 1997
and the statements of operations and surplus and of cash flow for the nine
months ended September 30, 1997 and 1996 is unaudited. The information reflects
all adjustments, consisting only of normal recurring adjustments that, in the
opinion of management, are necessary to present fairly the statutory financial
position and results of operations of The Guardian Insurance & Annuity Company,
Inc. (GIAC) for the periods indicated. Results of operations for the interim
periods are not necessarily indicative of the results of operations for the full
year.
The financial statements have been prepared on a comprehensive basis of
accounting other than generally accepted accounting principles that is
prescribed or permitted by the Insurance Department of the State of Delaware.
Prior to 1996, these policies were considered generally accepted
accounting principles ("GAAP") for mutual life insurance companies. However, in
April, 1993, the Financial Accounting Standards Board issued Interpretation No.
40, "Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", which establishes a different definition of
GAAP for mutual life insurance companies. Under this interpretation, financial
statements of mutual life insurance companies for periods beginning after
December 15, 1995 which are prepared on the statutory basis of accounting are no
longer characterized as being in conformity with 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 a 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.
For further information, refer to the financial statements and footnotes
thereto included in GIAC's audited financial statements for the years ended
December 31, 1996 and December 31, 1995.
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS (Audited)
<TABLE>
<CAPTION>
===================================================================================================
December 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1996-- $491,271,164; 1995-- $415,119,363) ........... $ 490,445,948 $ 405,213,799
Affiliated money market fund, at market, which approximates cost 2,755,672 2,633,939
Investment in subsidiary ....................................... 7,746,643 7,604,442
Policy loans-- variable life insurance ......................... 68,143,068 63,842,200
Cash and short-term investments ................................ 17,825,039 17,983,654
Investment in joint venture .................................... 285,874 44,418
Accrued investment income receivable ........................... 10,553,405 9,771,251
Due from parent and affiliates ................................. 6,507,913 2,982,854
Other assets ................................................... 12,173,268 9,932,726
Receivable from separate accounts .............................. 11,606,587 3,543,010
Variable annuity and EISP/CIP separate account assets .......... 5,248,159,777 4,174,493,377
Variable life separate account assets .......................... 342,921,803 311,173,536
-------------- --------------
TOTAL ADMITTED ASSETS ........................................ $6,219,124,997 $5,009,219,206
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves ...................................... $ 329,681,355 $ 300,059,252
Fixed immediate reserves ..................................... 5,874,894 4,966,569
Life reserves ................................................ 65,462,693 22,502,664
Minimum death benefit guarantees ............................. 1,257,777 1,171,951
Policy loan collateral fund reserve .......................... 65,762,820 61,798,105
Accrued expenses, taxes & commissions ............................. 2,712,360 1,250,797
Due to parent and affiliates ...................................... 15,304,638 16,072,198
Federal income taxes payable ...................................... 4,743,447 636,681
Other liabilities ................................................. 30,079,434 13,295,087
Asset valuation reserve ........................................... 15,121,269 9,341,353
Variable annuity and EISP/CIP separate account liabilities ........ 5,193,574,218 4,129,376,222
Variable life separate account liabilities ........................ 335,769,184 306,870,400
-------------- --------------
TOTAL LIABILITIES ............................................ 6,065,344,089 4,867,341,279
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 ................................... 14,382,616 2,479,635
-------------- --------------
153,780,908 141,877,927
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS .................. $6,219,124,997 $5,009,219,206
============== ==============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS (Audited)
<TABLE>
<CAPTION>
========================================================================================================
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Premiums and annuity considerations:
Variable annuity considerations .................... $ 731,792,764 $ 537,841,762 $ 533,763,975
Life insurance premiums and fixed
annuity considerations ........................... 44,874,269 73,938,212 71,289,987
Net investment income ................................ 42,366,902 36,293,598 27,909,606
Amortization of IMR .................................. 333,219 257,380 542,157
Net gain from operations from separate accounts ...... 8,860,462 -- --
Service fees ......................................... 58,774,486 46,560,286 35,858,692
Variable life -- cost of insurance ................... 4,844,028 4,232,564 3,828,702
Reserve adjustments on reinsurance ceded ............. 30,636,445 (32,192,749) 84,062,188
Commissions and expense allowances ................... 14,508,840 10,057,974 19,542,388
Other income ......................................... 2,535,356 1,127,526 819,726
------------- ------------- -------------
939,526,771 678,116,553 777,617,421
------------- ------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Death benefits ..................................... 6,785,456 4,774,584 3,740,612
Annuity benefits ................................... 426,072,773 276,568,762 173,188,734
Surrender benefits ................................. 17,459,706 17,660,413 9,882,392
Increase in reserves ............................... 82,891,516 65,349,399 80,386,221
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ...................... 323,093,897 252,772,988 448,425,833
Variable life ...................................... (10,417,095) (17,796,371) (8,822,426)
Commissions .......................................... 39,233,431 34,364,742 45,602,891
General insurance expenses ........................... 42,523,892 25,888,456 15,083,859
Taxes, licenses and fees ............................. 3,723,858 2,477,492 2,731,840
Reinsurance terminations ............................. (15,470,015) 11,002,701 3,517,681
------------- ------------- -------------
915,897,419 673,063,166 773,737,637
------------- ------------- -------------
INCOME BEFORE INCOME
TAXES AND REALIZED GAINS
FROM INVESTMENTS .............................. 23,629,352 5,053,387 3,879,784
Federal income taxes ................................. 3,941,460 439,667 601,468
------------- ------------- -------------
INCOME BEFORE REALIZED
GAINS FROM INVESTMENTS ........................ 19,687,892 4,613,720 3,278,316
Realized gains from investments, net of federal income
taxes, net of transfer to IMR ...................... 7,540 342,455 (2,232)
------------- ------------- -------------
NET INCOME ...................................... $ 19,695,432 $ 4,956,175 $ 3,276,084
============= ============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
53
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS (Audited)
<TABLE>
<CAPTION>
=========================================================================================================
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 ............... $ 2,000,000 $ 137,398,292 ($ 983,630) $138,414,662
------------ ------------- ------------ ------------
Net income from operations .................. 3,276,084 3,276,084
Decrease in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes .................. (527,471) (527,471)
Decrease in unrealized appreciation of
Company's investment in joint venture .... (255,163) (255,163)
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 24,034 24,034
Decrease in non-admitted assets ............. 5,818 5,818
Disallowed interest maintenance reserve ..... (1,124,268) (1,124,268)
Net increase in asset valuation reserve ..... (2,233,163) (2,233,163)
------------ ------------- ------------ ------------
Balances at December 31, 1994 ............... 2,000,000 137,398,292 (1,817,759) 137,580,533
------------ ------------- ------------ ------------
Net income from operations .................. 4,956,175 4,956,175
Increase in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes .................. 3,024,930 3,024,930
Decrease in unrealized appreciation of
Company's investment in joint venture .... (6,803) (6,803)
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 298,534 298,534
Increase in non-admitted assets ............. (7,078) (7,078)
Disallowed interest maintenance reserve ..... 143,080 143,080
Net increase in asset valuation reserve ..... (4,111,444) (4,111,444)
------------ ------------- ------------ ------------
Balances at December 31, 1995 ............... 2,000,000 137,398,292 2,479,635 141,877,927
------------ ------------- ------------ ------------
Net income from operations .................. 19,695,433 19,695,433
Tax on prior years separate account
seed investment unrealized gains ......... (104,732) (104,732)
Increase in unrealized appreciation of
Company's investment in joint venture .... 241,456 241,456
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 142,201 142,201
Decrease in unrealized appreciation of
Company's investment in other assets ..... (9,384) (9,384)
Increase in non-admitted assets ............. (80,815) (80,815)
Disallowed interest maintenance reserve ..... (128,107) (128,107)
Surplus changes resulting from reinsurance .. (2,073,155) (2,073,155)
Net increase in asset valuation reserve ..... (5,779,916) (5,779,916)
------------ ------------- ------------ ------------
Balances at December 31, 1996 ............... $ 2,000,000 $ 137,398,292 $ 14,382,616 $153,780,908
============ ============= ============ ============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW (Audited)
<TABLE>
<CAPTION>
==========================================================================================================
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and deposit funds ..... $ 780,710,735 $ 611,169,979 $ 600,336,507
Investment income ...................................... 42,413,736 36,912,131 26,762,114
Commissions and expense allowances on
reinsurance ceded .................................... 37,315,301 (22,118,484) 104,767,754
Other income ........................................... 47,357,962 44,220,753 33,914,971
Life claims ............................................ (6,900,438) (4,420,866) (3,397,937)
Surrender benefits ..................................... (2,774,865) (17,660,413) (9,882,392)
Annuity benefits ....................................... (424,511,908) (276,163,436) (173,227,230)
Commissions, other expenses
and taxes (excluding FIT) ............................ (78,968,214) (57,714,112) (63,448,237)
Net transfers to separate accounts ..................... (307,856,562) (231,230,812) (435,548,833)
Federal income taxes (excluding tax on capital gains) .. 682,025 (1,557,444) (1,522,592)
Increase in policy loans ............................... (4,300,868) (4,522,280) (6,527,387)
Other operating expenses and sources ................... 2,077,342 (8,945,084) 2,428,502
------------- ------------- -------------
NET CASH PROVIDED BY INSURANCE
ACTIVITIES ...................................... 85,244,246 67,969,932 74,655,240
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities .... 224,692,954 63,122,215 149,529,893
Purchases of investment securities ..................... (309,590,319) (118,543,796) (230,182,416)
Net proceeds from short-term investments ............... 0 0 0
Federal income tax on capital gains .................... (505,496) 992,810 (1,233,244)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES.............. (85,402,861) (54,428,771) (81,885,767)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH ...................... (158,615) 13,541,161 (7,230,527)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR .................................. 17,983,654 4,442,493 11,673,020
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS,
END OF PERIOD ...................................... $ 17,825,039 $ 17,983,654 $ 4,442,493
============= ============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Audited)
Note 1 -- Organization
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 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 broker-dealer firms which 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.
Guardian Investor Services Corporation is a wholly-owned subsidiary of the
Company. GISC is a registered broker-dealer under the Securities Exchange Act of
1934 and is a registered investment advisor under the Investment Advisor'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 twelve 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. In addition, certain
variable annuity and variable life insurance contractholders may invest in The
Guardian Real Estate Account. Participating interests in the real estate account
are registered under the Securities Act of 1933. 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.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a comprehensive basis of accounting other than generally
accepted accounting principles that is prescribed or permitted by the Insurance
Department of the State of Delaware.
Prior to 1996, these policies were considered generally accepted
accounting principles ("GAAP") for mutual life insurance companies. However, in
April, 1993, the Financial Accounting Standards Board issued Interpretation No.
40, "Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", which establishes a different definition of
GAAP for mutual life insurance companies. Under this interpretation, financial
statements of mutual life insurance companies for periods beginning after
December 15, 1995 which are prepared on the statutory basis of accounting are no
longer characterized as being in conformity with GAAP. Financial statements
prepared on a statutory basis vary from financial statements prepared on a GAAP
basis because: (1) the costs relating to acquiring business, principally
commissions and certain policy issue expenses, are charged to income in the year
incurred, whereas on a GAAP basis they would be recorded as assets and amortized
over the future periods to be benefited; (2) life insurance and annuity reserves
are based on statutory mortality and interest requirements, without
consideration of withdrawals, whereas on GAAP basis they are on anticipated
Company experience for lapses, mortality and investment yield; (3) life
insurance enterprises are required to establish a formula-based asset valuation
reserve (AVR) by a direct charge to surplus to offset potential investment
losses; under GAAP, provisions for investments are established as needed through
a charge to
- --------------------------------------------------------------------------------
56
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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.
The following reconciles the statutory net income of the Company as
reported to regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the Year Ended
1996 1995
------------ ------------
<S> <C> <C>
Statutory net income ................................ $ 19,695,432 $ 4,956,175
Adjustments to restate to the basis of GAAP:
Statutory net income of subsidiaries .............. 142,201 298,534
Capitalization of deferred policy acquisition costs 42,525,493 29,971,479
Deferred premiums ................................. 4,096,976 --
Re-estimation of future policy benefits ........... 30,086,231 659,225
Reinsurance ....................................... (36,696,036) 17,635,115
Deferred federal income tax expense ............... (13,074,280) (15,221,064)
Elimination of interest maintenance reserve ....... (333,219) (257,381)
Other, net ........................................ (6,094,192) (759,141)
------------ ------------
Consolidated GAAP net income ........................ $ 40,348,606 $ 37,282,942
============ ============
</TABLE>
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
December 31,
-----------------------------
1996 1995
------------- -------------
Statutory capital and surplus ................ $ 153,780,908 $ 141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs .......... 221,475,216 185,237,251
Elimination of asset valuation reserve ..... 15,121,269 9,341,353
Re-estimation of future policy benefits .... (35,823,432) 5,870,371
Establishment of deferred federal income tax (65,126,004) (53,923,759)
Other, net ................................. 33,178,992 (2,451,817)
------------- -------------
Consolidated GAAP stockholder's equity ....... $ 322,606,949 $ 285,951,326
============= =============
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, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and, in many cases, state
insurance laws which 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
- --------------------------------------------------------------------------------
57
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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.
Effective for 1996 financial statements, the NAIC requires and the Company has
recorded the net gain from the operations of the separate accounts in the
operations of the general account instead of 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 $9,500,000
in 1996, $6,700,000 in 1995 and $4,900,000 in 1994.
Short-Term Investments: Short-term investments are stated at amortized
cost and consist primarily of investments having maturities at the date of
purchase of six months or less. Market values for such investments approximate
carrying value.
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize policyholders' 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 on 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 the prior year.
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 fixed annuity contracts are no longer offered by the Company.
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 1996 and 1995 was 5.75% and 5.75%, respectively. The
interest rates credited on the fixed rate option offered to certain variable
annuity contractowners ranged from 5.25% to 5.50% during 1996. For the fixed
rate option currently issued, the issue and renewal interest rates credited
varies from month to month and ranged from 5.0% to 5.25% in 1996. For single
premium deferred annuities the rates ranged from 5.0% to 5.75% in 1996. Fixed
immediate reserves are a liability within the general account for those
annuitants who have elected a fixed annuity payout option. The immediate
contract reserve is computed using the 1971 IAM Table and a 4% discount rate.
Minimum death benefit guarantees represent a reserve for term insurance to
support guaranteed insurance amounts on variable life policies in the event of
possible declines in separate account assets, assuming a 4% discount rate and
mortality consistent with the 1958 or 1980 CSO Table applicable in the pricing
of each policy.
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values.
- --------------------------------------------------------------------------------
58
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
The reserve is credited with interest at 4% per annum for single premium
variable life policyowners and 6.5% for annual pay 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,
1996 and 1995 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $123,785 and $84,575, 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 include 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 $142.7
million and $117.7 million at December 31, 1996 and 1995, 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 also recorded.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1996 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1996, 1995 and 1994 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 8,270,274 $ 1,768,688 $ 1,357,924
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (1,478,476) 337,668 141,295
DAC Tax ........................................ 867,731 666,260 1,575,953
Dividend from subsidiary ....................... (3,325,000) (2,345,000) (1,715,000)
Other-- net .................................... (393,070) 12,051 (758,704)
----------- ----------- -----------
Federal income taxes .............................. $ 3,941,459 $ 439,667 $ 601,468
=========== =========== ===========
</TABLE>
The provision for federal income taxes includes deferred taxes in 1996,
1995 and 1994 of $353,051, $304,923 and $99,120, respectively, applicable to the
difference between the tax basis and the financial statement basis of recording
investment income relating to accrued market discount.
- --------------------------------------------------------------------------------
59
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Fixed maturities .................. $28,234,145 $25,795,915 $19,949,553
Affiliated money market funds ..... 121,733 130,729 84,083
Subsidiary ........................ 9,500,000 6,700,000 4,900,000
Policy loans ...................... 3,089,490 2,847,532 2,547,670
Short-term investments ............ 1,259,730 1,181,215 622,391
Joint venture dividend ............ 623,160 684,306 789,867
----------- ----------- -----------
42,828,258 37,339,697 28,893,564
Less: Investment expenses ......... 461,356 1,046,099 983,958
----------- ----------- -----------
Net investment income ............. $42,366,902 $36,293,598 $27,909,606
=========== =========== ===========
Net realized gains, less applicable federal income taxes and transfer to
IMR, are summarized as follows:
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Realized capital gains (losses) .... $ 1,242,432 $ 1,323,447 $(3,994,715)
----------- ----------- -----------
Federal income tax expense (benefit):
Current ............................ 829,610 622,821 (1,110,135)
Deferred ........................... (394,759) (42,290) (248,068)
----------- ----------- -----------
Total Federal income tax expense
(benefit) 434,851 580,531 (1,358,203)
----------- ----------- -----------
Transfer to IMR ....................... 800,041 400,461 (2,634,280)
----------- ----------- -----------
Net realized gains (losses) ........... $ 7,540 $ 342,455 $ (2,232)
=========== =========== ===========
The increase in unrealized appreciation (depreciation) on fixed maturity
securities for the years ended December 31, 1996, 1995 and 1994 was
$(9,080,348), $26,899,449 and $(23,246,030), respectively.
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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ....................... $133,436,167 $ 761,811 $ 435,887 $133,762,091
Obligations of states and political
subdivisions ....................... 40,444,325 148,692 70,771 40,522,246
Debt securities issued by foreign
governments ........................ 3,491,091 -- 65,431 3,425,660
Corporate debt securities ............. 313,074,365 2,279,414 1,792,612 313,561,167
Common stock of subsidiary ............ 9,398,292 -- 1,651,649 7,746,643
Affiliated mutual funds ............... 2,755,672 -- -- 2,755,672
------------ ---------- ------------ ------------
$502,599,912 $3,189,917 $ 4,016,350 $501,773,479
============ ========== ============ ============
</TABLE>
- --------------------------------------------------------------------------------
60
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------
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 ....................... $ 86,663,351 $ 2,599,555 $ -- $ 89,262,906
Obligations of states and political
subdivisions ....................... 6,086,127 108,215 1,599 6,192,743
Debt securities issued by foreign
governments ........................ 8,061,711 537,479 -- 8,599,190
Corporate debt securities ............. 304,402,610 7,379,558 717,644 311,064,524
Common stock of subsidiary ............ 9,398,292 -- 1,793,850 7,604,442
Affiliated mutual funds ............... 2,633,939 -- -- 2,633,939
------------ ----------- ------------ ------------
$417,246,030 $10,624,807 $ 2,513,093 $425,357,744
============ =========== ============ ============
</TABLE>
At December 31, 1996, the amortized cost and estimated market value of debt
securities, by contractual maturity, is shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations.
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less .......................... $ 64,861,358 $ 65,045,326
Due after one year through five years ............ 286,602,923 287,118,976
Due after five years through ten years ........... 74,354,923 74,503,267
Due after ten years .............................. 25,247,736 25,461,329
------------ ------------
451,066,940 452,128,898
Sinking fund bonds
(including Collateralized Mortgage Obligations) 39,379,008 39,142,266
------------ ------------
$490,445,948 $491,271,164
============ ============
During 1996, proceeds from sales of investments in debt securities were
$224,681,546 and gross gains of $2,029,373 and losses of $798,350 were realized
on these sales.
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with The Guardian 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 $767,937,702 and $355,264,470 at
December 31, 1996 and 1995, 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.
- --------------------------------------------------------------------------------
61
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
The effect of these agreements on the components of the Company's gain from
operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Premiums and deposits .................. ($83,250,212) ($41,212,253) ($157,953,149)
Net investment income .................. (61,779) -- --
Commission and expense allowances ...... 14,508,839 10,057,974 19,542,388
Reserve adjustments .................... 30,636,445 (32,192,749) 84,062,188
Other income ........................... (25,000) -- --
------------ ------------ -------------
Revenues ............................. (38,191,707) (63,347,028) (54,348,573)
Policyholder benefits .................. (26,873,945) (57,577,405) (60,707,011)
Increase in aggregate reserves ......... (5,658,260) (11,909,990) (16,349,743)
Reinsurance terminations ............... (15,470,015) 11,002,701 3,517,681
General expenses ....................... (81,667) (48,640) --
------------ ------------ -------------
Deductions ........................... (48,083,887) (58,533,334) (73,539,073)
------------ ------------ -------------
Net income (loss) from reinsurance ceded $ 9,892,180 ($ 4,813,694) $ 19,190,500
============ ============ =============
</TABLE>
Note 6 -- Reinsurance Assumed
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain from
operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Premiums and deposits ................... $ 41,133,358 $ 7,153,623 $ 21,245,974
Net investment income ................... 94,657 62,847 --
Other income ............................ 375,404 32,528 13,163
------------ ----------- ------------
Revenues .............................. 41,603,419 7,248,998 21,259,137
Policyholder benefits ................... 8,076,053 5,086,702 13,163
Increase in aggregate reserves .......... 31,556,908 (357,463) 21,192,811
Reinsurance expenses .................... (452,476) 1,451,058 8,503,485
Other expenses .......................... 551,319 54,043 --
------------ ----------- ------------
Deductions ............................ 39,731,804 6,234,340 29,709,459
------------ ----------- ------------
Net income (loss)from reinsurance assumed $ 1,871,615 $ 1,014,658 ($ 8,450,322)
============ =========== ============
</TABLE>
Note 7 -- Related Party Transactions
A major portion of the Company's business is produced by the registered
representatives of the Guardian Investor Services Corporation (GISC), a wholly
owned subsidiary of the Company. During 1996, 1995 and 1994, premium and annuity
considerations produced by GISC amounted to $528,353,595, $400,148,692 and
$482,872,000, respectively. The related commissions paid to GISC amounted to
$1,851,468, $1,409,708 and $1,709,799 for 1996, 1995 and 1994, 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
$41,129,644 in 1996, $24,989,111 in 1995 and $14,055,494 in 1994, and, in the
opinion of management, were considered appropriate for the services rendered.
- --------------------------------------------------------------------------------
62
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
The Company has 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 has contributed capital to GREA from time to time
to provide funds for acquisitions and to preserve liquidity. At December 31,
1996 GIAC's investment amounts to $5,803,339 and maintains a 40% ownership of
GREA.
A significant portion of the Company's separate account assets are
invested in affiliated mutual funds. These funds consist of The Guardian Park
Avenue Fund, The Guardian Bond Fund, The Guardian Stock Fund, The Guardian Cash
Fund, The Guardian Baillie Gifford International Fund, The Guardian Asset
Allocation Fund, The Guardian Investment Quality Bond Fund and The Guardian Cash
Management Fund. Each of these funds has an investment advisory agreement with
GISC, except for The Guardian Baillie Gifford International Fund. The
investments as of December 31, 1996 and 1995 are as follows:
1996 1995
-------------- --------------
The Guardian Park Avenue Fund .................. $ 251,812,050 $ 214,919,292
The Guardian Bond Fund ......................... 354,316,320 374,461,581
The Guardian Stock Fund ........................ 2,226,887,181 1,615,270,799
The Guardian Cash Fund ......................... 378,321,710 356,820,089
The Guardian Baillie Gifford International Fund 19,720 --
The Guardian Asset Allocation Fund ............. 46,623 --
The Guardian Investment Quality Bond Fund ...... 9,385 --
The Guardian Cash Management Fund .............. 3,113,523 --
-------------- --------------
$3,214,526,512 $2,561,471,761
============== ==============
During November 1990, the Company entered into an agreement with Baillie
Gifford Overseas Ltd. to form a joint venture company - Guardian Baillie Gifford
Ltd. (GBG) - which 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) and the Guardian Baillie Gifford International Fund
(GBGIF). The Funds are offered in the U.S. as investment options under certain
variable annuity contracts and variable life policies. The amount of the
Company's separate account assets invested in the Funds as of December 31, 1996
and 1995 was $446,466,741 and $334,281,959, respectively.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1996 and 1995 this
amounted to $2,755,672 and $2,633,939, 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 Statement:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Transfers to separate accounts ......... $ 767,741,428 $ 582,715,569 $ 688,657,147
Transfers from separate accounts ....... (518,683,141) (398,531,802) (288,606,548)
------------- ------------- -------------
Net transfers to separate accounts ... 249,058,287 184,183,767 400,050,599
------------- ------------- -------------
Reconciling Adjustments:
Mortality & expense guarantees --
Annuity .............................. 54,119,656 41,474,872 31,629,838
Mortality & expense guarantees -- VLI .. 1,687,711 1,571,955 1,341,318
Administrative fees -- VA only ......... 2,967,120 3,513,459 2,752,950
Cost of collection -- VLI .............. 4,844,028 4,232,564 3,828,702
------------- ------------- -------------
Total adjustments .................... 63,618,515 50,792,850 39,552,808
------------- ------------- -------------
Transfers as reported in the Summary of
Operations of GIAC ................... $ 312,676,802 $ 234,976,617 $ 439,603,407
============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
63
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
Year Ending 1996 Year Ending 1995
-------------------- --------------------
Amount % Amount %
------------ ------ ------------ ------
Subject to discretionary withdrawal
with market value adjustment ... $ 44,480,214 10.22% $ 39,471,103 10.27%
total with adjustment or at
market value ................. 44,480,214 10.22 39,471,103 10.27
at book value without adjustment
(minimal or no charge or
adjustment) ................... 302,433,090 69.45 260,636,570 67.81
Not subject to discretionary
withdrawal .................... 88,546,538 20.33 84,263,477 21.92
------------ ------ ------------ ------
Total (gross) ..................... 435,459,842 100.00 384,371,150 100.00
Reinsurance ceded ................. 4,879 0.00 -- 0.00
------------ ------ ------------ ------
Total ............................. $435,454,963 100.00% $384,371,150 100.00%
============ ====== ============ ======
This does not include $5,098,658,097 and $4,046,768,087 of non-guaranteed
annuity reserves held in separate accounts, and $2,927,130 and $1,500,869 at
December 31, 1996 and 1995, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1997
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying balance sheets of The Guardian Insurance
& Annuity Company, Inc. as of December 31, 1996 and 1995, and the related
statements of operations, of changes in common stock and surplus and of cash
flows for the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities (statutory basis of accounting), which is a comprehensive
basis of accounting other than generally accepted accounting principles.
Accordingly, the financial statements are not intended to represent a
presentation in accordance with generally accepted accounting principles. The
effects on the financial statements of the variances between such practices and
generally accepted accounting principles are material and are described in Note
2.
In our report dated February 9, 1996, we expressed an opinion that the
1995 financial statements, prepared using accounting practices prescribed or
permitted by insurance regulatory authorities, were presented fairly, in all
material respects, in conformity with generally accepted accounting principles.
As described in Note 2 to these financial statements, pursuant to pronouncements
of the Financial Accounting Standards Board, financial statements of mutual life
insurance companies and their wholly owned stock insurance company subsidiaries
are no longer considered presentations in conformity with generally accepted
accounting principles. Accordingly, our present opinion on the presentation of
the 1995 financial statements, as presented herein, is different from that
expressed in our previous report.
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, 1996 and 1995, or the results of its operations or its cash flows for the
three years in the period ended December 31, 1996, 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
authorities.
Price Waterhouse LLP
New York, New York
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT VALUES,
NET CASH SURRENDER VALUES AND ACCUMULATED POLICY PREMIUMS
The following tables illustrate how the Policies operate. Specifically, they
show how the death benefit, Net Cash Surrender Value and Policy Account Value
can vary over an extended period of time assuming hypothetical gross rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) for the Separate Account that are equal to constant after tax annual
rates of 0%, 6% and 12%. The tables are based on policies with Face Amounts of
$250,000 for a male insured Age 40. The insured is assumed to be in the
preferred plus classification for the first 8 illustrations and the preferred
classification for the next 8 illustrations. Values are first given based on
current charges and then based on the policy's higher guaranteed charges. Each
illustration is given first for a policy with an Option 1 death benefit and then
for a policy with an Option 2 death benefit. In addition, the first 8
illustrations will show values based on the Cash Value Test and the next 8
illustrations will show values based on the Guideline Premium Test. These
illustrations may assist in the comparison of death benefits, Net Cash Surrender
Values and Policy Account Values for Park Avenue VUL policies with those under
other variable life insurance policies that may be issued by GIAC or other
companies. Prospective policyowners are advised, however, that it may not be
advantageous to replace existing life insurance coverage by purchasing a Park
Avenue VUL policy, particularly if the decision to replace existing coverage is
based primarily on a comparison of policy illustrations.
Death benefits, Net Cash Surrender Values and Policy Account Values will be
different from the amounts shown if: (1) the actual gross rates of return
average 0%, 6% or 12%, but vary above and below the average over the period; and
(2) premiums are paid at other than annual intervals. Benefits and values will
also be affected by the policyowner's allocation of the Unloaned Policy Account
Value among the Variable Investment Options and the Fixed-Rate Option. If the
actual gross rate of return for all options averages 0%, 6% or 12%, but varies
above or below that average for individual options, allocation and transfer
decisions can have a significant impact on a policy's performance. Policy loans
and other policy transactions, such as partial withdrawals, will also affect
results, as will the insured's sex, smoker status and underwriting class.
Death benefits, Net Cash Surrender Values and Policy Account Values shown in the
tables reflect the fact that: (1) deductions have been made from premiums for
Premium Charges; and (2) Monthly Deductions are deducted from the Policy Account
Value on each Monthly Date. The Net Cash Surrender Values shown in the tables
reflect the fact that a surrender charge is deducted upon surrender, Face Amount
reduction or lapse during the first 15 policy years. The death benefits, Net
Cash Surrender Values and Policy Account Values also reflect a daily charge
assessed against the Separate Account for mortality and expense risks equivalent
to an annual charge of .90% of the average daily value of the assets in the
Separate Account attributable to the policies for the first 20 policy years and
.60% thereafter. See "Deductions and Charges." The amounts shown in the
illustrations also reflect an average of the investment advisory fees and
operating expenses incurred by the mutual funds, at an annual rate of 0.87% of
the average daily net assets of such funds. The average is based upon actual
expenses incurred during 1996 for all funds except that The Guardian Small Cap
Stock Fund's expenses have been estimated since the fund was not available
before 1997. Operating expenses for the MFS Growth With Income Series, Emerging
Growth Series, and Total Return Series for 1996 were capped at 0.25% of the
average daily net assets of the series and operating expenses for the MFS Bond
Series were capped at 0.40% of the average daily net assets of the series
pursuant to the agreement with the adviser.
Operating expenses for the Fidelity Growth Opportunities and Equity-Income
Portfolios reflect the effects of expense reduction arrangements with third
parties which occured during the year ended December 31, 1996.
The results for the Fidelity Index 500 Portfolio reflect the effects of expense
reimbursement of certain fund expenses which occured during the year ended
December 31, 1996.
In the absence of these arrangements, operating expenses of the affected funds,
and the average investment advisory fees and expenses used in the following
illustrations would have been higher.
Taking account of the charges for mortality and expense risks in the Separate
Account and the average investment advisory fee and operating expenses of the
mutual funds, the gross annual rates of return of 0%, 6% and 12% correspond to
net investment experience at -1.76%, 4.18% and 10.13%, respectively, based on a
mortality and expense risks charge of .90% for the first 20 policy years and
- -1.46%, 4.50% and 10.46%, respectively, based on a mortality and expense risks
charge of .60% thereafter. See "Net Investment Factor."
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Separate Account since no charges are currently
made. If any such charges are imposed in the future, the gross annual rate of
return would have to exceed the rates shown by an amount sufficient to cover the
tax charges, in order to produce the death benefits, Net Cash Surrender Values
and Policy Account Values illustrated. See "GIAC's Taxes."
The third column of each table shows the amount which would accumulate if an
amount equal to the Target Premium was invested to earn interest, after taxes,
of 5% per year, compounded annually. There can be no assurance that a
prospective policyowner would be able to earn this return.
GIAC will furnish upon request an illustration reflecting the proposed insured's
Age, sex, underwriting class and the Face Amount requested, but a premium-based
illustration must reflect GIAC's current minimum Face Amount requirement for
Park Avenue VUL -- which is $100,000.
These illustrations will refer to "net outlay" as the cash flow into or out of
the policy. It is equal to the sum of all premiums and accrued loan interest
paid in cash and reduced by the proceeds of any policy loan or partial
withdrawal received in cash. For purposes of these illustrations "net outlay"
will be equal to Target Premium.
- --------------------------------------------------------------------------------
A-1
<PAGE>
From time to time, advertisements or sales literature for Park Avenue VUL may
quote performance data of one or more of the underlying funds, and may include
cash surrender values and death benefit figures computed using the same
methodology as that used in the following illustrations, but with average annual
total return of the underlying funds for which performance data is shown in the
advertisement or sales literature replacing the hypothetical rates of return
shown in the following tables. This information may be shown in the form of
graphs, charts, tables, and examples.
GIAC began to offer Park Avenue VUL on February 2, 1998. As such the policies
may not have been available when the funds commenced their operations. However,
illustrations may be based on the actual investment experience of the funds
since their respective inception dates (See "Investment Performance of the
Funds"). The results for any period prior to the policies' being offered would
be calculated as if the policies had been offered during that period of time,
with all charges assumed to be those applicable to the policies. Thus the
illustrations will reflect deductions for each fund's expenses, as well as the
Separate Account's charge for mortality and expense risks, and the charges
deducted from premiums, Monthly Deductions and any transaction deductions
associated with the policy in question.
- --------------------------------------------------------------------------------
A-2
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $2,517.50
These values reflect CURRENT cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,326 0 250,000 1,432 0 250,000 1,539 0 250,000
2 41 2,518 5,419 3,249 0 250,000 3,566 0 250,000 3,896 0 250,000
3 42 2,518 8,333 5,119 1,152 250,000 5,769 1,802 250,000 6,472 2,504 250,000
4 43 2,518 11,393 6,929 3,267 250,000 8,037 4,375 250,000 9,281 5,618 250,000
5 44 2,518 14,606 8,674 5,317 250,000 10,366 7,009 250,000 12,341 8,983 250,000
6 45 2,518 17,980 10,355 7,302 250,000 12,760 9,708 250,000 15,678 12,625 250,000
7 46 2,518 21,522 11,971 9,224 250,000 15,219 12,472 250,000 19,320 16,572 250,000
8 47 2,518 25,242 13,519 11,076 250,000 17,742 15,300 250,000 23,293 20,851 250,000
9 48 2,518 29,147 14,997 12,862 250,000 20,330 18,195 250,000 27,632 25,497 250,000
10 49 2,518 33,248 16,405 14,575 250,000 22,985 21,155 250,000 32,373 30,543 250,000
15 54 2,518 57,040 22,668 22,363 250,000 37,680 37,375 250,000 64,174 63,869 250,000
20 59 2,518 87,406 27,031 27,031 250,000 54,508 54,508 250,000 115,184 115,184 250,000
25 64 2,518 126,161 28,633 28,633 250,000 73,938 73,938 250,000 199,539 199,539 339,613
30 69 2,518 175,623 25,217 25,217 250,000 94,835 94,835 250,000 332,507 332,507 503,257
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-3
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $2,517.50
These values reflect GUARANTEED cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,326 0 250,000 1,432 0 250,000 1,539 0 250,000
2 41 2,518 5,419 2,892 0 250,000 3,198 0 250,000 3,517 0 250,000
3 42 2,518 8,333 4,391 424 250,000 4,997 1,029 250,000 5,654 1,687 250,000
4 43 2,518 11,393 5,817 2,155 250,000 6,824 3,161 250,000 7,960 4,298 250,000
5 44 2,518 14,606 7,172 3,814 250,000 8,681 5,324 250,000 10,455 7,097 250,000
6 45 2,518 17,980 8,447 5,395 250,000 10,561 7,509 250,000 13,148 10,095 250,000
7 46 2,518 21,522 9,640 6,892 250,000 12,461 9,713 250,000 16,057 13,309 250,000
8 47 2,518 25,242 10,748 8,305 250,000 14,378 11,935 250,000 19,202 16,759 250,000
9 48 2,518 29,147 11,767 9,632 250,000 16,308 14,173 250,000 22,604 20,469 250,000
10 49 2,518 33,248 12,691 10,861 250,000 18,245 16,415 250,000 26,284 24,454 250,000
15 54 2,518 57,040 15,853 15,548 250,000 28,049 27,744 250,000 50,147 49,842 250,000
20 59 2,518 87,406 14,962 14,962 250,000 36,346 36,346 250,000 86,070 86,070 250,000
25 64 2,518 126,161 7,249 7,249 250,000 40,566 40,566 250,000 144,014 144,014 250,000
30 69 2,518 175,623 0 0 0 33,563 33,563 250,000 234,399 234,399 354,768
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-4
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $2,517.50
These values reflect CURRENT cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,324 0 251,324 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 3,244 0 253,244 3,561 0 253,561 3,890 0 253,890
3 42 2,518 8,333 5,108 1,141 255,108 5,757 1,789 255,757 6,458 2,490 256,458
4 43 2,518 11,393 6,910 3,248 256,910 8,014 4,352 258,014 9,254 5,591 259,254
5 44 2,518 14,606 8,643 5,286 258,643 10,328 6,971 260,328 12,294 8,936 262,294
6 45 2,518 17,980 10,309 7,256 260,309 12,701 9,648 262,701 15,602 12,550 265,602
7 46 2,518 21,522 11,905 9,158 261,905 15,132 12,384 265,132 19,024 16,456 269,204
8 47 2,518 25,242 13,428 10,986 263,428 17,617 15,175 267,617 23,122 20,679 273,122
9 48 2,518 29,147 14,877 12,742 264,877 20,158 18,023 270,158 27,386 25,251 277,386
10 49 2,518 33,248 16,249 14,419 266,249 22,753 20,923 272,753 32,029 30,199 282,029
15 54 2,518 57,040 22,228 21,923 272,228 36,883 36,578 286,883 62,724 62,419 312,724
20 59 2,518 87,406 26,056 26,056 276,056 52,352 52,352 302,352 110,312 110,312 360,312
25 64 2,518 126,161 26,699 26,699 276,699 68,617 68,617 318,617 185,892 185,892 435,892
30 69 2,518 175,623 21,790 21,790 271,790 82,582 82,582 332,582 303,007 303,007 553,007
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-5
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $2,517.50
These values reflect GUARANTEED cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,324 0 251,324 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 2,883 0 252,883 3,187 0 253,187 3,505 0 253,505
3 42 2,518 8,333 4,369 402 254,369 4,971 1,004 254,971 5,625 1,658 255,625
4 43 2,518 11,393 5,778 2,115 255,778 6,777 3,114 256,777 7,905 4,242 257,905
5 44 2,518 14,606 7,110 3,752 257,110 8,604 5,247 258,604 10,360 7,003 260,360
6 45 2,518 17,980 8,357 5,304 258,357 10,445 7,392 260,445 12,998 9,946 262,998
7 46 2,518 21,522 9,515 6,767 259,515 12,293 9,545 262,293 15,833 13,086 265,833
8 47 2,518 25,242 10,581 8,139 260,581 14,145 11,702 264,145 18,879 16,436 268,879
9 48 2,518 29,147 11,552 9,417 261,552 15,995 13,860 265,995 22,151 20,016 272,151
10 49 2,518 33,248 12,419 10,589 262,419 17,834 16,004 267,834 25,664 23,834 275,664
15 54 2,518 57,040 15,153 14,848 265,153 26,742 26,437 276,742 47,701 47,396 297,701
20 59 2,518 87,406 13,539 13,539 263,539 32,959 32,959 282,959 78,007 78,007 328,007
25 64 2,518 126,161 4,957 4,957 254,957 32,845 32,845 282,845 119,459 119,459 369,459
30 69 2,518 175,623 0 0 0 18,214 18,214 268,214 171,031 171,031 421,031
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-6
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $3,060.00
These values reflect CURRENT cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,729 0 250,000 1,863 0 250,000 1,997 0 250,000
2 41 3,060 6,587 4,040 0 250,000 4,435 0 250,000 4,847 0 250,000
3 42 3,060 10,129 6,277 1,459 250,000 7,082 2,264 250,000 7,953 3,135 250,000
4 43 3,060 13,848 8,438 3,993 250,000 9,803 5,358 250,000 11,337 6,892 250,000
5 44 3,060 17,754 10,519 6,444 250,000 12,596 8,521 250,000 15,022 10,947 250,000
6 45 3,060 21,855 12,508 8,803 250,000 15,450 11,745 250,000 19,026 15,321 250,000
7 46 3,060 26,160 14,409 11,074 250,000 18,373 15,038 250,000 23,387 20,052 250,000
8 47 3,060 30,681 16,225 13,260 250,000 21,367 18,402 250,000 28,143 25,178 250,000
9 48 3,060 35,428 17,951 15,358 250,000 24,433 21,841 250,000 33,333 30,741 250,000
10 49 3,060 40,413 19,575 17,353 250,000 27,560 25,338 250,000 38,991 36,768 250,000
15 54 3,060 69,332 26,581 26,211 250,000 44,699 44,329 250,000 76,864 76,494 250,000
20 59 3,060 106,241 30,673 30,673 250,000 63,574 63,574 250,000 137,529 137,529 267,224
25 64 3,060 153,347 30,223 30,223 250,000 84,836 84,836 250,000 234,968 234,968 399,911
30 69 3,060 213,468 21,739 21,739 250,000 106,299 106,299 250,000 384,371 384,371 581,755
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-7
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $3,060.00
These values reflect GUARANTEED cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,729 0 250,000 1,863 0 250,000 1,997 0 250,000
2 41 3,060 6,587 3,779 0 250,000 4,166 0 250,000 4,570 0 250,000
3 42 3,060 10,129 5,753 936 250,000 6,527 1,709 250,000 7,365 2,548 250,000
4 43 3,060 13,848 7,648 3,203 250,000 8,941 4,496 250,000 10,398 5,953 250,000
5 44 3,060 17,754 9,465 5,390 250,000 11,412 7,337 250,000 13,696 9,621 250,000
6 45 3,060 21,855 11,197 7,492 250,000 13,935 10,230 250,000 17,278 13,573 250,000
7 46 3,060 26,160 12,840 9,505 250,000 16,507 13,172 250,000 21,171 17,836 250,000
8 47 3,060 30,681 14,393 11,428 250,000 19,129 16,164 250,000 25,404 22,439 250,000
9 48 3,060 35,428 15,853 13,261 250,000 21,798 19,206 250,000 30,012 27,420 250,000
10 49 3,060 40,413 17,213 14,991 250,000 24,511 22,288 250,000 35,029 32,806 250,000
15 54 3,060 69,332 22,579 22,209 250,000 38,916 38,546 250,000 68,248 67,878 250,000
20 59 3,060 106,241 23,963 23,963 250,000 53,382 53,382 250,000 120,458 120,458 250,000
25 64 3,060 153,347 18,909 18,909 250,000 66,656 66,656 250,000 204,694 204,694 348,386
30 69 3,060 213,468 1,402 1,402 250,000 73,850 73,850 250,000 330,136 330,136 499,668
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-8
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $3,060.00
These values reflect CURRENT cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,727 0 251,727 1,860 0 251,860 1,994 0 251,994
2 41 3,060 6,587 4,031 0 254,031 4,426 0 254,426 4,837 0 254,837
3 42 3,060 10,129 6,258 1,440 256,258 7,061 2,243 257,061 7,929 3,111 257,929
4 43 3,060 13,848 8,405 3,960 258,405 9,764 5,319 259,764 11,291 6,846 261,291
5 44 3,060 17,754 10,466 6,391 260,466 12,530 8,455 262,530 14,942 10,867 264,942
6 45 3,060 21,855 12,428 8,723 262,428 15,348 11,643 265,348 18,896 15,191 268,896
7 46 3,060 26,160 14,296 10,961 264,296 18,222 14,887 268,222 23,187 19,852 273,187
8 47 3,060 30,681 16,096 13,104 266,069 21,153 18,188 271,153 27,848 24,883 277,848
9 48 3,060 35,428 17,745 15,152 267,745 24,137 21,545 274,137 32,910 30,317 282,910
10 49 3,060 40,413 19,308 17,085 269,308 27,161 24,939 277,161 38,396 36,174 288,396
15 54 3,060 69,332 25,820 25,450 275,820 43,316 42,946 293,316 74,334 73,964 324,334
20 59 3,060 106,241 28,965 28,965 278,965 59,934 59,934 309,934 128,895 128,895 378,895
25 64 3,060 153,347 26,845 26,845 276,845 75,255 75,255 325,255 213,377 213,377 463,377
30 69 3,060 213,468 16,063 16,063 266,063 84,230 84,230 334,230 340,763 340,763 590,763
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-9
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $3,060.00
These values reflect GUARANTEED cost of insurance and other charges
using the Cash Value Accumulation Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,727 0 251,727 1,860 0 251,860 1,994 0 251,994
2 41 3,060 6,587 3,766 0 253,766 4,152 0 254,152 4,554 0 254,554
3 42 3,060 10,129 5,724 907 255,724 6,493 1,676 256,493 7,327 2,510 257,327
4 43 3,060 13,848 7,597 3,152 257,597 8,880 4,435 258,880 10,326 5,881 260,326
5 44 3,060 17,754 9,384 5,309 259,384 11,312 7,237 261,312 13,573 9,498 263,573
6 45 3,060 21,855 11,079 7,374 261,079 13,783 10,078 263,783 17,084 13,379 267,084
7 46 3,060 26,160 12,677 9,342 262,677 16,288 12,953 266,288 20,879 17,544 270,879
8 47 3,060 30,681 14,175 11,210 264,175 18,825 15,860 268,825 24,983 22,018 274,983
9 48 3,060 35,428 15,570 12,977 265,570 21,388 18,795 271,388 29,420 26,828 279,420
10 49 3,060 40,413 16,854 14,632 266,584 23,969 21,747 273,969 34,216 31,994 284,216
15 54 3,060 69,332 21,629 21,259 271,629 37,162 36,792 287,162 64,995 64,625 314,995
20 59 3,060 106,241 21,935 21,935 271,935 48,702 48,702 298,702 109,540 109,540 359,540
25 64 3,060 153,347 15,250 15,250 265,250 55,445 55,445 305,445 174,880 174,880 424,880
30 69 3,060 213,468 0 0 0 49,368 49,368 299,368 265,768 265,768 515,768
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-10
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $2,517.50
These values reflect CURRENT cost of insurance and other charges
using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,326 0 250,000 1,432 0 250,000 1,539 0 250,000
2 41 2,518 5,419 3,249 0 250,000 3,566 0 250,000 3,896 0 250,000
3 42 2,518 8,333 5,119 1,152 250,000 5,769 1,802 250,000 6,472 2,504 250,000
4 43 2,518 11,393 6,929 3,267 250,000 8,037 4,375 250,000 9,281 5,618 250,000
5 44 2,518 14,606 8,674 5,317 250,000 10,366 7,009 250,000 12,341 8,983 250,000
6 45 2,518 17,980 10,355 7,302 250,000 12,760 9,708 250,000 15,678 12,625 250,000
7 46 2,518 21,522 11,971 9,224 250,000 15,219 12,472 250,000 19,320 16,572 250,000
8 47 2,518 25,242 13,519 11,076 250,000 17,742 15,300 250,000 23,293 20,851 250,000
9 48 2,518 29,147 14,997 12,862 250,000 20,330 18,195 250,000 27,632 25,497 250,000
10 49 2,518 33,248 16,405 14,575 250,000 22,985 21,155 250,000 32,373 30,543 250,000
15 54 2,518 57,040 22,668 22,363 250,000 37,680 37,375 250,000 64,174 63,869 250,000
20 59 2,518 87,406 27,031 27,031 250,000 54,508 54,508 250,000 115,184 115,184 250,000
25 64 2,518 126,161 28,633 28,633 250,000 73,938 73,938 250,000 201,045 201,045 250,000
30 69 2,518 175,623 25,217 25,217 250,000 94,835 94,835 250,000 343,136 343,136 398,037
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-11
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $2,517.50
These values reflect GUARANTEED cost of insurance and other
charges using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,326 0 250,000 1,432 0 250,000 1,539 0 250,000
2 41 2,518 5,419 2,892 0 250,000 3,198 0 250,000 3,517 0 250,000
3 42 2,518 8,333 4,391 424 250,000 4,997 1,029 250,000 5,654 1,687 250,000
4 43 2,518 11,393 5,817 2,155 250,000 6,824 3,161 250,000 7,960 4,298 250,000
5 44 2,518 14,606 7,172 3,814 250,000 8,681 5,324 250,000 10,455 7,097 250,000
6 45 2,518 17,980 8,447 5,395 250,000 10,561 7,509 250,000 13,148 10,095 250,000
7 46 2,518 21,522 9,640 6,892 250,000 12,461 9,713 250,000 16,057 13,309 250,000
8 47 2,518 25,242 10,748 8,305 250,000 14,378 11,935 250,000 19,202 16,759 250,000
9 48 2,518 29,147 11,767 9,632 250,000 16,308 14,173 250,000 22,604 20,469 250,000
10 49 2,518 33,248 12,691 10,861 250,000 18,245 16,415 250,000 26,284 24,454 250,000
15 54 2,518 57,040 15,853 15,548 250,000 28,049 27,744 250,000 50,147 49,842 250,000
20 59 2,518 87,406 14,962 14,962 250,000 36,346 36,346 250,000 86,070 86,070 250,000
25 64 2,518 126,161 7,249 7,249 250,000 40,566 40,566 250,000 144,014 144,014 250,000
30 69 2,518 175,623 0 0 0 33,563 33,563 250,000 242,228 242,228 280,985
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-12
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $2,517.50
These values reflect CURRENT cost of insurance and other charges
using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,324 0 251,324 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 3,244 0 253,244 3,561 0 253,561 3,890 0 253,890
3 42 2,518 8,333 5,108 1,141 255,108 5,757 1,789 255,757 6,458 2,490 256,458
4 43 2,518 11,393 6,910 3,248 256,910 8,014 4,352 258,014 9,254 5,591 259,254
5 44 2,518 14,606 8,643 5,286 258,643 10,328 6,971 260,328 12,294 8,936 262,294
6 45 2,518 17,980 10,309 7,256 260,309 12,701 9,648 262,701 15,602 12,550 265,602
7 46 2,518 21,522 11,905 9,158 261,905 15,132 12,384 265,132 19,204 16,456 269,204
8 47 2,518 25,242 13,428 10,986 263,428 17,617 15,175 267,617 23,122 20,679 273,122
9 48 2,518 29,147 14,877 12,742 264,877 20,158 18,023 270,158 27,386 25,251 277,386
10 49 2,518 33,248 16,249 14,419 266,249 22,753 20,923 272,753 32,029 30,199 282,029
15 54 2,518 57,040 22,228 21,923 272,228 36,883 36,578 286,883 62,724 62,419 312,724
20 59 2,518 87,406 26,056 26,056 276,056 52,352 52,352 302,352 110,312 110,312 360,312
25 64 2,518 126,161 26,699 26,699 276,699 68,617 68,617 318,617 185,892 185,892 435,892
30 69 2,518 175,623 21,790 21,790 271,790 82,582 82,582 332,582 303,007 303,007 553,007
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-13
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $2,517.50
These values reflect GUARANTEED cost of insurance and other
charges using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,518 2,643 1,324 0 251,324 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 2,883 0 252,883 3,187 0 253,187 3,505 0 253,505
3 42 2,518 8,333 4,369 402 254,369 4,971 1,004 254,971 5,625 1,658 255,625
4 43 2,518 11,393 5,778 2,115 255,778 6,777 3,114 256,777 7,905 4,242 257,905
5 44 2,518 14,606 7,110 3,752 257,110 8,604 5,247 258,604 10,360 7,003 260,360
6 45 2,518 17,980 8,357 5,304 258,357 10,445 7,392 260,445 12,998 9,946 262,998
7 46 2,518 21,522 9,515 6,767 259,515 12,293 9,545 262,293 15,833 13,086 265,833
8 47 2,518 25,242 10,581 8,139 260,581 14,145 11,702 264,145 18,879 16,436 268,879
9 48 2,518 29,147 11,552 9,417 261,552 15,995 13,860 265,995 22,151 20,016 272,151
10 49 2,518 33,248 12,419 10,589 262,419 17,834 16,004 267,834 25,664 23,834 275,664
15 54 2,518 57,040 15,153 14,848 265,153 26,742 26,437 276,742 47,701 47,396 297,701
20 59 2,518 87,406 13,539 13,539 263,539 32,959 32,959 282,959 78,007 78,007 328,007
25 64 2,518 126,161 4,957 4,957 254,957 32,845 32,845 282,845 119,459 119,459 369,459
30 69 2,518 175,623 0 0 0 18,214 18,214 268,214 171,031 171,031 421,031
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-14
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $3,060.00
These values reflect CURRENT cost of insurance and other charges
using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,729 0 250,000 1,863 0 250,000 1,997 0 250,000
2 41 3,060 6,587 4,040 0 250,000 4,435 0 250,000 4,847 0 250,000
3 42 3,060 10,129 6,277 1,459 250,000 7,082 2,264 250,000 7,953 3,135 250,000
4 43 3,060 13,848 8,438 3,993 250,000 9,803 5,358 250,000 11,337 6,892 250,000
5 44 3,060 17,754 10,519 6,444 250,000 12,596 8,521 250,000 15,022 10,947 250,000
6 45 3,060 21,855 12,508 8,803 250,000 15,450 11,745 250,000 19,026 15,321 250,000
7 46 3,060 26,160 14,409 11,074 250,000 18,373 15,038 250,000 23,387 20,052 250,000
8 47 3,060 30,681 16,225 13,260 250,000 21,367 18,042 250,000 28,143 25,178 250,000
9 48 3,060 35,428 17,951 15,358 250,000 24,433 21,841 250,000 33,333 30,741 250,000
10 49 3,060 40,413 19,575 17,353 250,000 27,560 25,338 250,000 38,991 36,768 250,000
15 54 3,060 69,332 26,581 26,211 250,000 44,699 44,329 250,000 76,864 76,494 250,000
20 59 3,060 106,241 30,673 30,673 250,000 63,574 63,574 250,000 137,605 137,605 250,000
25 64 3,060 153,347 30,223 30,223 250,000 84,836 84,836 250,000 240,695 240,695 293,648
30 69 3,060 213,468 21,739 21,739 250,000 106,299 106,299 250,000 408,777 408,777 474,181
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-15
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
Target Premium = $3,060.00
These values reflect GUARANTEED cost of insurance and other
charges using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,729 0 250,000 1,863 0 250,000 1,997 0 250,000
2 41 3,060 6,587 3,779 0 250,000 4,166 0 250,000 4,570 0 250,000
3 42 3,060 10,129 5,753 936 250,000 6,527 1,709 250,000 7,365 2,548 250,000
4 43 3,060 13,848 7,648 3,203 250,000 8,941 4,496 250,000 10,398 5,953 250,000
5 44 3,060 17,754 9,465 5,390 250,000 11,412 7,337 250,000 13,696 9,621 250,000
6 45 3,060 21,855 11,197 7,492 250,000 13,935 10,230 250,000 17,278 13,573 250,000
7 46 3,060 26,160 12,840 9,505 250,000 16,507 13,172 250,000 21,171 17,836 250,000
8 47 3,060 30,681 14,393 11,428 250,000 19,129 16,164 250,000 25,404 22,439 250,000
9 48 3,060 35,428 15,853 13,261 250,000 21,798 19,206 250,000 30,012 27,420 250,000
10 49 3,060 40,413 17,213 14,991 250,000 24,511 22,288 250,000 35,029 32,806 250,000
15 54 3,060 69,332 22,579 22,209 250,000 38,916 38,546 250,000 68,248 67,878 250,000
20 59 3,060 106,241 23,963 23,963 250,000 53,382 53,382 250,000 120,458 120,458 250,000
25 64 3,060 153,347 18,909 18,909 250,000 66,656 66,656 250,000 208,904 208,904 254,863
30 69 3,060 213,468 1,402 1,402 250,000 73,580 73,580 250,000 355,098 355,098 411,913
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-16
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $3,060.00
These values reflect CURRENT cost of insurance and other charges
using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,727 0 251,727 1,860 0 251,860 1,994 0 251,994
2 41 3,060 6,587 4,031 0 254,031 4,426 0 254,426 4,837 0 254,837
3 42 3,060 10,129 6,258 1,440 256,258 7,061 2,243 257,061 7,929 3,111 257,929
4 43 3,060 13,848 8,405 3,960 258,405 9,764 5,319 259,764 11,291 6,846 261,291
5 44 3,060 17,754 10,466 6,391 260,466 12,530 8,455 262,530 14,942 10,867 264,942
6 45 3,060 21,855 12,428 8,723 262,428 15,348 11,643 265,348 18,896 15,191 268,896
7 46 3,060 26,160 14,296 10,961 264,496 18,222 14,887 268,222 23,187 19,852 273,187
8 47 3,060 30,681 16,069 13,104 266,069 21,153 18,188 271,153 27,848 24,883 277,848
9 48 3,060 35,428 17,745 15,152 267,745 24,137 21,545 274,137 32,910 30,317 282,910
10 49 3,060 40,413 19,308 17,085 269,308 27,161 24,939 277,161 38,396 36,174 288,396
15 54 3,060 69,332 25,820 25,450 275,820 43,316 42,946 293,316 74,334 73,964 324,334
20 59 3,060 106,241 28,965 28,965 278,965 59,934 59,934 309,934 128,895 128,895 378,895
25 64 3,060 153,347 26,845 26,845 276,845 75,255 75,255 325,255 213,377 213,377 463,377
30 69 3,060 213,468 16,063 16,063 266,063 84,230 84,230 334,230 340,763 340,763 590,763
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-17
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
Target Premium = $3,060.00
These values reflect GUARANTEED cost of insurance and other
charges using the Guideline Premium Test as defined
under Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and Charges and Charges and
0% Gross Return 6% Gross Return 12% Gross Return
Premiums ------------------------ -------------------------- --------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ------- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,060 3,213 1,727 0 251,727 1,860 0 251,860 1,994 0 251,994
2 41 3,060 6,587 3,766 0 253,766 4,152 0 254,152 4,554 0 254,554
3 42 3,060 10,129 5,724 907 255,724 6,493 1,676 256,493 7,327 2,510 257,327
4 43 3,060 13,848 7,597 3,152 257,597 8,880 4,435 258,880 10,326 5,881 260,326
5 44 3,060 17,754 9,384 5,309 259,384 11,312 7,237 261,312 13,573 9,498 263,573
6 45 3,060 21,855 11,079 7,374 261,079 13,783 10,078 263,783 17,084 13,379 267,084
7 46 3,060 26,160 12,677 9,342 262,677 16,288 12,953 266,288 20,879 17,544 270,879
8 47 3,060 30,681 14,175 11,210 264,175 18,825 15,860 268,825 24,983 22,018 274,983
9 48 3,060 35,428 15,570 12,977 265,570 21,388 18,795 271,388 29,420 26,828 279,420
10 49 3,060 40,413 16,854 14,632 266,584 23,969 21,747 273,969 34,216 31,994 284,216
15 54 3,060 69,332 21,629 21,259 271,629 37,162 36,792 287,162 64,995 64,625 314,995
20 59 3,060 106,241 21,935 21,935 271,935 48,702 48,702 298,702 109,540 109,540 359,540
25 64 3,060 153,347 15,250 15,250 265,250 55,445 55,445 305,445 174,880 174,880 424,880
30 69 3,060 213,468 0 0 0 49,368 49,368 299,368 265,768 265,768 515,768
</TABLE>
IT IS EMPHASIZED THAT HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS MADE BY
A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-18
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
LONG TERM MARKET TRENDS
This Appendix provides information about the historical returns on different
types of securities. This information is intended to help to provide a
perspective on the potential risks and rewards of investing in selected types of
securities over different periods of time. Together with an assessment of a
policyowner's financial goals, risk tolerance, time horizon and personal
expectations about investment performance, this information may be used to guide
allocation and transfer decisions. However, none of the historical returns
provided here are directly related to the performance of the Variable Investment
Options under a policy, and none of the mutual funds offered through the
Separate Account are managed to match the performance of unmanaged indices or
groups of securities. Most importantly, past performance does not assure future
results.
The source for the historical returns presented here is Stocks, Bonds, Bills and
Inflation (SBBI) 1997 YearbookTM, Ibbotson Associates, Chicago (Annually updates
work by Roger G. Ibbotson and Rex A. Sinquefield.) Used with permission. All
rights reserved. Ibbotson classifies securities as Large Company Stocks, Small
Company Stocks, Long-term Corporate Bonds, Long-term Government Bonds,
Intermediate-term Government Bonds and U.S. Treasury Bills. Inflation, as
measured by the Consumer Price Index for All Urban Consumers (CPI-U), is shown
for comparative purposes.
The returns reported by SBBI assume that dividends, capital gains and interest
are reinvested over time. The SBBI data do not reflect the effects of charges
associated with a Park Avenue Life policy. That information is discussed under
the prospectus heading "Deductions and Charges." It is imporant to remember that
although the policy's charges will reduce a policyowner's returns, they permit
GIAC to provide the benefits to policyowners and beneficiaries.
AVERAGE ANNUAL HISTORICAL RETURNS FOR CERTAIN TYPES OF SECURITIES
The following data indicate that, historically, the long-term investment
performance of common stocks has been positive and generally superior to that of
other types of securities.
Annual Returns By Ibbotson Asset Class*
1926 to 1996
[GRAPHIC OMITTED]
Average
Annual Returns
Ibbotson Asset Classes* 1926-1996
---------------------- --------------
A Large Company Stocks 10.7%
B Small Company Stocks 12.6%
C Long-Term Corporate Bonds 5.6%
D Long-Term Government Bonds 5.1%
E Intermediate-Term Government Bonds 5.2%
F US Treasury Bills 3.7%
G Inflation 3.1%
However, common stocks have also been subject to more dramatic changes in value
from year to year than other types of securities. The following bar chart shows
the ranges from highest to lowest of specific annual returns for each Ibbotson
Asset Class during the years 1926 through 1996. The accompanying table
identifies the returns for the best and worst years for each Ibbotson Asset
Class over the same span of time.
Range of Returns
By Ibbotson Asset Class
One Year Holding Periods
1926-1996
[GRAPHIC OMITTED]
One Year Returns
Ibbotson Asset Classes* Maximum Value Minimum Value
---------------------- -------------- --------------
A Large Company Stocks 53.99% (1933) -43.34% (1931)
B Small Company Stocks 142.87% (1933) -58.01% (1937)
C Long-Term Corporate Bonds 42.56% (1982) -8.09% (1969)
D Long-Term Government
Bonds 40.36% (1982) -9.18% (1967)
E Intermediate-Term
Government Bonds 29.10% (1982) -5.14% (1994)
F US Treasury Bills 14.71% (1981) -0.02% (1938)
G Inflation 18.16% (1946) -10.30% (1932)
- --------------------------------------------------------------------------------
B-1
<PAGE>
In 45 of the 71 one year holding periods charted by Ibbotson Associates for the
period 1926 through 1996, common stocks provided the highest returns of all
Asset Classes. Conversely, common stocks also experienced the highest number of
one year periods when losses occurred; 21 out of 71 periods for Small Company
Stocks and 20 out of 71 periods for Large Company Stocks.
A) Large Company Stock returns -- Represented by the Standard and Poor's 500
Stock Composite Index (S&P500).
B) Small Company Stock returns -- Represented by the fifth capitalization
quintile of stocks on the New York Stock Exchange for 1926-1981 and the
performance of the Dimensional Fund Advisors (DFA) Small Company Fund
thereafter.
C) Long-term Corporate Bond returns --Represented by the Salomon Brothers
long-term, high grade corporate bond total return index.
D) Long-term Government Bond returns -- Measured using a one-bond portfolio with
maturity near 20 years.
E) Intermediate-term Government Bond returns -- Measured using a one-bond
portfolio with a maturity near 5 years.
F) U.S. Treasury Bill returns -- Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
LENGTHENING THE HOLDING PERIOD TO REDUCE THE IMPACT OF SHORT-TERM VOLATILITY
The following bar chart shows the ranges from highest to lowest of the average
annual returns for each Ibbotson Asset Class during the 62 overlapping 10-year
periods within the years 1926 through 1996 (i.e., 1926-1935, 1927-1936 and so on
through 1987-1996). The accompanying table identifies the returns for the best
and worst 10-year periods for each Ibbotson Asset Class within the years 1926
through 1996.
Range of Returns
By Ibbotson Asset Class
62 Overlapping Ten Year Holding Periods
1926-1996
[GRAPHIC OMITTED]
Ten Year Average Annual Returns
Ibbotson Asset Classes Maximum Value Minimum Value
---------------------- ----------------- ---------------
A Large Company Stocks 20.06% (1949-58) -0.89% (1929-38)
B Small Company Stocks 30.38% (1975-84) -5.70% (1929-38)
C Long-Term Corporate Bonds 16.32% (1982-91) 0.98% (1947-56)
D Long-Term Government
Bonds 15.56% (1982-91) -0.07% (1950-59)
E Intermediate-Term
Government Bonds 13.13% (1982-91) 1.25% (1947-56)
F US Treasury Bills 9.17% (1978-87) 0.15% (1933-42)*
G Inflation 8.67% (1973-82) -2.57% (1926-35)
* Also (1934-43)
In 52 of the 62 10-year holding periods charted by Ibbotson Associates, common
stocks provided the highest returns of all Asset Classes, but also experienced
the highest number of 10-year periods when losses occurred; 2 out of 62 periods
for each of Small Company Stocks and Large Company Stocks. However, compared to
the results for one-year periods, volatility was reduced as the holding period
lengthened.
When the holding period is lengthened to twenty years (see next page), common
stocks provided the highest returns of all Asset Classes in all 52 of the
overlapping 20 year periods within the years 1926 through 1996, and volatility
was reduced even further. Moreover, none of the Ibbotson Asset Classes realized
negative returns during the 52 periods.
- --------------------------------------------------------------------------------
B-2
<PAGE>
Range of Returns
By Ibbotson Asset Class
52 Overlapping Twenty Year Holding Periods
1926-1996
[GRAPHIC OMITTED]
Twenty Year Average Annual Returns
Ibbotson Asset Classes Maximum Value Minimum Value
---------------------- ----------------- ---------------
A Large Company Stocks 16.86% (1942-61) 3.11% (1929-48)
B Small Company Stocks 21.13% (1942-61) 5.74% (1929-48)
C Long-Term Corporate Bonds 10.58% (1976-95) 1.34% (1950-69)
D Long-Term Government
Bonds 10.45% (1976-95) 0.69% (1950-69)
E Intermediate-Term
Government Bonds 9.85% (1974-93) 1.58% (1940-59)
F US Treasury Bills 7.72% (1972-91) 0.42% (1931-50)
G Inflation 6.36% (1966-85) 0.07% (1926-45)
Overall, the SBBI data show that, historically, the longer that a portfolio of
common stocks was held, the more likely it became that results would be positive
and superior to those for the other Asset Classes. The data also show that when
the holding period was shorter, the chance of loss was more likely for all Asset
Classes, but particularly for common stocks. These trends indicate that it may
be advantageous for a policyowner who hopes to achieve long-term positive
returns within a Park Avenue Life policy to keep the policy in force, and select
Variable Investment Options which are consistent with future goals.
STOCKS AND BONDS VERSUS INFLATION
The SBBI data also show that common stock returns have outpaced inflation in
each of the 52 overlapping 20-year periods within the years 1926 through 1996.
While the returns on the three Asset Classes of bonds demonstrated less
volatility over time, they have not always kept pace with inflation. The
following graphs depict these comparisons.
Comparison: Stocks and Bonds Versus Inflation
For Ibbotson Asset Classes
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
B-3
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
USES OF LIFE INSURANCE
The following are examples of ways in which the policy can be used to address
certain financial objectives, bearing in mind that variable life insurance is
not a short-term investment and that its primary purpose is to provide benefits
upon the death of the insured.
Family Income Protection
Life insurance may be purchased on the lives of a family's income earners to
provide a death benefit to cover final expenses, and continue the current income
to the family. The amount of insurance purchase should be an amount which will
provide a death benefit that when invested outside the policy at a reasonable
interest rate, will generate enough money to replace the insured's income.
Estate Protection
Life insurance may be purchased by a trust on the life of a person whose estate
will incur federal estate taxes upon his or her death. The amount of insurance
purchased should equal the amount of the estimated estate tax liability. Upon
the insured's death, the trustee could make the death proceeds available to the
estate for the payment of estate taxes.
Education Funding
Life insurance may be purchased on the life of the parent(s) or primary person
funding an education. The amount of insurance purchased should equal the total
education cost projected at a reasonable inflation rate.
In the event of the insured's death, the guaranteed death benefit is available
to help pay the education costs. If the insured lives through the education
years, the cash value accumulations may be accessed to help offset the remaining
education costs. Any policy loans or partial withdrawals will reduce the
policy's death benefit and may have tax consequences.
Mortgage Protection
Life insurance may be purchased on the life of the person(s) responsible for
making mortgage payments. The amount of insurance purchased should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to offset the remaining mortgage balance.
During the insured's lifetime, the cash value accumulations may be accessed late
in the mortgage term to help make the remaining mortgage payments. Any policy
loans or partial withdrawals will reduce the policy's death benefit and may have
tax consequences.
Key Person Protection
Life insurance may be purchased by a business on the life of a key person in an
amount equal to a key person's value, considering salary, benefits, and
contribution to business profits. Upon the key person's death, the business can
use the death benefit to ease the interruption of business operations and/or to
provide a replacement fund for hiring a new executive.
Business Continuation Protection
Life insurance may be purchased on the life of each business owner in an amount
equal to the value of each owner's business interest. In the event of death, the
guaranteed death benefit may provide the funds needed to carry out the purchase
of the deceased's business interest by the business, or surviving owners, from
the deceased owner's heirs.
Retirement Income
Life insurance may be purchased on the life of a family income earner during his
or her working life. If the insured lives to retirement, the cash value
accumulations may be accessed to provide retirement payments. In the event of
the insured's death, the proceeds may be used to provide retirement income to
his or her spouse. Any policy loans or partial withdrawals will reduce the
policy's death benefit and may have tax consequences.
Deferred Compensation Plans
Life insurance may be purchased to fund a Deferred Compensation Plan, or
Selective Incentive Plan, for key employees. A Deferred Compensation Plan, or
Selective Incentive Plan, is a written agreement between an employer and an
executive. The employer makes an unsecured promise to make future benefit
payments to a key executive if the executive meets certain stated requirements.
Under this type of plan, a company purchases a cash value life insurance policy
insuring an executive's life to (1) informally fund the promised benefits and
(2) recover its plan costs at the death of the executive. The policy cash values
may be used to help pay the promised benefits to the executive. In the event
that the executive dies prior to retirement, the policy death benefits can be
used to fund survivor benefits.
Split Dollar Plans
Life insurance may be purchased by an employer on the life of an employee under
a Split Dollar Plan. In a Split Dollar Plan, the employer advances the executive
the premium on a life insurance policy. Both the employer
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<PAGE>
and the executive share the cash value and death benefit under the policy.
Generally, the employer has rights to the cash value and death benefit equal to
its advances. The balance of the cash value and death benefit belong to the
executive.
The executive receives an economic benefit for which he or she must contribute
into the plan or pay income tax. The economic benefit is equal to the term value
of the death benefit assuming taxation under IRS Revenue Rulings and IRC Section
72. Different results are possible if these or other code sections are applied
or amended.
Executive Bonus Plans
Life Insurance may be purchased by an employee with funds provided by his or her
employer for that purpose. An Executive Bonus plan involves an employer
providing an executive with additional compensation to enable the executive to
pay premiums on a life insurance policy. The bonus is tax deductible by the
employer and received as taxable income by the executive.
* * * *
Because the policy provides a death benefit and cash surrender value, the policy
can be used for various individual and business planning purposes. Purchasing
the policy in part for such purposes entails certain risks, particularly if the
policy's cash surrender value, as opposed to its death benefit, will be the
principal policy feature used for such planning purposes. If policy premiums are
not paid, the investment performance of the Variable Investment Options to which
Policy Account Value is allocated is poorer than anticipated, or insufficient
cash surrender value is maintained, then the policy may lapse or may not
accumulate sufficient values to fund the purpose for which the policy was
purchased. Because the policy is designed to provide benefits on a long-term
basis, before purchasing a policy for a specialized purpose, a purchaser should
consider whether the long-term nature of the policy is consistent with the
purpose for which it is being considered. (See "Tax Effects.")
Policyowners are urged to consult competent tax advisors about the possible tax
consequences of pre-death distributions from any life insurance policy,
including Park Avenue VUL.
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<PAGE>
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APPENDIX D
Additional benefits are available by riders to the policy. Riders are issued
subject to GIAC's standards for classifying risks. GIAC charges premiums for
additional benefit riders. These premium amounts are deducted monthly from
Policy Account Value. The benefits provided by the riders are fully described in
the riders and summarized here. These riders may not be available in all states.
Level Target Death Benefit term rider - this rider provides term insurance
coverage to the insured's Age 100 (Age 80 in New Jersey and New York). Coverage
under this rider generally has a lower cost of insurance, but has no cash value
associated with it.
By adding a Level Target Death Benefit term rider to a Park Avenue VUL policy, a
policyowner can increase the insurance coverage provided by the entire contract.
Generally term insurance is intended to fill a temporary insurance need. Term
insurance is generally more economical for short periods, while permanent
insurance is generally more economical over longer periods. If a policyowner has
a short-term need for more insurance protection, it may be in his or her
interest to supplement a Park Avenue VUL policy with a Level Target Death
Benefit term rider. When the need abates, the rider can be terminated without
triggering surrender charges, which are imposed when the policy's coverage is
reduced during the first 15 policy years. See "Reducing the Face Amount" and
"Deductions and Charges."
Waiver of Monthly Deductions rider - this rider provides for the waiver of the
Monthly Deductions while the insured is totally disabled as defined in the
rider. Age limits apply to this rider.
Guaranteed Coverage rider ("GCR") - this rider, available with Death Benefit
Option 1 only, guarantees that the policy will remain in force even if Net Cash
Surrender Value is less than current Monthly Deductions, provided the GCR
requirement, as described in the rider, is met.
Disability Benefit rider - this rider provides for crediting the Policy Account
Value with an amount equal to the Specified Premium, as defined in the rider,
while the insured is totally disabled, as defined in the rider.
Accidental Death Benefit rider - this rider provides additional insurance
coverage if the insured's death results from accidental bodily injury on or
before his or her 75th birthday. The maximum coverage under this rider is
$500,000.
Guaranteed Insurability Option rider - this rider provides the policyowner the
right to increase the Face Amount of insurance coverage on the insured's life
without evidence of insurability on the Policy Anniversaries nearest certain
birthdays of the insured (the "Option Dates") or within specified time periods
of qualifying life events ("Alternate Option Dates") subject to the conditions
in the rider.
GIAC may from time to time discontinue the availability of one or more of these
riders, or make other riders available. GIAC agents can provide information
about the current availability of particular riders.
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<PAGE>
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Appendix E:
First Year Surrender Charge Rates per $1,000 of Face Amount
<TABLE>
<CAPTION>
Male Female Unisex
--------------------------------- --------------------------------- --------------------------------
Preferred Preferred Preferred
Age Plus Preferred Standard Plus Preferred Standard Plus Preferred Standard
- ----- --------- --------- -------- --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 6.00 4.65 6.00
1 4.50 4.50 4.50
2 4.50 4.50 4.50
3 4.50 4.50 4.50
4 4.50 4.50 4.50
5 4.59 4.50 4.50
6 4.76 4.50 4.62
7 4.94 4.50 4.79
8 5.12 4.50 4.97
9 5.31 4.50 5.16
10 5.52 4.50 5.36
11 5.73 4.52 5.57
12 5.96 4.68 5.78
13 6.20 4.86 6.00
14 6.44 5.04 6.24
15 6.68 5.22 6.48
16 6.93 5.42 6.72
17 7.19 5.61 6.96
18 7.44 5.84 7.22
19 7.70 6.05 7.47
20 6.66 7.97 10.76 5.40 6.29 8.31 6.48 7.73 10.49
21 6.90 8.25 11.15 5.61 6.53 8.64 6.72 8.01 10.80
22 7.17 8.57 11.57 5.84 6.80 8.99 6.98 8.31 11.21
23 7.44 8.90 11.99 6.06 7.07 9.36 7.25 8.64 11.63
24 7.73 9.24 12.45 6.32 7.37 9.75 7.52 8.97 12.08
25 8.03 9.60 12.93 6.57 7.67 10.17 7.82 9.33 12.56
26 8.53 10.22 13.75 7.00 8.18 10.85 8.32 9.93 13.35
27 9.09 10.88 14.65 7.46 8.71 11.59 8.85 10.58 14.22
28 9.66 11.59 15.60 7.94 9.29 12.36 9.42 11.27 15.15
29 10.30 12.35 16.61 8.46 9.92 13.20 10.04 12.00 16.15
30 10.95 13.15 17.70 9.01 10.57 14.09 10.69 12.80 17.22
31 11.66 14.02 18.90 9.61 11.27 15.05 11.37 13.63 18.37
32 12.42 14.94 20.15 10.23 12.01 16.05 12.11 14.54 19.60
33 13.23 15.93 21.50 10.89 12.80 17.14 12.91 15.49 20.92
34 14.08 16.97 22.96 11.60 13.65 18.30 13.74 16.52 22.34
35 15.00 18.11 24.53 12.34 14.54 19.54 14.63 17.61 23.85
36 15.60 18.84 25.58 12.82 15.11 20.35 15.22 18.33 24.88
37 16.23 19.62 26.68 13.32 15.72 21.21 15.81 19.09 25.87
38 16.89 20.44 27.80 13.85 16.36 22.11 16.45 19.87 26.78
39 17.58 21.32 28.81 14.41 17.01 23.04 17.12 20.71 27.67
40 18.31 22.23 29.87 14.98 17.71 24.03 17.82 21.60 28.75
</TABLE>
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Appendix E: (continued)
First Year Surrender Charge Rates per $1,000 of Face Amount
<TABLE>
<CAPTION>
Male Female Unisex
--------------------------------- --------------------------------- --------------------------------
Preferred Preferred Preferred
Age Plus Preferred Standard Plus Preferred Standard Plus Preferred Standard
- ----- --------- --------- -------- --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
41 19.06 23.18 31.06 15.57 18.44 25.06 18.56 22.52 29.79
42 19.85 24.19 32.13 16.18 19.19 26.06 19.33 23.50 30.89
43 20.69 25.24 33.45 16.83 19.97 26.88 20.14 24.51 32.12
44 21.56 26.36 34.81 17.51 20.79 27.84 21.00 25.57 33.33
45 22.49 27.53 36.26 18.22 21.65 28.78 21.88 26.69 34.61
46 22.76 27.90 37.65 18.40 21.90 29.68 22.14 27.06 36.03
47 23.03 28.28 39.23 18.58 22.14 30.40 22.40 27.42 37.38
48 23.27 28.62 40.22 18.73 22.34 30.74 22.62 27.73 38.92
49 23.48 28.93 40.82 18.88 22.53 31.06 22.82 28.03 39.47
50 23.66 29.20 41.37 18.98 22.69 31.35 23.00 28.28 39.98
51 23.81 29.44 41.87 19.07 22.82 31.59 23.14 28.50 40.45
52 23.93 29.63 42.32 19.14 22.93 31.80 23.25 28.67 40.86
53 24.02 29.78 42.71 19.16 22.99 31.95 23.32 28.82 41.21
54 24.04 29.87 43.04 19.15 23.00 32.04 23.34 28.89 41.50
55 24.04 29.91 43.29 19.10 22.98 32.07 23.32 28.92 41.71
56 24.96 31.11 45.23 19.79 23.84 33.36 24.21 30.07 43.56
57 25.92 32.37 47.28 20.52 24.73 34.69 25.14 31.27 45.49
58 26.93 33.68 49.42 21.27 25.66 36.07 26.11 32.52 47.53
59 27.99 35.05 51.68 22.06 26.64 37.52 27.13 33.84 49.66
60 29.10 36.50 54.03 22.90 27.66 39.02 28.20 35.22 51.89
61 30.25 37.99 54.09 23.77 28.73 40.60 29.31 36.64 51.91
62 31.46 39.55 54.24 24.67 29.85 42.24 30.47 38.14 52.01
63 32.73 41.18 54.21 25.64 31.01 43.95 31.69 39.70 51.96
64 34.06 42.88 53.98 26.65 32.26 45.76 32.98 41.33 51.71
65 35.47 44.67 53.85 27.74 33.56 47.64 34.33 43.04 51.56
66 36.19 45.59 54.21 28.29 34.23 48.61 35.02 43.92 51.88
67 37.09 46.73 54.43 29.01 35.08 49.84 35.89 45.02 52.07
68 37.79 47.62 54.48 29.57 35.76 50.82 36.57 45.86 52.12
69 38.44 48.43 54.32 30.12 36.43 51.78 37.21 46.65 51.96
70 39.30 49.50 53.94 30.85 37.30 53.04 38.05 47.69 51.59
71 39.89 50.19 54.23 31.39 37.94 53.96 38.62 48.37 51.89
72 40.42 50.82 54.37 31.91 38.56 54.86 39.15 48.99 52.05
73 41.17 51.71 54.35 32.62 39.42 54.95 39.89 49.88 52.05
74 41.59 52.19 54.14 33.09 39.98 54.79 40.31 50.37 51.89
75 41.91 52.55 53.73 33.50 40.49 54.52 40.65 50.75 51.53
76 42.48 53.21 53.08 34.13 41.24 54.46 41.23 51.42 50.95
77 42.64 53.33 52.15 34.44 41.59 54.15 41.41 51.58 50.10
78 42.65 53.28 50.90 34.65 41.82 54.38 41.45 51.56 48.95
79 42.92 53.53 49.28 35.07 42.30 54.26 41.75 51.85 47.44
80 42.67 53.08 47.27 35.08 42.24 54.18 41.53 51.46 45.55
</TABLE>
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