As filed with the Securities and Exchange Commission on April 28, 1998
Registration Nos. 333-35681
811-08357
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Post-Effective Amendment No. 1
to the
REGISTRATION STATEMENT
on
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
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THE GUARDIAN SEPARATE ACCOUNT M
(Exact Name of Trust)
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
201 Park Avenue South, New York, New York 10003
(Complete Address of Principal Executive Offices)
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RICHARD T. POTTER, JR., ESQ.
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and address of agent for service)
Copy to:
KIMBERLY SMITH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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It is proposed that this filing will become effective (check appropriate
box):
|_| immediately upon filing pursuant to paragraph (b), or
|X| on May 1, 1998 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i), or
|_| on (date) pursuant to paragraph (a)(i) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for
a previously-filed post-effective amendment.
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The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940.
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<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Heading in Prospectus
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1,2,3,51(a)..................... Cover Page; Summary
4............................... Distribution of the Policy and Other
Contractual Arrangements
5............................... Summary
6(a)............................ The Separate Account
6(b)............................ The Separate Account
7............................... Not Applicable
8............................... Financial Statements
9............................... Legal Proceedings
10(a),(b)....................... Partial Withdrawals; Right to Cancel;
Surrender
10(d)........................... Fixed Benefit Life Insurance During the
First 24 Months; Transfers; Transfers from
the Fixed-Rate Option; Dollar Cost Averaging
Transfer Option; Decreasing the Face Amount
10(e)........................... Default; Grace Period; Reinstatement
10(f)........................... Voting Rights
10(g),(h)....................... Rights Reserved by GIAC
10(i),44(a),51(g)............... Premiums; Policy Values and Benefits; Policy
Proceeds
11.............................. The Variable Investment Options
12.............................. The Variable Investment Options
13(a),(b),(c),51(g)............. Deductions from Premiums;
Deductions from the Mutual Funds
13(d),(g)....................... Not Applicable
13(e),(f)....................... Monthly Deductions from the Policy Account
Value; Transaction Deductions from Policy
Account Value; Deductions from the Separate
Account; Distribution of the Policy and
Other Contractual Arrangements
14.............................. Insureds
15.............................. Allocation of Net Premiums; Crediting
Payments
16.............................. Allocation of Net Premiums; Transfers;
Dollar Cost Averaging Transfer Option;
Policy Loans
17.............................. Surrender; Partial Withdrawals; Right to
Cancel; Policy Proceeds
18.............................. The Variable Investment Options
19.............................. Communications from GIAC
20.............................. Not Applicable
21(a),(b)....................... Policy Loans; Policy Proceeds
21(c),22,23..................... Not Applicable
24.............................. Payment Options; Limits to GIAC's Right to
Challenge a Policy; Other Information
25,27,29,48..................... Summary
26.............................. Not Applicable
28.............................. GIAC's Management
30,31,32,33,34,35,36,37......... Not Applicable
38,39,41(a)..................... Distribution of the Policy and Other
Contractual Arrangements
40.............................. The Funds' Investment Advisers
41(b),(c),42,43................. Not Applicable
44(a)........................... Premiums; Policy Values and Benefits
44(b)........................... Exhibits
44(c)........................... Premiums
45.............................. Not Applicable
46(a),47........................ Amounts in the Separate Account; Net
Investment Factor; Policy Proceeds
46(b)........................... Not Applicable
49,50........................... Not Applicable
51(b)........................... Cover Page
51(c),(d)....................... Death Benefit Options; Charge for the Cost
of Insurance; Mortality and Expense Risk
Charge
51(e),(f)....................... Policyowner and Beneficiary
51(h),(i),(j)................... Not Applicable
52(a),(c)....................... Rights Reserved by GIAC
52(b),(d)....................... Not Applicable
53(a)........................... GIAC's Taxes
53(b),54,55,56,57,58............ Not Applicable
59.............................. Financial Statements
<PAGE>
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Park Avenue VUL
Flexible Premium Adjustable Variable Life Insurance Policy
Prospectus Dated May 1, 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, Inc., The Guardian Small Cap Stock
Fund, The Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc., Baillie
Gifford International Fund, Baillie Gifford Emerging Markets Fund, Value Line
Centurion Fund, Inc., 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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1
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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
Default ......................................................... 13
Reinstatement ................................................... 13
Deductions and Charges .............................................. 14
Deductions From Premiums ........................................ 14
Monthly Deductions From the Policy Account Value ................ 14
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 ........................................... 20
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 .............................. 31
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 ............................. 33
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The Funds' Investment Advisers ...................................... 34
Guardian Investor Services Corporation .......................... 34
Guardian Baillie Gifford Limited ................................ 34
Baillie Gifford Overseas Limited ................................ 34
Value Line, Inc. ................................................ 34
Gabelli Funds, Inc. ............................................. 34
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 ................................................... 36
General Information ................................................. 36
Amounts In the Fixed-Rate Option .................................... 36
VOTING RIGHTS ........................................................... 37
DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS ........... 38
LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY ............................ 39
Incontestability .................................................... 39
Misstatement of Age or Sex .......................................... 39
Suicide Exclusion ................................................... 39
GIAC'S MANAGEMENT ....................................................... 40
OTHER INFORMATION ....................................................... 43
Rights Reserved by GIAC ............................................. 43
Right to Cancel ..................................................... 43
Policyowner and Beneficiary ......................................... 43
Assignment .......................................................... 44
Communications From GIAC ............................................ 44
Communications With GIAC ............................................ 44
Special Provisions For Group or Sponsored Arrangements .............. 44
Advertising Practices ............................................... 44
Legal Proceedings ................................................... 45
Legal Matters ....................................................... 45
Year 2000 ........................................................... 45
Registration Statement .............................................. 45
Financial and Actuarial Experts ..................................... 45
FINANCIAL STATEMENTS OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC. .. 46
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 sum of the Minimum Annual Premium for
any previous policy years, plus a percentage of the Minimum Annual Premium for
the current policy year. The percentage of the Minimum Annual Premium for the
current policy year is calculated by multiplying such premium 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.
* For policies issued in Illinois, the No Lapse Guarantee and No Lapse Guarantee
Premium Test are the Minimum Premium Period and Minimum Premium Period Test,
respectively
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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 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, 1997, GIAC had total assets (statutory basis) in
excess of $7.0 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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6
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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.
Charge for Additional Insurance Benefits
If the policyowner acquires additional insurance benefits by purchasing one or
more of the available Riders to the policy, rider premiums are assessed. Rider
premiums are deducted from the Policy Account Value monthly.
Transaction Deductions
Surrender Charge
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.
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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.
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
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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.
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 may
be offered under the policy, 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.
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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 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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<PAGE>
Park Avenue VUL Policy Diagram*
Less
Premiums ------------> Premium Charge
Policy Account Value
The Separate Account
The Mutual Funds (including any Investment
Return):
Guardian Investor Services Corporation
The Guardian Stock Fund Less
The Guardian Small Cap Stock Fund -------------> Advisory Fees And
The Guardian Bond Fund Operational Expenses
The Guardian Cash Fund
Guardian Baillie Gifford Limited Less
Baillie Gifford International Fund -------------> Mortality And Expense
Baillie Gifford Emerging Markets Fund Risk Charge
Value Line, Inc.
Value Line Centurion Fund
Value Line Strategic Asset Management
Trust
Gabelli Funds, Inc.
Gabelli Capital Asset Fund
Massachusetts Financial Services Company Less
MFS Emerging Growth Series ------------> Monthly Deductions:
MFS Total Return Series o Policy Administration
MFS Growth With Income Series Charge
MFS Bond Series o Charge For The Cost Of
American Century Investment Management, Inc. Insurance
American Century VP Value Fund o Charge for Additional
American Century VP International Fund Insurance Benefits
A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
Fidelity Management & Research Company
Fidelity VIP III Growth Opportunities
Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP II Index 500 Portfolio
Fixed-Rate Option Loan Collateral Account
(plus Interest Credited) (plus Interest Credited)
Less
------------> Transaction Deductions:
o Surrender Charge
Cash Surrender Value Less
------------> Policy Debt
Net Cash Surrender Value
*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.
POLICY FORM 97-VUL
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<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 two 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 will be accepted if any of the following conditions exists
on the date the payment is received at GIAC's Executive Office: (i) the premium
payment does not cause the policy's death benefit to increase as a result of
Section 7702, (ii) the sum of all premium payments received during the policy
year does not exceed 150% of the Target Premium, (iii) the sum of all premium
payments received during the policy year does not exceed (a) 400% of the Target
Premium and (b) 125% of the largest premium payment made during the prior three
policy years, or (iv) the policy is subject to the Guideline Premium Test. If
none of these conditions exists, such premium payment may be accepted if
evidence of insurability satisfactory to GIAC is submitted.
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.
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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 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 plus an amount equal 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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<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:
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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.
Premium Allocation
------------------
Initial Face Amount First Face Amount Increase
--------------------------------- --------------------------------
Cumulative Premium Cumulative Premium
Date Premium Allocation Charge Premium Allocation Charge
- ------ --------- ---------- --------- --------- --------- ---------
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
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<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 16 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
- --------------------------------------------------------------------------------
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.
Charge for Additional Insurance Benefits
If the policyowner acquires additional insurance benefits by purchasing one or
more of the available Riders to the policy, rider premiums are assessed. Rider
premiums are deducted from the Policy Account Value monthly.
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 $1,000 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
- --------------------------------------------------------------------------------
16
<PAGE>
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 (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>
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
- ------ -------- -------- -------- -------- -------- -------- --------
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
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, 1997, 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% 0.02% 0.52%
Guardian Small
Cap Stock Fund* 0.75% 0.21% 0.96%
Guardian
Bond Fund 0.50% 0.05% 0.55%
Guardian
Cash Fund 0.50% 0.04% 0.54%
Baillie Gifford
International
Fund 0.80% 0.17% 0.97%
Baillie Gifford
Emerging
Markets Fund 1.00% 0.40% 1.40%
Value Line
Centurion Fund* 0.50% 0.10% 0.60%
Value Line
Strategic Asset
Mgt. Trust* 0.50% 0.09% 0.59%
Gabelli Capital
Asset Fund 1.00% 0.17% 1.17%
MFS Emerging
Growth Series* 0.75% 0.12% 0.87%
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* 0.62% 0.08% 0.70%
AIM V.I. Capital
Appreciation Fund* 0.63% 0.05% 0.68%
Fidelity VIP III
Growth Oppor-
tunities Portfolio* 0.61% 0.13% 0.74%
Fidelity VIP Equity-
Income Portfolio* 0.51% 0.07% 0.58%
Fidelity VIP High
Income Portfolio* 0.59% 0.12% 0.71%
Fidelity VIP II
Index 500 Portfolio* 0.24% 0.04% 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, 1997. The expenses for The Guardian
Small Cap Stock Fund are annualized.
The percentages for MFS Growth With Income 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 and Total Return Series and 0.40% of the average
daily net assets of the Bond Series for the fiscal year ended December 31, 1997.
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, 1997 would be (i) 0.35% and 1.10%,
respectively, for the MFS Growth With Income Series, (ii) 0.27% and 1.02%,
respectively, for the MFS Total Return Series, and (iii) 2.98% and 3.58%,
respectively, for the MFS Bond Series.) An agreement to limit the Emerging
Growth Series' operational expenses to 0.25% of the average daily net assets of
the Fund is also in effect, but it was not triggered for the year ended December
31, 1997.
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%. In the absence of such agreement, total expenses for the Index 500
Portfolio would have been 0.40%. 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. 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
fees and expenses.
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, 1997,
GIAC was reimbursed $696,767 by Value Line Strategic Asset Management Trust, and
$483,127 by Value Line Centurion Fund.
AIM Advisors, Inc. ("AIM") may from time to time voluntarily waive or reduce its
respective fees. Effective May 1, 1998, the Funds reimburse AIM in an amount up
to 0.25% of the average net asset value of each Fund, for expenses incurred in
providing, or assuring that participating insurance companies provide, certain
administrative services. Currently, the fee only applies to the average net
asset value of each Fund in excess of the net asset value of each Fund as
calculated on April 30, 1998.
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 sum of the Minimum Annual Premium for
any previous policy years, plus a percentage of the Minimum Annual Premium for
the current policy year. The percentage of the Minimum Annual Premium for the
current policy year is calculated by multiplying such premium 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.
- ----------
* For policies issued in Illinois, the No Lapse Guarantee and No Lapse
Guarantee Premium Period are the Minimum Premium Period and Minimum
Premium Period Test, respectively.
- --------------------------------------------------------------------------------
19
<PAGE>
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:
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:
- --------------------------------------------------------------------------------
20
<PAGE>
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%
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
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<PAGE>
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.
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)
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<PAGE>
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 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."
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<PAGE>
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 that relate to the policy's Face Amount will generally decrease when a
Face Amount reduction takes effect.
Upon a Face Amount decrease, 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
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<PAGE>
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 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.
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"
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<PAGE>
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.
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 seven.
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
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26
<PAGE>
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 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.
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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
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
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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 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 will 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) Partial withdrawals should generally be treated as first recovering
the policyowner's "basis" in the policy and then distributing
taxable income. However, 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. The basis in a policy generally equals the premium
paid minus any amounts previously recovered through tax-free policy
distributions.
(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.
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(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
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 this connection, the President's 1999 Budget Proposal
has recommended legislation that, if enacted, would adversely modify the federal
taxation of certain insurance and annuity contracts. For example, one proposal
would tax transfers among investment options and tax exchanges involving
variable contracts. A second proposal would reduce the "investment in the
contract" under cash value life insurance and certain annuity contracts, thereby
increasing the amount of income for purposes of computing gain. 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
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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 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. In recent
years, Congress has adopted new rules relating to life insurance owned by
businesses. Any business should consult a tax advisor regarding possible tax
consequenses associated with the Policy prior to acquisition and also before
entering into any subsequent changes to or transactions under the Policy.
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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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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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, 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 Cash Fund are not presented.
FUND NAME YEARS ENDED DECEMBER 31, 1997
AND Since
INCEPTION DATE 1 Year 5 Years 10 Years Inception
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Guardian Stock Fund* 35.58% 22.37% 19.37% 17.87%
(4/13/83)
Guardian Small Cap N/A N/A N/A 14.69%
Stock Fund*
(7/16/97)
Guardian Bond Fund* 8.99% 6.94% 8.93% 9.36%
(5/1/83)
Baillie Gifford 11.93% 14.24% N/A 12.28%
International Fund
(2/8/91)
Baillie Gifford 1.97% N/A N/A 3.36%
Emerging
Markets Fund
(10/17/94)
Value Line 21.39% 16.33% 17.76% 14.13%
Centurion Fund
(11/15/83)
Value Line 15.66% 12.88% 15.38% 14.37%
Strategic Asset
Management Trust
(10/1/87)
Gabelli Capital 42.59% N/A N/A 22.36%
Asset Fund**
(5/1/95)
MFS Emerging 21.90% N/A N/A 23.53%
Growth Series***
(7/24/95)
MFS Total Return 21.30% N/A N/A 20.93%
Series***
(1/3/95)
MFS Growth With 29.78% N/A N/A 27.61%
Income Series***
(10/9/95)
MFS Bond Series*** 10.14% N/A N/A 6.94%
(10/24/95)
American Century VP 26.10% N/A N/A 23.20%
Value Fund
(5/1/96)
American Century VP 18.60% N/A N/A 10.60%
International Fund
(5/1/94)
AIM V.I. Value Fund 23.69% N/A N/A 19.74%
(5/5/93)
AIM V.I. Capital 13.51% N/A N/A 18.64%
Appreciation Fund
(5/5/93)
Fidelity VIP III Growth 29.95% N/A N/A 26.81%
Opportunities
Portfolio****
(1/3/95)
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Fidelity VIP Equity- 28.11% 20.16% 16.72% 14.66%
Income Portfolio****
(10/9/86)
Fidelity VIP High 17.67% 13.91% 12.81% 12.45%
Income Portfolio****
(9/19/85)
Fidelity VIP II 32.82% 19.91% N/A 19.87%
Index 500 Portfolio****
(8/27/92)
* Results for The Guardian Bond Fund and The Guardian Stock Fund reflect
effects of expense reimbursements that occurred during the years ended
December 31, 1984 and 1985. Without these expense reinbursements, results
for these funds would be be lower. The inception date for the Guardian
Small Cap Stock Fund is the date of commencement of the public offering of
the fund.
** 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 "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 eight of the ten 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 ten series comprising The Park Avenue
Portfolio. 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 funds.
Baillie Gifford Overseas Limited
GBG has appointed BG Overseas to serve as sub-investment adviser to Baillie
Gifford International Fund and Baillie Gifford Emerging Markets 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
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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 over 50 investment
company portfolios. AIM is a wholly owned subsidiary of A I M Management Group
Inc., a holding company engaged in the financial services business and which in
turn is an indirect wholly owned subsidiary of AMVESCAP 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. Each Fund pays an advisory
fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's
average daily net assets, plus 0.60% of the Fund's average daily net assets in
excess of $250 million.
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 0.24% for
the Growth Opportunities, Equity-Income, High Income, and Index 500 Portfolios,
respectively.
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.
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 $1,409,708, $1,851,468 and $1,979,926 during
the years ended December 31, 1995, 1996, and 1997, 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.
GIAC has also entered into agreements with MFS and American Century pursuant to
which it will be reimbursed for certain administrative costs and expenses
incurred in connection with the offer and sale of MFS and American Century funds
to GIAC's policyowners, such reimbursement to be determined on the basis of a
percentage of assets under managment.
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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 ten series) and (5) GIAC Funds, Inc. (a
series fund that issues its shares in three series).
Name Title Business History
Joseph A. Caruso Vice President and The Guardian Life Insurance
Secretary Company of America 3/96 -
present; Second Vice
President and Corporate
Secretary 1/95 - 2/96;
Corporate Secretary 10/92 -
12/94; Vice President and
Secretary, Guardian Investor
Services Corporation;
Secretary, 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
and Guardian Asset Management
Corporation.
Arthur V. Ferrara Director Retired. Former Chairman of
the Board and Chief Executive
Officer, The Guardian Life
Insurance Company of America
1/93 - 12/95; Director 1/81 -
present. Director (Trustee)
of Guardian Investor Services
Corporation, Gabelli 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
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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<PAGE>
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. Senior 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, Equity Vice President, Equity
Sales Marketing & Sales, The
Guardian Life Insurance
Company of America, 3/98 -
present; Second Vice
President, Equity Sales, 3/95
- 2/98; Regional Sales
Director for Equity Products,
Western Division, prior
thereto. Senior Vice
President of Guardian
Investor Services
Corporation.
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.
Executive Vice President,
GIAC Funds, Inc. Officer of
various mutual funds within
the Guardian Fund Complex.
Edward K. Kane Executive Vice Executive Vice President, The
President and Director Guardian Life Insurance
Company of America 1/97 -
present; Senior Vice
President and General Counsel
prior thereto; Director
11/88-present. Director,
Guardian Asset Management
Corporation.
Eileen C. McDonnell Vice President, Group Vice President, Group
Pensions Pensions, The Guardian Life
Insurance Company of America
9/97 - present; Vice
President, Group Marketing,
9/95-9/97. Vice President,
Strategic Marketing, The
Equitable Life Assurance
Society of the United States,
1/94 - 9/95; Vice President,
Northern Operations prior
thereto.
Frank L. Pepe Vice President Vice President and
and Controller 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. Vice President
and Treasurer, GIAC Funds,
Inc. 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. 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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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; 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 Executive Vice President, The
President and Director Guardian Life Insurance
Company of America 1/95 -
present; Senior Vice
President, Equity Products
prior thereto. President and
Director, Guardian Investor
Services Corporation;
President, GIAC Funds, Inc.;
Director, Guardian Baillie
Gifford Limited; Director,
Guardian Asset Management
Corporation.
Thomas G. Sorell Vice President Vice President, The Guardian
Life Insurance Company of
America 7/94 - present; 12/93
- 7/94, Director of Fixed
Income, White River
Corporation; 4/93 - 12/93,
Director of Fixed Income,
Fund American Enterprises.
Vice President, Guardian
Asset Management Corporation.
Officer of various mutual
funds within the Guardian
Fund Complex.
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. Officer of
various mutual funds within
the Guardian Fund Complex.
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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43
<PAGE>
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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44
<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.
Year 2000
Like other financial and business organizations around the world, GIAC could be
adversely affected if the computer systems it uses internally, the systems of
its service providers, and related computer systems do not properly process and
calculate date related information and data beginning on January 1, 2000. Many
computer systems today cannot distinguish the year 2000 from the year 1900
because of the way dates were encoded and calculated in these systems. GIAC has
been actively working to deal with this problem, and expects that its systems
and others upon which it is reliant will be adapted before January 1, 2000.
However, there can be no assurance that these preparations will be successful.
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 basis balance sheets of GIAC as of December 31, 1997 and December
31, 1996 and the related statutory basis statements of operations, of changes in
common stock and surplus and of cash flow for the three years in the period
ended December 31, 1997 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.
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45
<PAGE>
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1997 - $492,052,307; 1996 - $491,271,164) ....... $ 484,747,832 $ 490,445,948
Affiliated mutual funds, at market ......................... 30,551,186 2,755,672
Investment in subsidiary ................................... 12,073,143 7,746,643
Policy loans - variable life insurance ..................... 72,737,781 68,143,068
Cash and short-term investments ............................ 23,602,410 17,825,039
Investment in joint venture ................................ 345,492 285,874
Accrued investment income receivable .......................... 13,303,271 10,553,405
Due from parent and affiliates ................................ 7,573,304 6,507,913
Other assets .................................................. 12,557,432 12,173,268
Receivable from separate accounts ............................. 30,203,923 11,606,587
Variable annuity and EISP/CIP separate account assets ......... 6,810,882,719 5,248,159,777
Variable life separate account assets ......................... 414,699,239 342,921,803
-------------- --------------
TOTAL ADMITTED ASSETS .................................... $7,913,277,732 $6,219,124,997
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves .................................... $ 339,797,646 $ 329,681,355
Fixed immediate reserves ................................... 7,397,461 5,874,894
Life reserves .............................................. 67,799,492 65,462,693
Minimum death benefit guarantees ........................... 1,117,645 1,257,777
Policy loan collateral fund reserve ........................ 70,734,812 65,762,820
Accrued expenses, taxes, & commissions ..................... 1,592,997 2,712,360
Due to parent and affiliates ............................... 20,408,087 15,304,638
Federal income taxes payable ............................... 10,939,640 4,743,447
Other liabilities .......................................... 20,540,325 30,079,434
Asset valuation reserve .................................... 26,305,528 15,121,269
Variable annuity and EISP/CIP separate liabilities ......... 6,750,575,077 5,193,574,218
Variable life separate account liabilities ................. 413,364,790 335,769,184
-------------- --------------
TOTAL LIABILITIES ........................................ $7,730,573,500 $6,065,344,089
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized,
issued and outstanding ................................... 2,000,000 2,000,000
Additional paid-in surplus ................................. 137,398,292 137,398,292
Assigned and unassigned surplus ............................ 43,305,940 14,382,616
-------------- --------------
Total Common Stock and Surplus ........................... 182,704,232 153,780,908
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS .............. $7,913,277,732 $6,219,124,997
============== ==============
</TABLE>
See notes to statutory basis financial statements.
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46
<PAGE>
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Year Ended December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations:
Variable annuity considerations ..................... $ 995,209,301 $731,792,764 $537,841,762
Life insurance premiums and fixed
annuity considerations ................................. 68,222,360 44,874,269 73,938,212
Net investment income ................................. 47,993,754 42,366,902 36,293,598
Amortization of IMR ................................... 111,783 333,219 257,380
Net gain from operations of separate accounts ......... 5,780,327 8,860,462 --
Service fees .......................................... 76,350,291 58,774,486 46,560,286
Variable life-- cost of insurance ..................... 11,205,120 4,844,028 4,232,564
Reserve adjustments on reinsurance ceded .............. 7,885,341 30,636,445 (32,192,749)
Commission and expense allowances ..................... 16,268,128 14,508,840 10,057,974
Other income .......................................... 5,178,266 2,535,356 1,127,526
-------------- ------------ -----------
1,234,204,671 939,526,771 678,116,553
-------------- ------------ -----------
Benefits and expenses:
Benefits:
Death benefits ...................................... 5,340,675 6,785,456 4,774,584
Annuity benefits .................................... 687,719,014 426,072,773 276,568,762
Surrender benefits .................................. 17,620,583 17,459,706 17,660,413
Increase in reserves ................................ 18,291,585 82,891,516 65,349,399
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ....................... 359,468,681 323,093,897 252,772,988
Variable Life ....................................... (630,102) (10,417,095) (17,796,371)
Commissions ........................................... 43,352,989 39,233,431 34,364,742
General insurance expenses ............................ 59,476,685 42,523,892 25,888,456
Taxes, licenses and fees .............................. 3,743,414 3,723,858 2,477,492
Reinsurance terminations .............................. 182,535 (15,470,015) 11,002,701
-------------- ------------ -----------
1,194,566,059 915,897,419 673,063,166
-------------- ------------ -----------
Income before income taxes and realized
gains from investments .............................. 39,638,612 23,629,352 5,053,387
Federal income taxes .................................. 12,073,500 3,941,460 439,667
-------------- ------------ -----------
Income from operations, net of federal
income taxes, and before net realized
gains ............................................... 27,565,112 19,687,892 4,613,720
Realized gains from investments, net of federal
income taxes, net of transfer to IMR ................ 472,127 7,540 342,455
-------------- ------------ -----------
Net income ............................................ $ 28,037,239 $ 19,695,432 $ 4,956,175
============== ============ ===========
</TABLE>
See notes to statutory basis financial statements.
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47
<PAGE>
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------ -------- -------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 .................... $2,000,000 $137,398,292 $(1,817,759) $137,580,533
---------- ------------ ----------- ------------
Net income from operations ....................... 4,956,175 4,956,175
Increase in unrealized appreciation of Company's
investment in separate accounts, net of
applicable taxes .............................. 3,024,930 3,024,930
Decrease in unrealized appreciation of Company's
investment in joint venture ................... (6,803) (6,803)
Increase in unrealized appreciation of Company's
investment in subsidiary ...................... 298,534 298,534
Increase in non-admitted assets .................. (7,078) (7,078)
Disallowed interest maintenance reserve .......... 143,080 143,080
Net increase in asset valuation reserve .......... (4,111,444) (4,111,444)
---------- ------------ ----------- ------------
Balances at December 31, 1995 .................... 2,000,000 137,398,292 2,479,635 141,877,927
---------- ------------ ----------- ------------
Net income from operations ....................... 19,695,433 19,695,433
Tax on prior years separate account seed
investment unrealized gains ................... (104,732) (104,732)
Increase in unrealized appreciation of Company's
investment in joint venture ................... 241,456 241,456
Increase in unrealized appreciation of Company's
investment in subsidiary ...................... 142,201 142,201
Decrease in unrealized appreciation of Company's
investment in other assets .................... (9,384) (9,384)
Increase in non-admitted assets .................. (80,815) (80,815)
Disallowed interest maintenance reserve .......... (128,107) (128,107)
Surplus changes resulting from reinsurance ....... (2,073,155) (2,073,155)
Net increase in asset valuation reserve .......... (5,779,916) (5,779,916)
---------- ------------ ----------- ------------
Balances at December 31, 1996 .................... 2,000,000 137,398,292 14,382,616 153,780,908
========== ============ =========== ============
Net income from operations ....................... 28,037,239 28,037,239
Increase in unrealized appreciation of Company's
investment in joint venture ................... 42,908 42,908
Increase in unrealized appreciation of Company's
investment in subsidiary ...................... 4,326,500 4,326,500
Increase in unrealized appreciation of Company's
investment in other assets .................... 9,384 9,384
Increase in unrealized appreciation of Company's
investment in an affiliated mutual fund ....... 7,271,233 7,271,233
Decrease in non-admitted assets .................. 83,011 83,011
Disallowed interest maintenance reserve .......... (197,600) (197,600)
Surplus changes resulting from reinsurance ....... 534,908 534,908
Net increase in asset valuation reserve .......... (11,184,259) (11,184,259)
---------- ------------ ----------- ------------
Balances at December 31, 1997 .................... $2,000,000 $137,398,292 $43,305,940 $182,704,232
========== ============ =========== ============
</TABLE>
See notes to statutory basis financial statements.
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48
<PAGE>
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For The Year Ended December 31,
--------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and
deposit funds ........................................ $1,065,244,583 $780,710,735 $611,169,979
Investment income ...................................... 46,412,248 42,413,736 36,912,131
Commissions and expense allowances on
reinsurance ceded .................................... 22,679,622 37,315,301 (22,118,484)
Other income ........................................... 67,084,996 47,357,962 44,220,753
Death benefits ......................................... (5,492,854) (6,900,438) (4,420,866)
Surrender benefits ..................................... (17,780,564) (2,774,865) (17,660,413)
Annuity benefits ....................................... (689,207,046) (424,511,908) (276,163,436)
Commissions, other expenses
and taxes (excluding FIT) ............................ (101,213,566) (78,968,214) (57,714,112)
Net transfers to separate accounts ..................... (356,017,200) (307,856,562) (231,230,812)
Federal income taxes (excluding tax on
capital gains) ....................................... (5,094,779) 682,025 (1,557,444)
Increase in policy loans ............................... (4,594,714) (4,300,868) (4,522,280)
Other operating expenses and sources ................... (140,580) 2,077,342 (8,945,084)
-------------- ------------ ------------
Net cash provided by insurance activities ................. 21,880,146 85,244,246 67,969,932
-------------- ------------ ------------
Cash flows from investing activities:
Proceeds from dispositions of
investment securities ................................ 315,404,430 224,692,954 63,122,215
Purchases of investment securities ..................... (331,151,548) (309,590,319) (118,543,796)
Federal income tax on capital gains .................... (355,657) (505,496) 992,810
-------------- ------------ ------------
Net cash used in investing activities ..................... (16,102,775) (85,402,861) (54,428,771)
-------------- ------------ ------------
Net increase (decrease) in cash ...................... 5,777,371 (158,615) 13,541,161
Cash and short-term investments,
beginning of year .................................. 17,825,039 17,983,654 4,442,493
-------------- ------------ ------------
Cash and short-term investments,
end of year ........................................ $ 23,602,410 $ 17,825,039 $ 17,983,654
============== ============ ============
</TABLE>
See notes to statutory basis financial statements.
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49
<PAGE>
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 1 -- Organization
The Guardian Insurance & Annuity Company, Inc. (GIAC or the Company) is a
wholly-owned subsidiary of The Guardian Life Insurance Company of America (The
Guardian). The Company, domiciled in the state of Delaware, is licensed to
conduct life and health insurance business in all fifty states and the District
of Columbia. The Company's primary business is the sale of variable deferred
annuity contracts and variable and term life insurance policies. For variable
products other than 401(k) products, contracts are sold by insurance agents who
are licensed by GIAC and are either Registered Representatives of Guardian
Investor Services Corporation (GISC) or of other broker dealer firms that have
entered into sales agreements with GIAC and GISC. The Company's general agency
distribution system is used for the sale of other products and policies.
GISC, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934 and is a registered investment
advisor under the Investment Adviser's Act of 1940. GISC is the distributor and
underwriter for GIAC's variable products, and the investment advisor to certain
mutual funds sponsored by GIAC, which are investment options for the variable
products.
Insurance Separate Accounts: The Company has established fourteen insurance
separate accounts primarily to support the variable annuity and life insurance
products it offers. The majority of the separate accounts are unit investment
trusts registered under the Investment Company Act of 1940. Proceeds from the
sale of variable products are invested through these separate accounts in
certain mutual funds specified by the contractholders. Of these separate
accounts the Company maintains two separate accounts whose sole purpose is to
fund certain employee benefit plans of The Guardian.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabilities of the Company. The assets of
the separate accounts will not be charged with any liabilities arising out of
any other business of the Company. However, the obligations of the separate
accounts, including the promise to make annuity and death benefit payments,
remain obligations of the Company. Assets and liabilities of the separate
accounts are stated primarily at the market value of the underlying investments
and corresponding contractholders obligations. The amounts provided by the
Company to establish separate account investment portfolios (seed money) are not
included in separate account liabilities.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a statutory basis of accounting that is prescribed or
permitted by the Insurance Department of the State of Delaware which is a
comprehensive basis of accounting other than generally accepted accounting
principles (GAAP).
Financial statements prepared on a statutory basis vary from financial
statements prepared on a GAAP basis because: (1) the costs relating to acquiring
business, principally commissions and certain policy issue expenses, are charged
to income in the year incurred, whereas on a GAAP basis they would be recorded
as assets and amortized over the future periods to be benefited; (2) life
insurance and annuity reserves are based on statutory mortality and interest
requirements, without consideration of withdrawals, whereas on GAAP basis they
are on anticipated Company experience for lapses, mortality and investment
yield; (3) life insurance enterprises are required to establish a formula-based
asset valuation reserve (AVR) by a direct charge to surplus to offset potential
investment losses; under GAAP, provisions for investments are established as
needed through a charge to income; (4) realized gains and losses resulting from
changes in interest rates on fixed income investments are deferred in the
interest maintenance reserve (IMR) and amortized into investment income over the
remaining life of the investment sold; for GAAP, such gains and losses are
recognized in income at the time of sale; (5) bonds are carried principally at
amortized cost for statutory reporting and at market value for GAAP; (6) annuity
and certain insurance premiums are recognized as premium income, whereas for
GAAP they are recognized as deposits; (7) deferred federal income taxes are not
provided for temporary differences between tax and book assets and liabilities
as they are under GAAP; (8) certain reinsurance transactions are accounted for
as reinsurance for statutory
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50
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
purposes and as financing transactions under GAAP, and assets and liabilities
are reported net of reinsurance for statutory purposes and gross of reinsurance
for GAAP.
Use of Estimates: The preparation of financial statements of insurance
enterprises requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements. As a provider of life insurance and annuity products, GIAC's
operating results in any given period depend on estimates of policy reserves
required to provide for future policyholder benefits. The development of policy
reserves for insurance and investment contracts requires management to make
estimates and assumptions regarding mortality, lapse, expense and investment
experience. Such estimates are primarily based on historical experience and, in
many cases, state insurance laws that require specific mortality, morbidity, and
investment assumptions to be used by the Company. Actual results could differ
from those estimates. Management monitors actual experience, and where
circumstances warrant, revises its assumptions and the related reserve
estimates.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures established by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments
carried at market are recorded directly to unassigned surplus. Realized gains
and losses on disposition of investments are determined by the specific
identification method. The Company has recorded in accordance with NAIC
requirements, the net gain from the operations of the separate accounts in the
operations of the general account in 1997 and 1996 instead of in surplus.
Bonds: Bonds are valued principally at amortized cost. Mortgage backed
bonds are carried at amortized cost using the interest method considering
anticipated prepayments at the date of purchase. Significant changes in future
anticipated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method with PSA standard prepayment rates.
Investment in subsidiary: GIAC's investment in GISC is carried at equity in
GIAC's underlying net assets. Undistributed earnings or losses are reflected as
unrealized capital gains and losses directly in unassigned surplus. Dividends
received from GISC are recorded as investment income and amounted to $10,000,000
in 1997, $9,500,000 in 1996 and 6,700,000 in 1995.
Short-Term Investments: Short-term investments are stated at amortized cost
and consist primarily of investments having maturities at the date of purchase
of six months or less. Market values for such investments approximate carrying
value.
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize surplus against market
fluctuations in the value of equities and credit related declines in the value
of bonds. Changes in the AVR are recorded directly to unassigned surplus. The
IMR captures net after-tax realized capital gains which result from changes in
the overall level of interest rates for fixed income investments and amortizes
these net capital gains into income over the remaining stated life of the
investments sold. The Company uses the group method of calculating the IMR,
consistent with prior years. Any net negative IMR amounts are treated as a
non-admitted asset.
Contract and Policy Reserves: Fixed deferred reserves represent the fund
balance left to accumulate at interest under fixed annuity contracts that were
offered directly by the Company, a fixed rate option that is offered to variable
annuity contractowners and a single premium deferred annuity that is offered by
the Company. The Company no longer offers the fixed annuity contracts.
The estimated fair value of contractholder account balances within the
fixed deferred reserves has been determined to be equivalent to carrying value
as the current offering and renewal rates are set in response to current market
conditions and are only guaranteed for one year.
- --------------------------------------------------------------------------------
51
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
The interest rate credited on fixed annuity contracts included in fixed
deferred reserves for 1997 and 1996 was 5.75%. The interest rate credited on the
fixed rate option that is offered to certain variable annuity contractowners was
5.50% during 1997. For the fixed rate option currently issued, the issue and
renewal interest rates credited varies from month to month and ranged from 5.25%
to 5.40% in 1997. For single premium deferred annuities the rates ranged from
5.00% to 6.00% in 1997. Fixed immediate reserves are a liability within the
general account for those annuitants that have elected a fixed annuity payout
option. The immediate contract reserve is computed using the 1971 IAM Table and
the 1983 IAM Table and a 4% discount rate.
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values. The reserve is credited with interest at 4% per
annum for single premium variable life policyowners, 6.5% for annual pay
variable life policyowners and 7% for other variable life policyowners.
Non-admitted Assets: Certain assets designated as "non-admitted assets" in
accordance with rules and regulations of the Department of Insurance of the
State of Delaware are charged directly to unassigned surplus. At December 31,
1997 and 1996 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $82,380 and $123,785, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on variable life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also includes service fees from the separate accounts consisting of
mortality and expense charges, annual administration fees, charges for the cost
of term insurance related to variable life policies and penalties for early
withdrawals. Services fees were not charged on separate account assets of
$162,522,811 and $142,722,353 at December 31, 1997 and 1996, respectively, which
represent investments in The Guardian's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently taxable, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the
applicable federal income taxes. The taxable portion of unrealized appreciation
of the Company's separate account investments is included in operations for 1997
and 1996, and in surplus in 1995.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1997 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
- --------------------------------------------------------------------------------
52
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1997, 1996 and 1995 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ..................... $13,873,514 $ 8,270,274 $ 1,768,688
Add (deduct) tax effect of:
Adjustment for annuity and other reserves .............. (291,470) (1,478,476) 337,668
DAC Tax ................................................ 1,712,811 867,731 666,260
Dividend from subsidiary ............................... (3,500,000) (3,325,000) (2,345,000)
Other-- net ............................................ 278,645 (393,069) 12,051
----------- ----------- -----------
Federal income taxes ...................................... $12,073,500 $ 3,941,460 $ 439,667
=========== =========== ===========
</TABLE>
The provision for federal income taxes includes deferred taxes in 1997,
1996 and 1995 of $181,145, $353,051 and $304,923, respectively, applicable to
the difference between the tax basis and the financial statement basis of
recording investment income relating to accrued market discount.
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fixed maturities .......................................... $31,806,228 $28,234,145 $25,795,915
Affiliated money market funds ............................. 524,277 121,733 130,729
Subsidiary ................................................ 10,000,000 9,500,000 6,700,000
Policy loans .............................................. 3,386,194 3,089,114 2,847,532
Short-term investments .................................... 2,280,599 1,204,805 1,166,264
Joint venture dividend .................................... 1,047,525 623,160 684,306
Other ..................................................... 59,779 55,301 14,951
----------- ----------- -----------
49,104,602 42,828,258 37,339,697
Less: Investment expenses ................................. 1,110,848 461,356 1,046,099
----------- ----------- -----------
Net investment income ..................................... $47,993,754 $42,366,902 $36,293,598
=========== =========== ===========
</TABLE>
Gross realized gains and losses, less applicable federal income taxes and
transfer to IMR, are summarized as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Realized gains from dispositions:
U.S. Government bonds ................................... $ 722,440 $ 1,014,811 $ 438,127
Corporate debt securities ............................... 413,022 1,014,562 555,817
Common stocks ........................................... 174 -- --
Seed investment redeemed ................................ -- -- 717,499
Foreign exchange ........................................ 2,791 11,599 --
Realized losses from dispositions:
U.S. Government bonds ................................... 744,168 181,025 7,498
Corporate debt securities ............................... 399,618 617,325 370,353
Foreign exchange ........................................ 5,733 -- 10,145
Short term investments .................................. 1,218 191 --
----------- ----------- -----------
Net realized capital gains (losses) ..................... (12,350) 1,242,431 1,323,447
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
53
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
<TABLE>
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current ................................................. (269,216) 829,609 622,821
Deferred ................................................ (209,059) (394,759) (42,290)
----------- ----------- -----------
Total federal income tax expense (benefit) .............. (478,275) 434,850 580,531
----------- ----------- -----------
Transfer to IMR ............................................ (6,202) 800,041 400,461
----------- ----------- -----------
Net realized gains (losses) ................................ $ 472,127 $ 7,540 $ 342,455
=========== =========== ===========
</TABLE>
The market values of bonds are based on quoted prices as available. For
certain private placement debt securities where quoted market prices are not
available, fair value is estimated by management using adjusted market prices
for like securities.
The cost and estimated market values of investments by major investment
category at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ........................... $ 65,358,213 $ 1,550,649 $ 16,198 $ 66,892,664
Obligations of states and political
subdivisions ........................... 71,909,687 795,387 41,850 72,663,224
Debt securities issued by foreign
governments ............................ 7,062,711 -- 115,745 6,946,966
Corporate debt securities ................. 340,417,221 6,143,061 1,010,829 345,549,453
Common stock of subsidiary ................ 9,398,292 2,674,851 -- 12,073,143
Affiliated mutual funds ................... 23,279,949 7,271,237 -- 30,551,186
------------- ------------- ------------- ------------
$517,426,073 $ 18,435,185 $ 1,184,622 $534,676,636
============= ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ........................... $133,436,167 $ 761,811 $ 435,887 $133,762,091
Obligations of states and political
subdivisions ........................... 40,444,325 148,692 70,771 40,522,246
Debt securities issued by foreign
governments ............................ 3,491,091 -- 65,431 3,425,660
Corporate debt securities ................. 313,074,365 2,279,414 1,792,612 313,561,167
Common stock of subsidiary ................ 9,398,292 -- 1,651,649 7,746,643
Affiliated mutual funds ................... 2,755,672 -- -- 2,755,672
------------- ------------- ------------- ------------
$502,599,912 $ 3,189,917 $ 4,016,350 $501,773,479
============= ============= ============= ============
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1997 and 1996, by contractual maturity, is shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
- --------------------------------------------------------------------------------
54
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------------
Estimated
Amortized Market
Cost Value
------------- -------------
<S> <C> <C>
Due in one year or less ............................................... $ 59,694,316 $ 59,737,770
Due after one year through five years ................................. 234,805,896 236,867,373
Due after five years through ten years ................................ 103,002,869 106,604,446
Due after ten years ................................................... 21,552,124 22,383,887
------------- -------------
419,055,205 425,593,476
Sinking fund bonds
(including collateralized mortgage obligations) .................... 65,692,627 66,458,831
------------- -------------
$484,747,832 $492,052,307
============= =============
<CAPTION>
As of December 31, 1996
------------------------------------
Estimated
Amortized Market
Cost Value
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with affiliated companies and outside parties to
provide for reinsurance of selected variable annuity contracts and group life
and individual life policies. Under the terms of the modified coinsurance
agreements, reserves related to the reinsurance business and corresponding
assets are held by the Company. Accordingly, policy reserves include $76,669,184
and $447,494,766 at December 31, 1997 and 1996, respectively, applicable to
policies reinsured under modified coinsurance agreements. The reinsurance
contracts do not relieve the Company of its primary obligation for policyowner
benefits. Failure of reinsurers to honor their obligations could result in
losses to the Company.
The effect of these agreements on the components of the Company's gain from
operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31
--------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Premiums and deposits .................................... $(43,873,731) $ (83,250,212) $ (41,212,253)
Net investment income .................................... -- (61,779) --
Commission and expense allowances ........................ 7,885,341 14,508,839 10,057,974
Reserve adjustments ...................................... 16,268,128 30,636,445 (32,192,749)
Other income ............................................. 1,875,163 (25,000) --
----------- ------------ ------------
Revenues ............................................... (17,845,099) (38,191,707) (63,347,028)
Policyholder benefits .................................... (10,975,075) (26,873,945) (57,577,405)
Increase in aggregate reserves ........................... 22,859,719 (5,658,260) (11,909,990)
Reinsurance terminations ................................. (27,421,066) (15,470,015) 11,002,701
General expenses ......................................... (40,452) (81,667) (48,640)
----------- ------------ ------------
Deductions ............................................. (15,576,874) (48,083,887) (58,533,334)
----------- ------------ ------------
Net income (loss) from reinsurance ceded ................. $ (2,268,225) $ 9,892,180 $ (4,813,694)
=========== ============ ============
</TABLE>
- --------------------------------------------------------------------------------
55
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 6 -- Reinsurance Assumed
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain from
operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Premiums and deposits ..................................... $ (389,221) $41,133,358 $ 7,153,623
Net investment income ..................................... 45,288 94,657 62,847
Other income .............................................. (62,752) 375,404 32,528
---------- ---------- ----------
Revenues ................................................ (406,685) 41,603,419 7,248,998
Policyholder benefits ..................................... 3,967,619 8,076,053 5,086,702
Increase in aggregate reserves ............................ (31,677,857) 31,556,908 (357,463)
Reinsurance expenses ...................................... 27,603,602 (452,476) 1,451,058
Other expenses ............................................ 1,885,300 551,319 54,043
---------- ---------- ----------
Deductions .............................................. 1,778,664 39,731,804 6,234,340
---------- ---------- ----------
Net income (loss)from reinsurance assumed ................. $(2,185,349) $ 1,871,615 $ 1,014,658
========== ========== ==========
</TABLE>
The Company terminated, during 1997, an assumption agreement with an
unaffiliated company. Under this agreement, included in the consolidated
statements of income are $(2.3) million, $20.2 million and $7.2 million of
premiums at December 31, 1997, 1996 and 1995, respectively.
Note 7 -- Related Party Transactions
Registered representatives of the Guardian Investor Services Corporation
produce a major portion of the Company's business. During 1997, 1996 and 1995,
premium and annuity considerations produced by GISC amounted to $564,519,265,
$528,353,595 and $400,148,692, respectively. The related commissions paid to
GISC amounted to $1,979,926, $1,851,468 and $1,409,708 for 1997, 1996 and 1995,
respectively.
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$60,009,449 in 1997, $41,129,644 in 1996 and $24,989,111 in 1995, and, in the
opinion of management, were considered appropriate for the services rendered.
The company had an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware insurance law as an insurance
company separate account. GIAC had contributed capital to GREA since it was
established to provide for funds and to preserve liquidity. Effective December
19, 1997, GREA was liquidated and, as a result, $6,746,290 was returned to GIAC
in the form of capital and there was a realized gain recorded of $969,045
included in the net gain from operations of separate accounts.
A significant portion of the Company's separate account assets is invested
in affiliated mutual funds. These funds consist of The Guardian Park Avenue
Fund, The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian
Bond Fund, The Baillie Gifford International Fund, The Baillie Gifford Emerging
Markets Fund, The Guardian Baillie Gifford International Fund, The Guardian
Asset Allocation Fund, The Guardian Investment Quality Bond Fund, The Guardian
Cash Management Fund and The Guardian Cash Fund. Each of these funds has an
investment advisory agreement with GISC, except for The Baillie Gifford
International Fund, The Baillie Gifford Emerging Markets Fund and The Guardian
Baillie Gifford International Fund. The investments as of December 31, 1997 and
1996 are as follows:
- --------------------------------------------------------------------------------
56
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
1997 1996
---- ----
The Guardian Park Avenue Fund ................. $ 371,662,107 $ 251,812,050
The Guardian Stock Fund ....................... 3,222,051,866 2,226,887,181
The Guardian Small Cap Stock Fund ............. 60,104,422 --
The Guardian Bond Fund ........................ 355,417,535 354,316,320
The Baillie Gifford International Fund ........ 442,651,457 400,894,824
The Baillie Gifford Emerging Markets Fund ..... 65,038,546 45,571,916
TheGuardian Baillie Gifford International Fund 3,378,730 19,720
The Guardian Asset Allocation Fund ............ 14,910,420 46,623
The Guardian Investment Quality Bond Fund ..... 1,546,854 9,385
The Guardian Cash Management Fund ............. 22,250,501 3,113,523
The Guardian Cash Fund ........................ 368,122,449 378,321,710
------------- -------------
$4,927,134,887 $3,660,993,252
============= =============
The Company, in agreement with Baillie Gifford Overseas Ltd., has a joint
venture company - Guardian Baillie Gifford Ltd. (GBG) - that is organized as a
corporation in Scotland. GBG is registered in both the United Kingdom and the
United States to act as an investment advisor for the Baillie Gifford
International Fund (BGIF), the Baillie Gifford Emerging Markets Fund (BGEMF),
The Guardian Baillie Gifford International Fund (GBGIF) and The Guardian Baillie
Gifford Emerging Markets Fund (GBGEMF). The Funds, except for The Guardian
Baillie Gifford Emerging Markets Fund, are offered in the U.S. as investment
options under certain variable annuity contracts and variable life policies.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1997 and 1996 this
amounted to $2,888,149 and $2,755,672, respectively. The Company also made an
investment in an affiliated small cap stock mutual fund during 1997, The
Guardian Small Cap Stock Fund. At December 31, 1997 this investment amounted to
$27,663,037.
Note 8 -- Separate Accounts
The following represents a reconciliation of net transfers from GIAC to the
separate accounts. Transfers are reported in the Summary of Operations of the
Separate Account Annual Statement:
<TABLE>
<CAPTION>
For the Year Ended December 31
----------------------------------------------------
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Transfers to separate accounts ......................... $1,054,380,697 $767,741,428 $582,715,569
Transfers from separate accounts ....................... (782,891,638) (518,683,141) (398,531,802)
------------- ------------ ------------
Net transfers to separate accounts ................... 271,489,059 249,058,287 184,183,767
------------- ------------ ------------
Reconciling Adjustments:
Mortality & expense guarantees -- variable annuity ..... 70,027,514 53,219,656 41,474,872
Mortality & expense guarantees -- variable life ........ 2,021,656 1,687,711 1,571,955
Administrative fees -- variable annuity ................ 4,095,230 3,867,120 3,513,459
Cost of insurance -- variable life ..................... 11,205,120 4,844,028 4,232,564
------------- ------------ ------------
Total adjustments .................................... 87,349,520 63,618,515 50,792,850
------------- ------------ ------------
Transfers as reported in the Statement of
Operations of GIAC ................................... $ 358,838,579 $312,676,802 $234,976,617
============= ============ ============
</TABLE>
- --------------------------------------------------------------------------------
57
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
For the Year Ending 1997 For the Year Ending 1996
----------------------------- ---------------------------
Amount % Amount %
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ............. $ 46,276,766 10.19% $ 44,480,214 10.22%
------------ ------ ------------ ------
Total with adjustment or at
market value .............................. 46,276,766 10.19 44,480,214 10.22
at book value without adjustment
(minimal or no charge or
adjustment) ................................. 313,725,462 69.05 302,433,090 69.45
Not subject to discretionary
withdrawal ................................ 94,338,339 20.76 88,546,538 20.33
------------ ------ ------------ ------
Total (gross) ............................... 454,340,567 100.00 435,459,842 100.00
Reinsurance ceded ........................... -- -- 4,879 --
------------ ------ ------------ ------
Total ....................................... $454,340,567 100.00% $435,454,963 100.00%
============ ====== ============ ======
</TABLE>
This does not include $6,647,606,347 and $5,098,658,097 of non-guaranteed
annuity reserves held in separate accounts, and $3,572,284 and $2,927,130 at
December 31, 1997 and 1996, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
Note 10 - Statutory Financial Information
The following reconciles the statutory net income of the Company as
reported to the regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory net income .................................... $28,037,239 $19,695,432 $ 4,956,175
Adjustments to restate to the basis of GAAP:
Net income of subsidiaries ........................... 4,326,500 142,201 298,534
Change in deferred policy acquisition costs .......... 41,883,919 42,525,493 31,247,939
Deferred premiums .................................... (5,542,795) 3,238,115 (1,643,253)
Re-estimation of future policy benefits .............. (3,353,249) 26,953,558 297,442
Reinsurance .......................................... 12,372,471 (36,353,822) 15,465,956
Deferred federal income tax expense .................. (16,212,244) (13,074,280) (15,681,250)
Elimination of interest maintenance reserve .......... (111,783) (333,219) (257,381)
Other, net ........................................... 201,840 (2,444,872) 2,598,780
----------- ----------- -----------
Consolidated GAAP net income ............................ $61,601,898 $40,348,606 $37,282,942
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
58
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory capital and surplus ............................ $182,704,232 $153,780,908 $141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs ..................... 267,369,685 221,475,216 178,010,226
Elimination of asset valuation reserve ................ 26,305,528 15,121,269 9,341,353
Re-estimation of future policy benefits ............... 41,283,947 31,167,840 4,214,282
Establishment of deferred federal income tax .......... (84,703,745) (65,164,526) (53,962,281)
Unrealized gains on investments ....................... 7,852,564 2,313,203 10,655,552
Other liabilities ..................................... (33,486,652) (32,389,767) 1,811,239
Deferred premiums ..................................... (7,024,891) (1,482,096) (4,720,211)
Other, net ............................................ (3,468,519) (2,215,098) (1,276,761)
----------- ----------- -----------
Consolidated GAAP stockholder's equity .............. $396,832,149 $322,606,949 $285,951,326
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying statutory basis balance sheets of The
Guardian Insurance & Annuity Company, Inc. as of December 31, 1997 and 1996, and
the related statutory basis statements of operations, of changes in common stock
and surplus and of cash flows for the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities (statutory basis of accounting), which is a comprehensive
basis of accounting other than generally accepted accounting principles.
Accordingly, the financial statements are not intended to represent a
presentation in accordance with generally accepted accounting principles. The
effects on the financial statements of the variances between such practices and
generally accepted accounting principles are material and are described in Note
2.
In our report dated February 9, 1996, we expressed an opinion that the
1995 financial statements, prepared using accounting practices prescribed or
permitted by insurance regulatory authorities, were presented fairly, in all
material respects, in conformity with generally accepted accounting principles.
As described in Note 2 to these financial statements, pursuant to pronouncements
of the Financial Accounting Standards Board, financial statements of mutual life
insurance companies and their wholly owned stock insurance company subsidiaries
are no longer considered presentations in conformity with generally accepted
accounting principles. Accordingly, our present opinion on the presentation of
the 1995 financial statements, as presented herein, is different from that
expressed in our report dated February 9, 1996.
In our opinion, the financial statements referred to above (1) do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of The Guardian Insurance & Annuity Company, Inc. at December
31, 1997 and 1996, or the results of its operations or its cash flows for the
three years in the period ended December 31, 1997, because of the effects of the
variances between the statutory basis of accounting and generally accepted
accounting principles, and (2) present fairly, in all material respects, its
financial position and the results of its operations and its cash flows, in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
- --------------------------------------------------------------------------------
60
<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 0.83% of
the average daily net assets of such funds. The average is based upon actual
expenses incurred during 1997 for all funds. Operating expenses for the MFS
Emerging Growth Series and Total Return Series for 1997 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, 1997.
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, 1997.
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 -1.72%, 4.22% and 10.17%, respectively, based on a
mortality and expense risks charge of .90% for the first 20 policy years and
- -1.43%, 4.54% and 10.50%, 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.
From time to time, advertisements or sales literature for Park Avenue VUL may
quote historical performance data of one
- --------------------------------------------------------------------------------
A-1
<PAGE>
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 historical average annual total returns 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. Any such information is intended to show the policy's
investment experience based on the historical experience of the underlying funds
and is not intended to represent what may happen in the future.
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 0% Gross Return Charges and 6% Gross Return Charges and 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 1,433 0 250,000 1,540 0 250,000
2 41 2,518 5,419 3,251 0 250,000 3,568 0 250,000 3,899 0 250,000
3 42 2,518 8,333 5,123 1,156 250,000 5,774 1,806 250,000 6,477 2,509 250,000
4 43 2,518 11,393 6,936 3,274 250,000 8,045 4,383 250,000 9,290 5,627 250,000
5 44 2,518 14,606 8,685 5,327 250,000 10,379 7,021 250,000 12,355 8,997 250,000
6 45 2,518 17,980 10,370 7,317 250,000 12,778 9,725 250,000 15,699 12,647 250,000
7 46 2,518 21,522 11,990 9,243 250,000 15,244 12,496 250,000 19,351 16,603 250,000
8 47 2,518 25,242 13,543 11,101 250,000 17,774 15,332 250,000 23,336 20,893 250,000
9 48 2,518 29,147 15,027 12,892 250,000 20,371 18,236 250,000 27,689 25,554 250,000
10 49 2,518 33,248 16,442 14,612 250,000 23,037 21,207 250,000 32,448 30,618 250,000
15 54 2,518 57,040 22,743 22,438 250,000 37,811 37,506 250,000 64,407 64,102 250,000
20 59 2,518 87,406 27,153 27,153 250,000 54,773 54,773 250,000 115,775 115,775 250,000
25 64 2,518 126,161 28,808 28,808 250,000 74,421 74,421 250,000 200,847 200,847 341,838
30 69 2,518 175,623 25,447 25,447 250,000 95,662 95,662 250,000 335,176 335,176 507,297
</TABLE>
IT IS EMPHASIZED THAT THE 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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,433 0 250,000 1,540 0 250,000
2 41 2,518 5,419 2,894 0 250,000 3,200 0 250,000 3,519 0 250,000
3 42 2,518 8,333 4,395 428 250,000 5,001 1,033 250,000 5,659 1,691 250,000
4 43 2,518 11,393 5,824 2,161 250,000 6,831 3,169 250,000 7,969 4,306 250,000
5 44 2,518 14,606 7,181 3,824 250,000 8,692 5,335 250,000 10,468 7,110 250,000
6 45 2,518 17,980 8,460 5,407 250,000 10,577 7,524 250,000 13,167 10,114 250,000
7 46 2,518 21,522 9,657 6,909 250,000 12,482 9,735 250,000 16,084 13,336 250,000
8 47 2,518 25,242 10,769 8,326 250,000 14,405 11,963 250,000 19,239 16,796 250,000
9 48 2,518 29,147 11,793 9,658 250,000 16,344 14,209 250,000 22,653 20,518 250,000
10 49 2,518 33,248 12,721 10,891 250,000 18,289 16,459 250,000 26,348 24,518 250,000
15 54 2,518 57,040 15,913 15,608 250,000 28,157 27,852 250,000 50,343 50,038 250,000
20 59 2,518 87,406 15,053 15,053 250,000 36,558 36,558 250,000 86,563 86,563 250,000
25 64 2,518 126,161 7,367 7,367 250,000 40,940 40,940 250,000 145,163 145,163 250,000
30 69 2,518 175,623 0 0 0 34,187 34,187 250,000 236,567 236,567 358,049
</TABLE>
IT IS EMPHASIZED THAT THE 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 0% Gross Return Charges and 6% Gross Return Charges and 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 1,325 0 251,325 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 3,246 0 253,246 3,563 0 253,563 3,893 0 253,893
3 42 2,518 8,333 5,113 1,145 255,113 5,761 1,794 255,761 6,463 2,495 256,463
4 43 2,518 11,393 6,917 3,255 256,917 8,022 4,360 258,022 9,263 5,600 259,263
5 44 2,518 14,606 8,654 5,296 258,654 10,340 6,983 260,340 12,308 8,950 262,308
6 45 2,518 17,980 10,323 7,271 260,323 12,718 9,666 262,718 15,624 12,571 265,624
7 46 2,518 21,522 11,924 9,177 261,924 15,156 12,408 265,156 19,234 16,487 269,234
8 47 2,518 25,242 13,453 11,010 263,453 17,649 15,207 267,649 23,164 20,722 273,164
9 48 2,518 29,147 14,907 12,772 264,907 20,199 18,064 270,199 27,442 25,307 277,442
10 49 2,518 33,248 16,286 14,456 266,286 22,804 20,974 272,804 32,103 30,273 282,103
15 54 2,518 57,040 22,301 21,996 272,301 37,011 36,706 287,011 62,951 62,646 312,951
20 59 2,518 87,406 26,173 26,173 276,173 52,605 52,605 302,605 110,875 110,875 360,875
25 64 2,518 126,161 26,861 26,861 276,861 69,065 69,065 319,065 187,156 187,156 437,156
30 69 2,518 175,623 21,992 21,992 271,992 83,304 83,304 333,304 305,643 305,643 555,643
</TABLE>
IT IS EMPHASIZED THAT THE 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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,325 0 251,325 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 2,885 0 252,885 3,189 0 253,189 3,508 0 253,508
3 42 2,518 8,333 4,373 406 254,373 4,976 1,008 254,976 5,630 1,662 255,630
4 43 2,518 11,393 5,784 2,122 255,784 6,784 3,121 256,784 7,913 4,250 257,913
5 44 2,518 14,606 7,119 3,761 257,119 8,615 5,258 258,615 10,373 7,015 260,373
6 45 2,518 17,980 8,369 5,317 258,369 10,460 7,407 260,460 13,017 9,965 263,017
7 46 2,518 21,522 9,531 6,784 259,531 12,314 9,566 262,314 15,860 13,112 265,860
8 47 2,518 25,242 10,602 8,159 260,602 14,172 11,730 264,172 18,915 16,472 268,915
9 48 2,518 29,147 11,577 9,442 261,577 16,030 13,895 266,030 22,200 20,065 272,200
10 49 2,518 33,248 12,449 10,619 262,449 17,877 16,047 267,877 25,726 23,896 275,726
15 54 2,518 57,040 15,210 14,905 265,210 26,844 26,539 276,844 47,887 47,582 297,887
20 59 2,518 87,406 13,622 13,622 263,622 33,152 33,152 283,152 78,453 78,453 328,453
25 64 2,518 126,161 5,055 5,055 255,055 33,159 33,159 283,159 120,421 120,421 370,421
30 69 2,518 175,623 0 0 0 18,666 18,666 268,666 172,951 172,951 422,951
</TABLE>
IT IS EMPHASIZED THAT THE 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 0% Gross Return Charges and 6% Gross Return Charges and 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 1,730 0 250,000 1,864 0 250,000 1,998 0 250,000
2 41 3,060 6,587 4,042 0 250,000 4,438 0 250,000 4,850 0 250,000
3 42 3,060 10,129 6,282 1,464 250,000 7,087 2,270 250,000 7,959 3,141 250,000
4 43 3,060 13,848 8,447 4,002 250,000 9,813 5,368 250,000 11,348 6,903 250,000
5 44 3,060 17,754 10,532 6,457 250,000 12,611 8,536 250,000 15,039 10,964 250,000
6 45 3,060 21,855 12,525 8,820 250,000 15,471 11,766 250,000 19,052 15,347 250,000
7 46 3,060 26,160 14,433 11,098 250,000 18,403 15,068 250,000 23,424 20,089 250,000
8 47 3,060 30,681 16,254 13,289 250,000 21,407 18,442 250,000 28,195 25,230 250,000
9 48 3,060 35,428 17,987 15,395 250,000 24,484 21,891 250,000 33,402 30,810 250,000
10 49 3,060 40,413 19,619 17,397 250,000 27,624 25,401 250,000 39,081 36,859 250,000
15 54 3,060 69,332 26,670 26,300 250,000 44,858 44,488 250,000 77,147 76,777 250,000
20 59 3,060 106,241 30,818 30,818 250,000 64,075 64,075 250,000 138,239 138,239 268,602
25 64 3,060 153,347 30,431 30,431 250,000 85,425 85,425 250,000 236,496 236,496 402,512
30 69 3,060 213,468 22,009 22,009 250,000 107,323 107,323 250,000 387,434 387,434 586,390
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,730 0 250,000 1,864 0 250,000 1,998 0 250,000
2 41 3,060 6,587 3,781 0 250,000 4,168 0 250,000 4,573 0 250,000
3 42 3,060 10,129 5,758 941 250,000 6,532 1,714 250,000 7,371 2,553 250,000
4 43 3,060 13,848 7,656 3,211 250,000 8,950 4,505 250,000 10,409 5,964 250,000
5 44 3,060 17,754 9,477 5,402 250,000 11,426 7,351 250,000 13,713 9,638 250,000
6 45 3,060 21,855 11,213 7,508 250,000 13,955 10,250 250,000 17,302 13,597 250,000
7 46 3,060 26,160 12,862 9,527 250,000 16,535 13,200 250,000 21,205 17,870 250,000
8 47 3,060 30,681 14,421 11,456 250,000 19,165 16,200 250,000 25,452 22,487 250,000
9 48 3,060 35,428 15,887 13,294 250,000 21,845 19,252 250,000 30,076 27,484 250,000
10 49 3,060 40,413 17,253 15,031 250,000 24,569 22,346 250,000 35,113 32,890 250,000
15 54 3,060 69,332 22,659 22,289 250,000 39,060 38,690 250,000 68,507 68,137 250,000
20 59 3,060 106,241 24,090 24,090 250,000 53,670 53,670 250,000 121,117 121,117 250,000
25 64 3,060 153,347 19,084 19,084 250,000 67,182 67,182 250,000 206,089 206,089 350,760
30 69 3,060 213,468 1,614 1,614 250,000 74,763 74,763 250,000 332,846 332,846 503,770
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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 0% Gross Return Charges and 6% Gross Return Charges and 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 1,861 0 251,861 1,995 0 251,995
2 41 3,060 6,587 4,034 0 254,034 4,428 0 254,428 4,840 0 254,840
3 42 3,060 10,129 6,263 1,446 256,263 7,066 2,249 257,066 7,935 3,117 257,935
4 43 3,060 13,848 8,414 3,969 258,414 9,773 5,328 259,773 11,301 6,856 261,301
5 44 3,060 17,754 10,479 6,404 260,479 12,545 8,470 262,545 14,959 10,884 264,959
6 45 3,060 21,855 12,446 8,741 262,446 15,369 11,664 265,369 18,922 15,217 268,922
7 46 3,060 26,160 14,319 10,984 264,319 18,251 14,916 268,251 23,224 19,889 273,224
8 47 3,060 30,681 16,099 13,134 266,099 21,192 18,227 271,192 27,899 24,934 277,899
9 48 3,060 35,428 17,781 15,188 267,781 24,187 21,595 274,187 32,978 30,385 282,978
10 49 3,060 40,413 19,352 17,129 269,352 27,224 25,001 277,224 38,485 36,263 288,485
15 54 3,060 69,332 25,907 25,537 275,907 43,470 43,100 293,470 74,607 74,237 324,607
20 59 3,060 106,241 29,101 29,101 279,101 60,234 60,234 310,234 129,568 129,568 379,568
25 64 3,060 153,347 27,030 27,030 277,030 75,777 75,777 325,777 214,874 214,874 464,874
30 69 3,060 213,468 16,280 16,280 266,280 85,056 85,056 335,056 343,859 343,859 593,859
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,861 0 251,861 1,995 0 251,995
2 41 3,060 6,587 3,768 0 253,768 4,154 0 254,154 4,557 0 254,557
3 42 3,060 10,129 5,729 912 255,729 6,499 1,681 256,499 7,333 2,516 257,333
4 43 3,060 13,848 7,605 3,160 257,605 8,889 4,444 258,889 10,336 5,891 260,336
5 44 3,060 17,754 9,396 5,321 259,396 11,326 7,251 261,326 13,590 9,515 263,590
6 45 3,060 21,855 11,095 7,390 261,095 13,803 10,098 263,803 17,108 13,403 267,108
7 46 3,060 26,160 12,698 9,363 262,698 16,316 12,981 266,316 20,914 17,579 270,914
8 47 3,060 30,681 14,202 11,237 264,202 18,860 15,895 268,860 25,030 22,065 275,030
9 48 3,060 35,428 15,603 13,010 265,603 21,433 18,841 271,433 29,483 26,891 279,483
10 49 3,060 40,413 16,894 14,671 266,894 24,026 21,804 274,026 34,298 32,075 284,298
15 54 3,060 69,332 21,706 21,336 271,706 37,299 36,929 287,299 65,242 64,872 315,242
20 59 3,060 106,241 22,051 22,051 272,051 48,964 48,964 298,964 110,138 110,138 360,138
25 64 3,060 153,347 15,398 15,398 265,398 55,888 55,888 305,888 176,191 176,191 426,191
30 69 3,060 213,468 0 0 0 50,037 50,037 300,037 268,432 268,432 518,432
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,433 0 250,000 1,540 0 250,000
2 41 2,518 5,419 3,251 0 250,000 3,568 0 250,000 3,899 0 250,000
3 42 2,518 8,333 5,123 1,156 250,000 5,774 1,806 250,000 6,477 2,509 250,000
4 43 2,518 11,393 6,936 3,274 250,000 8,045 4,383 250,000 9,290 5,627 250,000
5 44 2,518 14,606 8,685 5,327 250,000 10,379 7,021 250,000 12,355 8,997 250,000
6 45 2,518 17,980 10,370 7,317 250,000 12,778 9,725 250,000 15,699 12,647 250,000
7 46 2,518 21,522 11,990 9,243 250,000 15,244 12,496 250,000 19,351 16,603 250,000
8 47 2,518 25,242 13,543 11,101 250,000 17,774 15,332 250,000 23,336 20,893 250,000
9 48 2,518 29,147 15,027 12,892 250,000 20,371 18,236 250,000 27689 25,554 250,000
10 49 2,518 33,248 16,442 14,612 250,000 23,037 21,207 250,000 32,448 30,618 250,000
15 54 2,518 57,040 22,743 22,438 250,000 37,811 37,506 250,000 64,407 64,102 250,000
20 59 2,518 87,406 27,153 27,153 250,000 54,773 54,773 250,000 115,775 115,775 250,000
25 64 2,518 126,161 28,808 28,808 250,000 74,421 74,421 250,000 202,417 202,417 250,000
30 69 2,518 175,623 25,447 25,447 250,000 95,662 95,662 250,000 345,988 345,988 401,346
</TABLE>
IT IS EMPHASIZED THAT THE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,433 0 250,000 1,540 0 250,000
2 41 2,518 5,419 2,894 0 250,000 3,200 0 250,000 3,519 0 250,000
3 42 2,518 8,333 4,395 428 250,000 5,001 1,033 250,000 5,659 1,691 250,000
4 43 2,518 11,393 5,824 2,161 250,000 6,831 3,169 250,000 7,969 4,306 250,000
5 44 2,518 14,606 7,181 3,824 250,000 8,692 5,335 250,000 10,468 7,110 250,000
6 45 2,518 17,980 8,460 5,407 250,000 10,577 7,524 250,000 13,167 10,114 250,000
7 46 2,518 21,522 9,657 6,909 250,000 12,482 9,735 250,000 16,084 13,336 250,000
8 47 2,518 25,242 10,769 8,326 250,000 14,405 11,963 250,000 19,239 16,796 250,000
9 48 2,518 29,147 11,793 9,658 250,000 16,344 14,209 250,000 22,653 20,518 250,000
10 49 2,518 33,248 12,721 10,891 250,000 18,289 16,459 250,000 26,348 24,518 250,000
15 54 2,518 57,040 15,913 15,608 250,000 28,157 27,852 250,000 50,343 50,038 250,000
20 59 2,518 87,406 15,053 15,053 250,000 36,558 36,558 250,000 86,563 86,563 250,000
25 64 2,518 126,161 7,367 7,367 250,000 40,940 40,940 250,000 145,163 145,163 250,000
30 69 2,518 175,623 0 0 0 34,187 34,187 250,000 244,742 244,742 283,900
</TABLE>
IT IS EMPHASIZED THAT THE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,325 0 251,325 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 3,246 0 253,246 3,563 0 253,563 3,893 0 253,893
3 42 2,518 8,333 5,113 1,145 255,113 5,761 1,794 255,761 6,463 2,495 256,463
4 43 2,518 11,393 6,917 3,255 256,917 8,022 4,360 258,022 9,263 5,600 259,263
5 44 2,518 14,606 8,654 5,296 258,654 10,340 6,983 260,340 12,308 8,950 262,308
6 45 2,518 17,980 10,323 7,271 260,323 12,718 9,666 262,718 15,624 12,571 265,624
7 46 2,518 21,522 11,924 9,177 261,924 15,156 12,408 265,156 19,234 16,487 269,234
8 47 2,518 25,242 13,453 11,010 263,453 17,649 15,207 267,649 23,164 20,722 273,164
9 48 2,518 29,147 14,907 12,772 264,907 20,199 18,064 270,199 27,442 25,307 277,442
10 49 2,518 33,248 16,286 14,456 266,286 22,804 20,974 272,804 32,103 30,273 282,103
15 54 2,518 57,040 22,301 21,996 272,301 37,011 36,706 287,011 62,951 62,646 312,951
20 59 2,518 87,406 26,173 26,173 276,173 52,605 52,605 302,605 110,875 110,875 360,875
25 64 2,518 126,161 26,861 26,861 276,861 69,065 69,065 319,065 187,156 187,156 437,156
30 69 2,518 175,623 21,992 21,992 271,992 83,304 83,304 333,304 305,643 305,643 555,643
</TABLE>
IT IS EMPHASIZED THAT THE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,325 0 251,325 1,431 0 251,431 1,538 0 251,538
2 41 2,518 5,419 2,885 0 252,885 3,189 0 253,189 3,508 0 253,508
3 42 2,518 8,333 4,373 406 254,373 4,976 1,008 254,976 5,630 1,662 255,630
4 43 2,518 11,393 5,784 2,122 255,784 6,784 3,121 256,784 7,913 4,250 257,913
5 44 2,518 14,606 7,119 3,761 257,119 8,615 5,258 258,615 10,373 7,015 260,373
6 45 2,518 17,980 8,369 5,317 258,369 10,460 7,407 260,460 13,017 9,965 263,017
7 46 2,518 21,522 9,531 6,784 259,531 12,314 9,566 262,314 15,860 13,112 265,860
8 47 2,518 25,242 10,602 8,159 260,602 14,172 11,730 264,172 18,915 16,472 268,915
9 48 2,518 29,147 11,577 9,442 261,577 16,030 13,895 266,030 22,200 20,065 272,200
10 49 2,518 33,248 12,449 10,619 262,449 17,877 16,047 267,877 25,726 23,896 275,726
15 54 2,518 57,040 15,210 14,905 265,210 26,844 26,539 276,844 47,887 47,582 297,887
20 59 2,518 87,406 13,622 13,622 263,622 33,152 33,152 283,152 78,453 78,453 328,453
25 64 2,518 126,161 5,055 5,055 255,055 33,159 33,159 283,159 120,421 120,421 370,421
30 69 2,518 175,623 0 0 0 18,666 18,666 268,666 172,951 172,951 422,951
</TABLE>
IT IS EMPHASIZED THAT THE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,730 0 250,000 1,864 0 250,000 1,998 0 250,000
2 41 3,060 6,587 4,042 0 250,000 4,438 0 250,000 4,850 0 250,000
3 42 3,060 10,129 6,282 1,464 250,000 7,087 2,270 250,000 7,959 3,141 250,000
4 43 3,060 13,848 8,447 4,002 250,000 9,813 5,368 250,000 11,348 6,903 250,000
5 44 3,060 17,754 10,532 6,457 250,000 12,611 8,536 250,000 15,039 10,964 250,000
6 45 3,060 21,855 12,525 8,820 250,000 15,471 11,766 250,000 19,052 15,347 250,000
7 46 3,060 26,160 14,433 11,098 250,000 18,403 15,068 250,000 23,424 20,089 250,000
8 47 3,060 30,681 16,254 13,289 250,000 21,407 18,442 250,000 28,195 25,230 250,000
9 48 3,060 35,428 17,987 15,395 250,000 24,484 21,891 250,000 33,402 30,810 250,000
10 49 3,060 40,413 19,619 17,397 250,000 27,624 25,401 250,000 39,081 36,859 250,000
15 54 3,060 69,332 26,670 26,300 250,000 44,858 44,488 250,000 77,147 76,777 250,000
20 59 3,060 106,241 30,818 30,818 250,000 64,075 64,075 250,000 138,325 138,325 250,000
25 64 3,060 153,347 30,431 30,431 250,000 85,425 85,425 250,000 242,348 242,348 295,664
30 69 3,060 213,468 22,009 22,009 250,000 107,323 107,323 250,000 412,181 412,181 478,129
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,730 0 250,000 1,864 0 250,000 1,998 0 250,000
2 41 3,060 6,587 3,781 0 250,000 4,168 0 250,000 4,573 0 250,000
3 42 3,060 10,129 5,758 941 250,000 6,532 1,714 250,000 7,371 2,553 250,000
4 43 3,060 13,848 7,656 3,211 250,000 8,950 4,505 250,000 10,409 5,964 250,000
5 44 3,060 17,754 9,477 5,402 250,000 11,426 7,351 250,000 13,713 9,638 250,000
6 45 3,060 21,855 11,213 7,508 250,000 13,955 10,250 250,000 17,302 13,597 250,000
7 46 3,060 26,160 12,862 9,527 250,000 16,535 13,200 250,000 21,205 17,870 250,000
8 47 3,060 30,681 14,421 11,456 250,000 19,165 16,200 250,000 25,452 22,487 250,000
9 48 3,060 35,428 15,887 13,294 250,000 21,845 19,252 250,000 30,076 27,484 250,000
10 49 3,060 40,413 17,253 15,031 250,000 24,569 22,346 250,000 35,113 32,890 250,000
15 54 3,060 69,332 22,659 22,289 250,000 39,060 38,690 250,000 68,507 68,137 250,000
20 59 3,060 106,241 24,090 24,090 250,000 53,670 53,670 250,000 121,117 121,117 250,000
25 64 3,060 153,347 19,084 19,084 250,000 67,182 67,182 250,000 210,458 210,458 256,758
30 69 3,060 213,468 1,614 1,614 250,000 74,763 74,763 250,000 358,228 358,228 415,545
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,861 0 251,861 1,995 0 251,995
2 41 3,060 6,587 4,034 0 254,034 4,428 0 254,428 4,840 0 254,840
3 42 3,060 10,129 6,263 1,446 256,263 7,066 2,249 257,066 7,935 3,117 257,935
4 43 3,060 13,848 8,414 3,969 258,414 9,773 5,328 259,773 11,301 6,856 261,301
5 44 3,060 17,754 10,479 6,404 260,479 12,545 8,470 262,545 14,959 10,884 264,959
6 45 3,060 21,855 12,446 8,741 262,446 15,369 11,664 265,369 18,922 15,217 268,922
7 46 3,060 26,160 14,319 10,984 264,319 18,251 14,916 268,251 23,224 19,889 273,224
8 47 3,060 30,681 16,099 13,134 266,099 21,192 18,227 271,192 27,899 24,934 277,899
9 48 3,060 35,428 17,781 15,188 267,781 24,187 21,595 274,187 32,978 30,385 282,978
10 49 3,060 40,413 19,352 17,129 269,352 27,224 25,001 277,224 38,485 36,263 288,485
15 54 3,060 69,332 25,907 25,537 275,907 43,470 43,100 293,470 74,607 74,237 324,607
20 59 3,060 106,241 29,101 29,101 279,101 60,234 60,234 310,234 129,568 129,568 379,568
25 64 3,060 153,347 27,030 27,030 277,030 75,777 75,777 325,777 214,874 214,874 464,874
30 69 3,060 213,468 16,280 16,280 266,280 85,056 85,056 335,056 343,859 343,859 593,859
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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 Cash Value Accumulation Test as defined under Section 7702 of the
Internal Revenue Code.
<TABLE>
<CAPTION>
Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 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 1,861 0 251,861 1,995 0 251,995
2 41 3,060 6,587 3,768 0 253,768 4,154 0 254,154 4,557 0 254,557
3 42 3,060 10,129 5,729 912 255,729 6,499 1,681 256,499 7,333 2,516 257,333
4 43 3,060 13,848 7,605 3,160 257,605 8,889 4,444 258,889 10,336 5,891 260,336
5 44 3,060 17,754 9,396 5,321 259,396 11,326 7,251 261,326 13,590 9,515 263,590
6 45 3,060 21,855 11,095 7,390 261,095 13,803 10,098 263,803 17,108 13,403 267,108
7 46 3,060 26,160 12,698 9,363 262,698 16,316 12,981 266,316 20,914 17,579 270,914
8 47 3,060 30,681 14,202 11,237 264,202 18,860 15,895 268,860 25,030 22,065 275,030
9 48 3,060 35,428 15,603 13,010 265,603 21,433 18,841 271,433 29,483 26,891 279,483
10 49 3,060 40,413 16,894 14,671 266,894 24,026 21,804 274,026 34,298 32,075 284,298
15 54 3,060 69,332 21,706 21,336 271,706 37,299 36,929 287,299 65,242 64,872 315,242
20 59 3,060 106,241 22,051 22,051 272,051 48,964 48,964 298,964 110,138 110,138 360,138
25 64 3,060 153,347 15,398 15,398 265,398 55,888 55,888 305,888 176,191 176,191 426,191
30 69 3,060 213,468 0 0 0 50,037 50,037 300,037 268,432 268,432 518,432
</TABLE>
IT IS EMPHASIZED THAT THE 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 WE 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) 1998 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 Series life insurance 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.
[The following table was also depicted as a bar graph in the printed material]
Annual Returns By Ibbotson Asset Class*
1926 to 1997
Average
Annual Returns
Ibbotson Asset Classes* 1926-1997
- -------------------- ---------
Large Company Stocks 11.0%
Small Company Stocks 12.7%
Long-Term Corporate Bonds 5.7%
Long-Term Government Bonds 5.2%
Intermediate-Term Government Bonds 5.3%
US Treasury Bills 3.8%
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 1997. The accompanying table
identifies the returns for the best and worst years for each Ibbotson Asset
Class over the same span of time.
[The following table was also depicted as a bar graph in the original]
Range of Returns By Ibbotson Asset Class
One Year Holding Periods 1926-1997
One Year Returns
Ibbotson Asset Classes* Maximum Value Minimum Value
- ----------------------- -------------- --------------
Large Company Stocks 53.99% (1933) -43.34% (1931)
Small Company Stocks 142.87% (1933) -58.01% (1937)
Long-Term Corporate Bonds 42.56% (1982) -8.09% (1969)
Long-Term Government
Bonds 40.36% (1982) -9.18% (1967)
Intermediate-Term
Government Bonds 29.10% (1982) -5.14% (1994)
US Treasury Bills 14.71% (1981) -0.02% (1938)
Inflation 18.16% (1946) -10.30% (1932)
- --------------------------------------------------------------------------------
B-1
<PAGE>
In 46 of the 72 one year holding periods charted by Ibbotson Associates for the
period 1926 through 1997, 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 72 periods for Small Company
Stocks and 20 out of 72 periods for Large Company Stocks.
A) Large Company Stock returns -- Represented by the Standard and Poor's 500
Stock Composite Index (S&P 500).
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.
G) Inflation -- The Consumer Price Index for All Urban Consumers (CPI-U), not
seasonally adjusted is used to measure inflation which is the rate of change of
consumer goods prices.
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 63 overlapping 10-year
periods within the years 1926 through 1997 (i.e., 1926-1935, 1927-1936 and so on
through 1987-1997). The accompanying table identifies the returns for the best
and worst 10-year periods for each Ibbotson Asset Class within the years 1926
through 1997.
[The following table was also depicted as a bar graph in the printed material]
Range of Returns
By Ibbotson Asset Class
63 Overlapping Ten Year Holding Periods
1926-1997
Ten Year Average Annual Returns
Ibbotson Asset Classes Maximum Value Minimum Value
- ---------------------- ---------------- --------------
Large Company Stocks 20.06% (1949-58) -0.89% (1929-38)
Small Company Stocks 30.38% (1975-84) -5.70% (1929-38)
Long-Term Corporate Bonds 16.32% (1982-91) 0.98% (1947-56)
Long-Term Government
Bonds 15.56% (1982-91) -0.07% (1950-59)
Intermediate-Term
Government Bonds 13.13% (1982-91) 1.25% (1947-56)
US Treasury Bills 9.17% (1978-87) 0.15% (1933-42)*
Inflation 8.67% (1973-82) -2.57% (1926-35)
* Also (1934-43)
In 53 of the 63 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 63 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.
- --------------------------------------------------------------------------------
B-2
<PAGE>
When the holding period is lengthened to twenty years, common stocks provided
the highest returns of all Asset Classes in all 53 of the overlapping 20 year
periods within the years 1926 through 1997, and volatility was reduced even
further. Moreover, none of the Ibbotson Asset Classes realized negative returns
during the 53 periods.
[The following table was also depicted as a bar graph in the printed material]
Range of Returns
By Ibbotson Asset Class
53 Overlapping Twenty Year Holding Periods
1926-1997
Twenty Year Average Annual Returns
Ibbotson Asset Classes Maximum Value Minimum Value
- ---------------------- -------------- --------------
Large Company Stocks 16.86% (1942-61) 3.11% (1929-48)
Small Company Stocks 21.13% (1942-61) 5.74% (1929-48)
Long-Term Corporate Bonds 10.58% (1976-95) 1.34% (1950-69)
Long-Term Government
Bonds 10.45% (1976-95) 0.69% (1950-69)
Intermediate-Term
Government Bonds 9.85% (1974-93) 1.58% (1940-59)
US Treasury Bills 7.72% (1972-91) 0.42% (1931-50)
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 Series 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 53 overlapping 20-year periods within the years 1926 through 1997.
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
[Bar graph 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
- --------------------------------------------------------------------------------
C-1
<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.
- --------------------------------------------------------------------------------
C-2
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
D-1
<PAGE>
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
E-1
<PAGE>
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
E-2
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484
Under Article VIII of GIAC's By-Laws, as supplemented by Section 3.2 of
GIAC's Certificate of Incorporation, any past or present director or officer of
GIAC (including persons who serve at GIAC's request or for its benefit as
directors or officers of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise [hereinafter referred to
as a "Covered Person"]) is indemnified to the fullest extent permitted by law
against liability and all expenses reasonably incurred by such Covered Person in
connection with any action, suit or proceeding to which such Covered Person may
be a party or otherwise involved by reason of being or having been a Covered
Person. However, this provision does not protect a Covered Person against any
liability to either GIAC or its stockholder to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office. This provision does protect a director of GIAC against
any liability to GIAC or its stockholder for monetary damages or for breach of
fiduciary duty as a director of GIAC, except for liability (i) for any breach of
the director's duty of loyalty to GIAC or its stockholder, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26
GIAC hereby presents that the fees and charges deducted under the contract, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by GIAC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
The representation pursuant to Section 26 of The Investment Company Act of
1940.
The signatures.
Written consents of the following persons:
Richard T. Potter, Jr., Esq.
Charles G. Fisher
Price Waterhouse LLP
II-1
<PAGE>
The following exhibits:
1.A (1) Resolution of the Board of Directors of The Guardian
Insurance & Annuity Company, Inc. establishing The
Guardian Separate Account M.*
(2) Not Applicable.
(3)(a), (b)
and (c) Form of Distribution Agreements.
(4) Not Applicable.
(5) Specimen of the Flexible Premium Adjustable Variable Whole
Life Insurance Policy.**
(6)(a) Certificate of Incorporation of The Guardian Insurance &
Annuity Company, Inc.*
(6)(b) By-laws of The Guardian Insurance & Annuity Company, Inc.*
(7) Not Applicable.
(8) Amended and Restated Agreement for Services and
Reimbursement Therefor between The Guardian Life Insurance
Company of America and The Guardian Insurance & Annuity
Company, Inc.*
(9) Not Applicable.
(10) Form of Application for the Flexible Premium Adjustable
Variable Whole Life Policy.*
(11)(a) Memorandum on the Policy's Issuance, Transfer and
Redemption Procedures and on the Method of Computing Cash
Adjustments upon Exchange of the Policy.**
2. See Exhibit 1.A(5).
3. (a)Opinion of Richard T. Potter, Jr., Esq.**
3. (b)Consent of Richard T. Potter, Jr., Esq.
4. None.
5. Not Applicable.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
7. Consent of Price Waterhouse LLP
8. Powers of Attorney executed by a majority of the Board of Directors
and certain principal officers of The Guardian Insurance & Annuity
Company, Inc.*
27. Financial Data Schedules.***
- ----------
* Incorporated by reference to the Registration Statement on Form S-6 filed
by the Registrant on September 16, 1997 (Registration No. 333-35681)
** Incorporated by reference to Pre-effective Amendment No. 1 to Form S-6
filed by the Registrant on January 21, 1998 (Registration No. 333-35681).
*** Not included as Separate Account M did not commence operations until 1998.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, The
Guardian Separate Account M, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York, on the 24th day of April, 1998.
THE GUARDIAN SEPARATE ACCOUNT M
(Name of Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
By: s/ John M. Smith
-------------------------------------
JOHN M. SMITH
EXECUTIVE VICE PRESIDENT
Attest: /s/ Sheri L. Kocen
---------------------------------
SHERI L. KOCEN
COUNSEL
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following directors and
principal officers of The Guardian Insurance & Annuity Company, Inc. in the
capacities and on the date indicated.
s/ Joseph D. Sargent* President, Chief Executive Officer
- ----------------------------------- and Director
Joseph D. Sargent
(Principal Executive Officer)
s/ Frank J. Jones* Executive Vice President, Chief Investment
- ----------------------------------- Officer and Director
Frank J. Jones
(Principal Financial Officer)
s/ Edward K. Kane* Executive Vice President,
- ----------------------------------- and Director
Edward K. Kane
s/ Frank L. Pepe Vice President and Controller
- -----------------------------------
Frank L. Pepe
(Principal Accounting Officer)
s/ John M. Smith Executive Vice President and Director
- -----------------------------------
John M. Smith
s/ Philip H. Dutter* Director
- -----------------------------------
Philip H. Dutter
s/ Arthur V. Ferrara* Director
- -----------------------------------
Arthur V. Ferrara
s/ Leo R. Futia* Director
- -----------------------------------
Leo R. Futia
s/ Peter L. Hutchings* Director
- -----------------------------------
Peter L. Hutchings
s/ William C. Warren* Director
- -----------------------------------
William C. Warren
*By: s/ John M. Smith Date: April 24, 1998
---------------------------------
John M. Smith
Executive Vice President
Pursuant to Power of Attorney
II-4
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT M
EXHIBIT INDEX
Exhibit
Number Description Page*
1.A(3)(a)
(b) and (c) Distribution Agreements
3. (b) Consent of Richard T. Potter, Esq.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
7. Consent of Price Waterhouse LLP
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
AGREEMENT OF AGENCY
Agreement made this _________ day of ________by and between ___________________
("Principal") and __________________ ("Agent ").
1. The undersigned is presently an Agent in accordance with an
Agreement of Agency ("Guardian Life Agency Agreement") with the
Principal named above, endorsed by The Guardian Life Insurance
Company of America ("Guardian Life") and bearing an effective date
of _________________.
2. The Principal hereby appoints the Agent with the endorsement of The
Guardian Insurance & Annuity Company, Inc. ("GIAC"), a Delaware
Corporation and a wholly-owned subsidiary of Guardian Life, for the
limited purpose of soliciting applications for GIAC's Variable Whole
Life Insurance Policies with Modified Scheduled Premiums marketed
under the name Park Avenue Life ("PAL") and GIAC's Flexible Premium
Variable Universal Life Policies marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the
PAL name. Where necessary or appropriate, this Agreement will
distinguish between them by appending the year of introduction.
Currently, there are two policies marketed under this name - "PAL
`95 and PAL `97."
3. The Agent shall at all times be associated with Guardian Investor
Services Corporation ("GISC"), a Broker-Dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the
National Association of Securities Dealers, Inc. ("NASD") as an NASD
Registered Representative or NASD Registered Principal and, if the
particular jurisdiction requires, shall be licensed or registered as
a securities agent of GISC. The Agent must at all times be validly
licensed, registered or appointed by GIAC as a variable contracts
agent in accordance with the requirements of the jurisdiction where
solicitations for PAL and VUL contracts occur. The Agent may solicit
for and sell PAL and VUL contracts in any jurisdiction where such
contracts are filed and approved for sale by the governmental
authorities having jurisdiction, provided the Agent is validly
licensed, registered or otherwise qualified as required for the
solicitation and sale of the PAL and VUL contracts in such
jurisdictions.
1
<PAGE>
4. To the extent applicable, the Agent shall comply strictly with: (a)
the laws, rules and regulations of all jurisdictions (state and
local) in which the Agent solicits applications for and sells PAL
and VUL contracts; (b) federal laws and the rules, regulations of
the SEC; (c) the rules of the NASD; (d) the rules and procedures of
GISC, and (e) the rules and procedures of GIAC. The Agent
understands that failure to comply with such laws, rules,
regulations and procedures may result in disciplinary action against
the Agent by the SEC, a state or other local regulatory agency that
has jurisdiction, the NASD, GISC and GIAC. Before any solicitations
or sales of PAL and VUL are made, the Agent shall become familiar
with and abide by the laws, rules, regulations and procedures of all
of the above mentioned agencies or parties as are currently in
effect and as they may be changed from time to time.
5. The Agent shall have all applications for PAL and VUL accurately
completed or reviewed and signed by the applicant and shall submit
the applications to GIAC through GISC together with all payments
received from applicants without any reductions. The Agent shall
cause all checks or orders for PAL and VUL to be made payable to
GIAC. GIAC shall reject any application that is submitted by or on
behalf of an Agent not appropriately licensed as required by
paragraph 3 of this Agreement.
6. The Agent shall not make any statements concerning PAL and VUL
except those that are contained in the current prospectuses for PAL
and VUL and the prospectuses for their underlying variable
investment options and shall not solicit for applications or make
sales through the use of mailings, advertisements or sales
literature or any other method of contact unless the material or a
complete description of the method has been filed with the NASD and
received written Approval of GISC from a Registered Principal whose
office is located in a GISC Office of Supervisory Jurisdiction as
that term is defined by NASD rules.
7. In connection with the Agent's appointment for the purpose set forth
in paragraph 2 above, the entire Guardian Life Agency Agreement
referred to above and attached hereto as the Exhibit, including all
compensation adjustment and service fee provisions, is incorporated
herein by reference. All references to "Company"
2
<PAGE>
within the Guardian Life Agency Agreement shall apply with full
force and effect to GIAC. Additionally, the Registered
Representative's Agreement between the Agent and GISC and the
Agent's Agreement between the Agent and GIAC are incorporated herein
by reference and attached hereto as Exhibits.
8. The Agent shall be paid commissions on PAL as outlined in Appendix A
of this Agreement.
9. The Agent shall be paid commissions on VUL as outlined in Appendix B
of this Agreement.
10. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix C of this Agreement.
11. It shall be understood that this Agreement is automatically
terminated if the Guardian Life Agency Agreement, GISC Registered
Representative Agreement or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE AGENT THAT THIS AGREEMENT SHALL NOT BE
EFFECTIVE UNLESS THE AGENT IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS FOR PAL AND VUL POLICIES
OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
- ----------------------------- ---------------------------------
WITNESS PRINCIPAL
- ----------------------------- ---------------------------------
WITNESS AGENT
3
<PAGE>
APPENDIX A
A. Commission Schedule (Percentages of Premium)
---------------------------------------------------------
Policy Years Policy Premiums Unscheduled Payments
---------------------------------------------------------
1 50% 3%
---------------------------------------------------------
2 through 10 5% 3%
---------------------------------------------------------
The first policy year commission rate of 50% on policy premiums shall be reduced
where policies are issued at ages over 70 with actual rates payable determined
by deducting from the figure 120 ages of applicable insureds as of policy issue
dates.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Agent on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least eighteen months in accordance with the
following:
------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
------------------------------------------------------------------------
1-3 75%
------------------------------------------------------------------------
4-6 70%
------------------------------------------------------------------------
7-10 65%
------------------------------------------------------------------------
11-13 55%
------------------------------------------------------------------------
14 50%
------------------------------------------------------------------------
15 40%
------------------------------------------------------------------------
16 30%
------------------------------------------------------------------------
17 20%
------------------------------------------------------------------------
18 10%
------------------------------------------------------------------------
4
<PAGE>
APPENDIX A (CONTINUED)
PAL chargebacks not immediately repaid on demand by the Agent to the Principal
(or to the Company if the Company should be the Principal) shall constitute an
indebtedness under the terms of the Guardian Life Agency Agreement.
5
<PAGE>
APPENDIX B
A. Commission Schedule (Percentages of Premium)
-----------------------------------------------------
Policy Years Target Premiums Excess Premiums
-----------------------------------------------------
1 45% 3%
-----------------------------------------------------
2 through 10 3% 3%
-----------------------------------------------------
6
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular
7
<PAGE>
APPENDIX C (CONTINUED)
compensation on subsequent premium received will be based on lower target
premium (i.e. The total of renewal compensation payable will be based on
nine times the lower target premium). Any premium amount applied over such
lower target premium will be compensated at excess rates for policy years
2 through 10 and at service fee rates for policy years 11 and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
FIELD REPRESENTATIVE AGREEMENT
Agreement made this _________ day of ________ by and between The Guardian
Insurance & Annuity Company, Inc. ("GIAC"), a Delaware corporation and a
wholly-owned subsidiary of The Guardian Life Insurance Company of America
("Guardian Life"), having its principal office located at 201 Park Avenue South,
New York, New York, 10003 and ___________________ ("Field Representative"). .
1. The undersigned is presently a Field Representative of Guardian Life
in accordance with a Field Representative Agreement bearing an
effective date of ___________________("Guardian Life FR Agreement").
2. GIAC hereby appoints the Field Representative for the limited
purpose of soliciting applications for GIAC's Variable Whole Life
Insurance Policies with Modified Scheduled Premiums marketed under
the name Park Avenue Life ("PAL") and GIAC's Flexible Premium
Variable Universal Life Policies marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the
PAL name. Where necessary or appropriate, this Agreement will
distinguish between them by appending the year of introduction.
Currently, there are two policies marketed under this name -- "PAL
`95 and PAL `97."
3. The Field Representative shall at all times be associated with
Guardian Investor Services corporation ("GISC"), a Broker-Dealer
registered with the Securities and Exchange Commission ("SEC") and a
member of the National Association of Securities Dealers, Inc.
("NASD") as an NASD Registered Representative or NASD Registered
Principal and, if the particular jurisdiction requires, shall be
licensed or registered as a securities agent of GISC. The Field
Representative must at all times be validly licensed, registered or
appointed by GIAC as a variable contracts agent in accordance with
the requirements of the jurisdiction where solicitations for PAL and
VUL contracts occur. The Field Representative may solicit for and
sell PAL and VUL contracts in any jurisdiction where such contracts
are filed and approved for sale by the governmental authorities
having jurisdiction, provided the Field Representative is validly
licensed, registered or otherwise qualified as required for the
solicitation and sale of the PAL and VUL contracts in such
jurisdictions.
1
<PAGE>
4. To the extent applicable, the Field Representative shall comply
strictly with: (a) the laws, rules and regulations of all
jurisdictions (state and local) in which the Field Representative
solicits applications for and sells PAL and VUL contracts; (b)
federal laws and the rules, regulations of the SEC; (c) the rules of
the NASD; (d) the rules and procedures of GISC, and (e) the rules
and procedures of GIAC. The Field Representative understands that
failure to comply with such laws, rules, regulations and procedures
may result in disciplinary action against the Field Representative
by the SEC, a state or other local regulatory agency that has
jurisdiction, the NASD, GISC and GIAC. Before any solicitations or
sales of PAL and VUL are made, the Field Representative shall become
familiar with and abide by the laws, rules, regulations and
procedures of all of the above mentioned agencies or parties as are
currently in effect and as they may be changed from time to time.
5. The Field Representative shall have all applications for PAL and VUL
accurately completed or reviewed and signed by the applicant and
shall submit the applications to GIAC through GISC together with all
payments received from applicants without any reductions. The Field
Representative shall cause all checks or orders for PAL and VUL to
be made payable to GIAC. GIAC shall reject any application that is
submitted by or on behalf of a Field Representative not
appropriately licensed as required by paragraph 3 of this Agreement.
6. The Field Representative shall not make any statements concerning
PAL and VUL except those that are contained in the current
prospectuses for PAL and VUL and the prospectuses for their
underlying variable investment options and shall not solicit for
applications or make sales through the use of mailings,
advertisements or sales literature or any other method of contact
unless the material or a complete description of the method has been
filed with the NASD and received written Approval of GISC from a
Registered Principal whose office is located in a GISC Office of
Supervisory Jurisdiction as that term is defined by NASD rules.
7. In connection with the appointment of the undersigned as a GIAC
Field Representative for the purpose set forth in paragraph 2 above,
the entire Guardian Life FR Agreement referred to above and attached
2
<PAGE>
hereto as the Exhibit, including all compensation adjustment and
service fee provisions, is incorporated herein by reference.
Guardian Life FR Agreement compensation provisions that do not apply
to PAL and VUL are as noted below. All references to "Company"
within the Guardian Life Agency Agreement shall apply with full
force and effect to GIAC. Additionally, the Registered
Representative's Agreement between the Field Representative and GISC
and the Agent's Agreement between the Field Representative and GIAC
are incorporated herein by reference and attached hereto as
Exhibits.
8. Field Representative compensation on PAL is described in Appendix A
of the Agreement.
9. Field Representative compensation on VUL is described in Appendix B
of this Agreement.
10. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix C of this Agreement.
11. This Agreement may be terminated as outlined in Paragraph 14 of the
Guardian Life FR Agreement. In addition, it shall be automatically
terminated if the Guardian Life FR Agreement, GISC Registered
Representative Agreement or GIAC Agent's Agreement is
terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE FIELD REPRESENTATIVE THAT THIS AGREEMENT
SHALL NOT BE EFFECTIVE UNLESS THE FIELD REPRESENTATIVE IS VALIDLY LICENSED IN
ACCORDANCE WITH THE REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS FOR
PAL AND VUL POLICIES OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
- ---------------------------- -------------------------------
WITNESS PRINCIPAL
- ---------------------------- -------------------------------
WITNESS FIELD REPRESENTATIVE
3
<PAGE>
APPENDIX A
A. FR Compensation Schedule
- --------------------------------------------------------------------------------
LPC Factor on Unscheduled Payments Unscheduled Payments
Policy Years Policy Premiums 1985 Version FRs 1956/1967 Version FRs
- --------------------------------------------------------------------------------
1 36 3.5% 3%
- --------------------------------------------------------------------------------
2 through 10 * 3.5% 3%
- --------------------------------------------------------------------------------
*Renewal compensation for preceding employment years on PAL policy premiums
shall be the same as set forth in the Field Representatives Plan manuals for
existing Plan versions (except that the rates applicable under Part A shall be
50% of standard rates, and in the case of the PAL `95 product only, Part C shall
be entirely replaced by Part D as outlined below for those Field Representatives
belonging to the 1985 FR Plan version). FR Plan compensation factors shall
operate in accordance with the effective date of the Guardian Life FR Agreement.
The first policy year LPC factor of 36 on policy premiums shall be reduced where
policies are issued at ages over 70 with actual rates payable determined by
deducting from the figure 106 ages of applicable insureds as of policy issue
dates.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal compensation on such
payments shall be calculated at 5% and applied up to amounts of premium that
correspond to renewal PAL policy premiums that would otherwise have been paid if
not for the Premium Skip Option being in effect with standard renewal rates on
unscheduled payments applied to any premiums received above such PAL policy
premium levels.
B. First Policy Year Compensation Chargebacks on PAL `95 Policies
Basic first policy year compensation on policy premiums at $13.75 per thousand
of life production credits shall be charged back to Field Representatives on PAL
`95 policies that are surrendered or lapsed prior to the policies having been in
force for at least eighteen months in accordance with the following:
4
<PAGE>
APPENDIX A (CONTINUED)
- --------------------------------------------------------------------------------
Policy Months of PAL '95 Chargeback Percentages Chargeback Percentages
Surrenders or Lapses 1956/1967 Version FRs 1985 Version FRs
- --------------------------------------------------------------------------------
1-3 75% 82%
- --------------------------------------------------------------------------------
4-6 70% 77%
- --------------------------------------------------------------------------------
7-10 65% 71%
- --------------------------------------------------------------------------------
11-13 55% 60%
- --------------------------------------------------------------------------------
14 50% 55%
- --------------------------------------------------------------------------------
15 40% 44%
- --------------------------------------------------------------------------------
16 30% 33%
- --------------------------------------------------------------------------------
17 20% 22%
- --------------------------------------------------------------------------------
18 10% 11%
- --------------------------------------------------------------------------------
5
<PAGE>
APPENDIX B
A. FR Compensation Schedule
--------------------------------------------------
LPC Factor on
Policy Years Target Premiums Excess Premiums
--------------------------------------------------
1 33 3.5%
--------------------------------------------------
2 through 10 * 3.5%
--------------------------------------------------
*3.5% policy years two through ten and 2.0% policy years eleven and over
credited as Commission Equivalent Compensation (PGF)
VUL compensation shall cease at termination except in the event of retirement in
accordance with Section II, Subsection K, Paragraph 1 of the Field
Representatives' Plan or possibly in the event of death in accordance with
Section II, Subsection L, Paragraph 1 of the Field Representatives' Plan.
6
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular compensation on subsequent premium received
will be based on lower target premium (i.e. The total of renewal
compensation payable will be based on nine
7
<PAGE>
APPENDIX C (CONTINUED)
times the lower target premium). Any premium amount applied over such
lower target premium will be compensated at excess rates for policy years
2 through 10 and at service fee rates for policy years 11 and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BROKERAGE AGREEMENT
Agreement made this _________ day of ________ by and between ___________________
("Principal") and __________________ ("Broker").
1. The undersigned is presently a Broker in accordance with a Brokerage
Agreement ("Guardian Life Broker Agreement") with the Principal
named above, endorsed by The Guardian Life Insurance Company of
America ("Guardian Life") and bearing an effective date of
_________________.
2. The Principal hereby appoints the Broker with the endorsement of The
Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware
Corporation and a wholly-owned subsidiary of Guardian Life, for the
limited purpose of soliciting applications for GIAC's Variable Whole
Life Insurance Policies with Modified Scheduled Premiums marketed
under the name Park Avenue Life ("PAL") and GIAC's Flexible Premium
Variable Universal Life Policies marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the
PAL name. Where necessary or appropriate, this Agreement will
distinguish between them by appending the year of introduction.
Currently, there are two policies marketed under this name - "PAL
`95 and PAL `97."
3. The Broker shall at all times be associated with Guardian Investor
Services Corporation ("GISC"), a Broker-Dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the
National Association of Securities Dealers, Inc. ("NASD") as an NASD
Registered Representative or NASD Registered Principal and, if the
particular jurisdiction requires, shall be licensed or registered as
a securities agent of GISC. The Broker must at all times be validly
licensed, registered or appointed by GIAC as a variable contracts
agent in accordance with the requirements of the jurisdiction where
solicitations for PAL and VUL contracts occur. The Broker may
solicit for and sell PAL and VUL contracts in any jurisdiction where
such contracts are filed and approved for sale by the governmental
authorities having jurisdiction, provided the Broker is validly
licensed, registered or otherwise qualified as required for the
solicitation and sale of the PAL and VUL contracts in such
jurisdictions.
1
<PAGE>
4. To the extent applicable, the Broker shall comply strictly with :
(a) the laws, rules and regulations of all jurisdictions (state and
local) in which the Broker solicits applications for and sells PAL
and VUL contracts; (b) federal laws and the rules, regulations of
the SEC; (c) the rules of the NASD; (d) the rules and procedures of
GISC, and (e) the rules and procedures of GIAC. The Broker
understands that failure to comply with such laws, rules,
regulations and procedures may result in disciplinary action against
the Broker by the SEC, a state or other local regulatory agency that
has jurisdiction, the NASD, GISC and GIAC. Before any solicitations
or sales of PAL and VUL are made, the Broker shall become familiar
with and abide by the laws, rules, regulations and procedures of all
of the above mentioned agencies or parties as are currently in
effect and as they may be changed from time to time.
5. The Broker shall have all applications for PAL and VUL accurately
completed or reviewed and signed by the applicant and shall submit
the applications to GIAC through GISC together with all payments
received from applicants without any reductions. The Broker shall
cause all checks or orders for PAL and VUL to be made payable to
GIAC. GIAC shall reject any application that is submitted by or on
behalf of a Broker not appropriately licensed as required by
paragraph 3 of this Agreement.
6. The Broker shall not make any statements concerning PAL and VUL
except those that are contained in the current prospectuses for PAL
and VUL and the prospectuses for their underlying variable
investment options and shall not solicit for applications or make
sales through the use of mailings, advertisements or sales
literature or any other method of contact unless the material or a
complete description of the method has been filed with the NASD and
received written Approval of GISC from a Registered Principal whose
office is located in a GISC Office of Supervisory Jurisdiction as
that term is defined by NASD rules.
7. In connection with the Broker's appointment for the purpose set
forth in paragraph 2 above, the entire Guardian Life Broker
Agreement referred to above and attached hereto as the Exhibit,
including all compensation adjustment and service fee provisions, is
incorporated herein by reference. All references to "Company"
2
<PAGE>
within the Guardian Life Broker Agreement shall apply with full
force and effect to GIAC. Additionally, the Registered
Representative's Agreement between the Broker and GISC and the
Agent's Agreement between the Broker and GIAC are incorporated
herein by reference and attached hereto as Exhibits.
8. The Broker shall be paid commissions on PAL as outlined in Appendix
A of this Agreement.
9. The Broker shall be paid commissions on VUL as outlined in Appendix
B of this Agreement.
10. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix C of this Agreement.
11. It shall be understood that this Agreement is automatically
terminated if the Guardian Life Broker Agreement, GISC Registered
Representative Agreement or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE BROKER THAT THIS AGREEMENT SHALL NOT BE
EFFECTIVE UNLESS THE BROKER IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS FOR PAL AND VUL POLICIES
OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
- ---------------------------- -------------------------------
WITNESS PRINCIPAL
- ---------------------------- -------------------------------
WITNESS BROKER
3
<PAGE>
APPENDIX A
A. Commission Schedule (Percentages of Premium)
------------------------------------------------------
Policy Years Policy Premiums Unscheduled Payments
------------------------------------------------------
1 50% 3%
------------------------------------------------------
2 through 10 5% 3%
------------------------------------------------------
The first policy year commission rate of 50% on policy premiums shall be reduced
where policies are issued at ages over 70 with actual rates payable determined
by deducting from the figure 120 ages of applicable insureds as of policy issue
dates.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Broker on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least eighteen months in accordance with the
following:
------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
------------------------------------------------------------------------
1-3 75%
------------------------------------------------------------------------
4-6 70%
------------------------------------------------------------------------
7-10 65%
------------------------------------------------------------------------
11-13 55%
------------------------------------------------------------------------
14 50%
------------------------------------------------------------------------
15 40%
------------------------------------------------------------------------
16 30%
------------------------------------------------------------------------
17 20%
------------------------------------------------------------------------
18 10%
------------------------------------------------------------------------
4
<PAGE>
APPENDIX A (CONTINUED)
PAL chargebacks not immediately repaid on demand by the Broker to the Principal
(or to the Company if the Company should be the Principal) shall constitute an
indebtedness under the terms of the Guardian Life Broker Agreement.
5
<PAGE>
APPENDIX B
A. Commission Schedule (Percentages of Premium)
--------------------------------------------------
Policy Years Target Premiums Excess Premiums
--------------------------------------------------
1 45% 3%
--------------------------------------------------
2 through 10 3% 3%
--------------------------------------------------
6
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such
7
<PAGE>
APPENDIX C (CONTINUED)
decrease will serve to reduce target premium for the full period so that
any regular compensation on subsequent premium received will be based on
lower target premium (i.e. The total of renewal compensation payable will
be based on nine times the lower target premium). Any premium amount
applied over such lower target premium will be compensated at excess rates
for policy years 2 through 10 and at service fee rates for policy years 11
and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
MEMORANDUM OF AGREEMENT
Agreement made this _________ day of ____________, 19___ by and between The
Guardian Insurance & Annuity Company, Inc. ("GIAC"), a Delaware corporation and
a wholly-owned subsidiary of The Guardian Life Insurance Company of America
("Guardian Life"), having its Principal office located at 201 Park Avenue South,
New York, New York, 10003 and ________________ ("AGENT").
1. The undersigned Agent is presently a Career Development Manager ("CDM") of
Guardian Life in accordance with a Memorandum of Agreement bearing an
effective date of _______________ ("Guardian Life CDM Agreement").
2. GIAC hereby appoints the Agent CDM of GIAC for the limited purpose of
conducting and overseeing the business relating to GIAC's Variable Whole
Life Insurance Policies with Modified Scheduled Premiums marketed under
the name Park Avenue Life ("PAL") and GIAC's Flexible Premium Variable
Universal Life policy marketed under the name Park Avenue VUL ("VUL").
There may be one or more policies marketed under the PAL name and, where
necessary or appropriate, this Agreement will distinguish between them by
appending the year of introduction. Currently, there are two policies
marketed under this name -- "PAL `95 and PAL `97."
3. The CDM shall at all times be associated with Guardian Investor Services
Corporation ("GISC"), a Broker-Dealer registered with the Securities and
Exchange Commission ("SEC") and a member of the National Association of
Securities Dealers, Inc. ("NASD") as an NASD Registered Representative or
NASD Registered Principal and, if the particular jurisdiction requires,
shall be licensed or registered as a securities agent of GISC. The CDM
must at all times be validly licensed, registered or appointed by GIAC as
a variable contracts agent in accordance with the requirements of the
jurisdiction where solicitations for PAL and VUL contracts occur. The CDM,
his agents, brokers and Field Representatives may solicit for and sell PAL
and VUL contracts in any jurisdiction where such contracts are filed and
approved for sale by the governmental authorities having jurisdiction,
provided the CDM, his agents, brokers and Field Representatives are all
validly licensed, registered or otherwise qualified as required for the
solicitation and sale of the PAL and VUL contracts in such jurisdictions.
1
<PAGE>
4. To the extent applicable, the CDM shall comply strictly with: (a) the
laws, rules and regulations of all jurisdictions (state and local) in
which the CDM, his agents, brokers and Field Representatives solicit
applications for and sell PAL and VUL contracts; (b) federal laws and the
rules and regulations of the SEC; (c) the rules of the NASD; (d) the rules
and procedures of GISC, and (e) the rules and procedures of GIAC. The CDM
understands that failure to comply with such laws, rules, regulations and
procedures may result in disciplinary action against the CDM by the SEC, a
state or other local regulatory agency that has jurisdiction, the NASD,
GISC or GIAC. Before any solicitations or sales of PAL and VUL are made,
the CDM shall become familiar with and abide by the laws, rules,
regulations and procedures of all the above mentioned agencies or parties
as are currently in effect and as they may be changed from time to time.
5. The CDM shall have all applications for PAL and VUL accurately completed
or reviewed and signed by the applicant and shall submit the applications
to GIAC through GISC together with all payments received from applicants
without any reductions. The CDM, his agents, brokers and Field
Representatives shall cause all checks or orders for PAL and VUL to be
made payable to GIAC. GIAC shall reject any application that is submitted
by or on behalf of a CDM, his agents, brokers and Field Representatives
not appropriately licensed as required by paragraph 3 of this Agreement.
6. The CDM, his agents, brokers and Field Representatives shall not make any
statements concerning PAL and VUL except those that are contained in the
current prospectuses for PAL and VUL and the prospectuses for their
underlying variable investment options and they shall not solicit for
applications or make sales through the use of mailings, advertisements or
sales literature or any other method of contact unless the material or a
complete description of the method has been filed wit the NASD and
received written approval of GISC from a Registered Principal whose office
is located in a GISC Office of Supervisory Jurisdiction as that term is
defined by NASD rules.
7. In connection with the agent's appointment as a GIAC CDM for the purpose
set forth in paragraph 2 above, the entire Guardian Life CDM Agreement
referred to above and attached hereto as the Exhibit, including all
compensation adjustment provisions, is incorporated herein by reference.
Guardian Life CDM Agreement compensation provisions that do not apply to
PAL and VUL are as noted below. All references to "Company" within the
Guardian Life CDM Agreement shall apply with full force and effect to
GIAC. Additionally, the Registered Representative's Agreement between the
CDM and GISC and the
2
<PAGE>
Agent's Agreement between the CDM and GIAC are incorporated herein by
reference and attached hereto as Exhibits.
8. The CDM shall be paid additional compensation as outlined in Appendix A of
this Agreement and shall be paid commissions on personally produced PAL
and VUL business as outlined in Appendix B of this Agreement. Allocation
of VUL premiums and the effect thereof on compensation is described in
Appendix C of this Agreement.
9. The CDM shall be responsible to the Company for any indebtedness that may
have resulted from PAL chargebacks applied to PAL business personally
produced the CDM.
10. This Agreement may be terminated as outlined in Section IV of the Guardian
Life CDM Agreement. In addition, it shall be automatically terminated if
the Guardian Life CDM Agreement, GISC Registered Representative Agreement
or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE AGENT THAT THIS AGREEMENT SHALL NOT BE
EFFECTIVE UNLESS THE AGENT IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS BY THE CDM AND THE AGENTS,
BROKERS AND FIELD REPRESENTATIVES OF THE CDM FOR PAL AND VUL POLICIES OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
as of the day and year first written above.
- ---------------------------- -------------------------------
WITNESS John M. Fagan
- ---------------------------- -------------------------------
WITNESS Career Development Manager
3
<PAGE>
APPENDIX A
A. CDM Additional Compensation (Percentages of First Year Premium)
---------------------------------------------------------
Type Rate
---------------------------------------------------------
PAL Policy Premiums 20%
---------------------------------------------------------
VUL Target Premiums 19%
---------------------------------------------------------
PAL Unscheduled Payments & VUL Excess Premiums 1%
---------------------------------------------------------
Section IIIB, Paragraph (K) Additional
Compensation 30%
---------------------------------------------------------
B. CDM Additional Compensation Chargebacks on PAL `95 Policies
Additional compensation on policy premiums shall be charged back to the CDM on
PAL `95 policies that are surrendered or lapsed prior to the policies having
been in force for at least 18 months in accordance with the following:
-----------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
-----------------------------------------------------------------------
1-3 75%
-----------------------------------------------------------------------
4-6 70%
-----------------------------------------------------------------------
7-10 65%
-----------------------------------------------------------------------
11-13 55%
-----------------------------------------------------------------------
14 50%
-----------------------------------------------------------------------
15 40%
-----------------------------------------------------------------------
16 30%
-----------------------------------------------------------------------
17 20%
-----------------------------------------------------------------------
18 10%
-----------------------------------------------------------------------
4
<PAGE>
APPENDIX B
A. Commission Schedule (Percentages of Premium)
-----------------------------------------------------------------------
PAL Unscheduled
PAL Policy VUL Target Payments & VUL
Policy Years Premiums Premiums Excess Premiums
-----------------------------------------------------------------------
1 50% 45% 3%
-----------------------------------------------------------------------
2 through 10 5% 3% 3%
-----------------------------------------------------------------------
The first policy year commission rates of 50% on PAL and 45% on VUL shall be
reduced where policies are issued at ages over 70 with actual rates payable
determined by deducting from the figure 120 ages of applicable insureds as of
policy issue dates on PAL polices and by deducting from the figure 115 ages of
applicable insureds as of policy issue dates on VUL policies.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Agent on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least 18 months in accordance with the following:
---------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
---------------------------------------------------------------------
1-3 75%
---------------------------------------------------------------------
4-6 70%
---------------------------------------------------------------------
7-10 65%
---------------------------------------------------------------------
11-13 55%
---------------------------------------------------------------------
14 50%
---------------------------------------------------------------------
15 40%
---------------------------------------------------------------------
16 30%
---------------------------------------------------------------------
17 20%
---------------------------------------------------------------------
18 10%
---------------------------------------------------------------------
5
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular compensation on subsequent premium received
will be based on
<PAGE>
APPENDIX C (CONTINUED)
lower target premium (i.e. The total of renewal compensation payable will
be based on nine times the lower target premium). Any premium amount
applied over such lower target premium will be compensated at excess rates
for policy years 2 through 10 and at service fee rates for policy years 11
and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
7
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
AGREEMENT OF GENERAL AGENCY
Agreement made this _________ day of ____________, 19___ by and between The
Guardian Insurance & Annuity Company, Inc. ("GIAC"), a Delaware corporation and
a wholly-owned subsidiary of The Guardian Life Insurance Company of America
("Guardian Life"), having its Principal office located at 201 Park Avenue South,
New York, New York, 10003 and ________________ ("Principal").
1. The undersigned Principal is presently a General Agent of Guardian Life in
accordance with an Agreement of General Agency bearing an effective date
of _______________ ("Guardian Life GA Agreement").
2. GIAC hereby appoints the Principal a General Agent of GIAC for the limited
purpose of conducting and overseeing the business relating to GIAC's
Variable Whole Life Insurance Policies with Modified Scheduled Premiums
marketed under the name Park Avenue Life ("PAL") and GIAC's Flexible
Premium Variable Universal Life policy marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the PAL name
and, where necessary or appropriate, this Agreement will distinguish
between them by appending the year of introduction. Currently, there are
two policies marketed under this name - "PAL `95 and PAL `97."
3. The Principal shall at all times be associated with Guardian Investor
Services Corporation ("GISC"), a Broker-Dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the National
Association of Securities Dealers, Inc. ("NASD") as an NASD Registered
Representative or NASD Registered Principal and, if the particular
jurisdiction requires, shall be licensed or registered as a securities
agent of GISC. The Principal must at all times be validly licensed,
registered or appointed by GIAC as a variable contracts agent in
accordance with the requirements of the jurisdiction where solicitations
for PAL and VUL contracts occur. The Principal, his agents, brokers and
Field Representatives may solicit for and sell PAL and VUL contracts in
any jurisdiction where such contracts are filed and approved for sale by
the governmental authorities having jurisdiction, provided the Principal,
his agents, brokers and Field Representatives are all validly licensed,
registered or otherwise qualified as required for the solicitation and
sale of the PAL and VUL contracts in such jurisdictions.
4. To the extent applicable, the Principal shall comply strictly with: (a)
the laws, rules and regulations of all jurisdictions (state and local) in
which
1
<PAGE>
the Principal, his agents, brokers and Field Representatives solicit
applications for and sell PAL and VUL contracts; (b) federal laws and the
rules and regulations of the SEC; (c) the rules of the NASD; (d) the rules
and procedures of GISC, and (e) the rules and procedures of GIAC. The
Principal understands that failure to comply with such laws, rules,
regulations and procedures may result in disciplinary action against the
Principal by the SEC, a state or other local regulatory agency that has
jurisdiction, the NASD, GISC or GIAC. Before any solicitations or sales of
PAL and VUL are made, the Principal shall become familiar with and abide
by the laws, rules, regulations and procedures of all the above mentioned
agencies or parties as are currently in effect and as they may be changed
from time to time.
5. The Principal shall have all applications for PAL and VUL accurately
completed or reviewed and signed by the applicant and shall submit the
applications to GIAC through GISC together with all payments received from
applicants without any reductions. The Principal, his agents, brokers and
Field Representatives shall cause all checks or orders for PAL and VUL to
be made payable to GIAC. GIAC shall reject any application that is
submitted by or on behalf of a Principal, his agents, brokers and Field
Representatives not appropriately licensed as required by paragraph 3 of
this Agreement.
6. The Principal, his agents, brokers and Field Representatives shall not
make any statements concerning PAL and VUL except those that are contained
in the current prospectuses for PAL and VUL and the prospectuses for their
underlying variable investment options and they shall not solicit for
applications or make sales through the use of mailings, advertisements or
sales literature or any other method of contact unless the material or a
complete description of the method has been filed with the NASD and
received written approval of GISC from a Registered Principal whose office
is located in a GISC Office of Supervisory Jurisdiction as that term is
defined by NASD rules.
7. In connection with the Principal's appointment as a GIAC General Agent for
the purpose set forth in paragraph 2 above, the entire Guardian Life GA
Agreement referred to above and attached hereto as the Exhibit, including
all compensation adjustment provisions, is incorporated herein by
reference. Guardian Life GA Agreement compensation provisions that do not
apply to PAL and VUL are as noted below. All references to "Company"
within the Guardian Life GA Agreement shall apply with full force and
effect to GIAC. Additionally, the Registered Representative's Agreement
between the Principal and GISC and the Agent's Agreement between the
Principal and GIAC are incorporated herein by reference and attached
hereto as Exhibits.
2
<PAGE>
8. The Principal shall be paid overriding commissions for sales of PAL and
VUL policies as outlined in Appendix A of this Agreement.
9. Expense Allowance Payment ("EAP") provisions contained in Section 4 and
Appendix G of the Guardian Life GA Agreement shall not apply to PAL and
VUL (except for the use of PAL and VUL first year commissions on policy
premiums in determining the rate that will apply to non-PAL business in
accordance with the provisions contained in Appendix G, Schedule G-II, (B)
2). The Principal shall instead receive EAP on PAL and VUL as outlined in
Appendix B of this Agreement.
10. The Principal shall be paid commissions on personally produced PAL and VUL
business as outlined in Appendix C of this Agreement .
11. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix D of this Agreement.
12. The Principal shall be responsible to the Company for any indebtedness
resulting from PAL chargebacks applied to PAL business personally produced
by the Principal and to PAL business produced by the agents, brokers and
Field Representatives of the Principal.
13. This Agreement may be terminated as outlined in Section 5 of the Guardian
Life GA Agreement. In addition, it shall be automatically terminated if
the Guardian Life GA Agreement, GISC Registered Representative Agreement
or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE PRINCIPAL THAT THIS AGREEMENT SHALL NOT
BE EFFECTIVE UNLESS THE PRINCIPAL IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS BY THE PRINCIPAL AND THE
AGENTS, BROKERS AND FIELD REPRESENTATIVES OF THE PRINCIPAL FOR PAL AND VUL
POLICIES OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
as of the day and year first written above.
- ------------------------ ------------------------------
WITNESS John M. Fagan
- ------------------------ ------------------------------
WITNESS General Agent
3
<PAGE>
APPENDIX A
A. Overriding Commission Schedule (Percentages of Premium)
- --------------------------------------------------------------------------
PAL Unscheduled
Payments & VUL
Policy Years PAL Policy Premiums VUL Target Premiums Excess Premiums
- --------------------------------------------------------------------------
1 5% 5% 0.5%
- --------------------------------------------------------------------------
2 through 5 4% 3% 0.5%
- --------------------------------------------------------------------------
6 through 10 2% 3% 0.5%
- --------------------------------------------------------------------------
No overrides on PAL policies shall be payable on PAL policy premiums skipped
under the Premium Skip Option of the PAL policy. If unscheduled payments are
received when policies should be on the Premium Skip Option, renewal overrides
on such payments shall be based on renewal rates of PAL policy premiums applied
up to amounts of premium that correspond to renewal PAL policy premiums that
would otherwise have been paid if not for the Premium Skip Option being in
effect with standard renewal rates on unscheduled payments applied to any
premiums received above such PAL policy premium levels.
B. First Policy Year Overriding Commission Chargebacks on PAL `95 Policies
First policy year overriding commissions on policy premiums shall be charged
back to the Principal on PAL `95 policies that are surrendered or lapsed prior
to the policies having been in force for at least 18 months in accordance with
the following:
---------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
---------------------------------------------------------------------
1-3 75%
---------------------------------------------------------------------
4-6 70%
---------------------------------------------------------------------
7-10 65%
---------------------------------------------------------------------
11-13 55%
---------------------------------------------------------------------
14 50%
---------------------------------------------------------------------
15 40%
---------------------------------------------------------------------
16 30%
---------------------------------------------------------------------
17 20%
---------------------------------------------------------------------
18 10%
---------------------------------------------------------------------
4
<PAGE>
APPENDIX B
A. Expense Allowance Payments (Percentages of First Year Commissions)
------------------
Product Rate
------------------
PAL 62%
------------------
VUL 69%
------------------
The term "first year commissions" shall be understood to include first policy
year Field Representative compensation at $13.75 per 1,000 of life production
credits.
B. First Policy Year EAP Chargebacks on PAL `95 Policies
EAP on policy premiums shall be charged back to the Principal on PAL `95
policies that are surrendered or lapsed prior to the policies having been in
force for at least 18 months in accordance with the following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
5
<PAGE>
APPENDIX C
A. Commission Schedule (Percentages of Premium)
-------------------------------------------------------------------------
Policy Years PAL Policy VUL Target PAL Unscheduled
Premiums Premiums Payments & VUL
Excess Premiums
-------------------------------------------------------------------------
1 50% 45% 3%
-------------------------------------------------------------------------
2 through 10 5% 3% 3%
-------------------------------------------------------------------------
The first policy year commission rates of 50% on PAL and 45% on VUL shall be
reduced where policies are issued at ages over 70 with actual rates payable
determined by deducting from the figure 120 ages of applicable insureds as of
policy issue dates on PAL polices and by deducting from the figure 115 ages of
applicable insureds as of policy issue dates on VUL policies.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Agent on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least 18 months in accordance with the following:
---------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
---------------------------------------------------------------------
1-3 75%
---------------------------------------------------------------------
4-6 70%
---------------------------------------------------------------------
7-10 65%
---------------------------------------------------------------------
11-13 55%
---------------------------------------------------------------------
14 50%
---------------------------------------------------------------------
15 40%
---------------------------------------------------------------------
16 30%
---------------------------------------------------------------------
17 20%
---------------------------------------------------------------------
18 10%
---------------------------------------------------------------------
6
<PAGE>
APPENDIX D
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular compensation on subsequent premium received
will be
7
<PAGE>
APPENDIX D (CONTINUED)
based on lower target premium (i.e. The total of renewal compensation
payable will be based on nine times the lower target premium). Any premium
amount applied over such lower target premium will be compensated at
excess rates for policy years 2 through 10 and at service fee rates for
policy years 11 and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
EX-3.(b)
CONSENT OF COUNSEL
I hereby consent to the reference to my name under the heading "Legal
Opinion" in the Post-Effective Amendment No. 1 to the Registration Statement on
Form S-6 for The Guardian Separate Account M and to the filing of this consent
as an exhibit thereto.
By /s/ Richard T. Potter, Jr.
----------------------------------
Richard T. Potter, Jr.
Vice President and Equity Counsel
New York, New York
April 24, 1998
EXHIBIT 6
April 24, 1998
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
Gentlemen:
In my capacity as Vice President and Actuary of The Guardian Insurance & Annuity
Company, Inc. ("GIAC"), I have participated in the development of the Park
Avenue VUL insurance policy (the "Policy") and the preparation of the Policy
form. The Policy has been registered under the Securities Act of 1933. It is
described in Registration Statement No. 333-35681 on Form S-6. I am familiar
with the Registration Statement and its Exhibits.
In my opinion, the illustrations of death benefits, Policy Account Values, Net
Cash Surrender Values and Accumulated Policy Premiums included in Appendix A of
the prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the form of the Policy. Further, the rate
structure of the Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Policy at age 40 than to prospective
purchasers of the Policy at other Ages.
I hereby consent to the use of this opinion as an exhibit to Post-Effective
Amendment No. 1 to the Registration Statement.
Very truly yours,
Charles G. Fisher, FSA
Vice President and Actuary
CONSULTING ACTUARY: _______________________
Alan M. Emmer, FSA
EXHIBIT 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 to the Separate Account M registration statement
on Form S-6 (the "Registration Statement") of our report dated February 10,
1998, relating to the statutory basis financial statements of The Guardian
Insurance & Annuity Company, Inc., which appear in such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ Price Waterhouse LLP
------------------------
PRICE WATERHOUSE LLP
New York, New York
April 24, 1998
