Registration Nos. 333-35350
811-09725
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Pre-Effective Amendment No. 1
to
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 N
(Exact Name of Trust)
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
7 Hanover Square, New York, New York 10004
(Complete Address of Principal Executive Offices)
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RICHARD T. POTTER, JR., ESQ.
The Guardian Insurance & Annuity Company, Inc.
7 Hanover Square
New York, New York 10004
(Name and address of agent for service)
Copy to:
Kimberly J. Smith, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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Flexible Premium Adjustable Survivorship Variable Life Insurance Policies --
Registration of Indefinite Amount of Securities Pursuant to Rule 24F-2 Under the
Investment Company Act of 1940 (Title, amount and proposed maximum offering
price of securities being registered)
Approximate date of proposed public offering: Upon the effective date of this
Registration Statement
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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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 variable investment options
6(b)............................ The variable investment options
7............................... Not Applicable
8............................... Financial Statements of the Guardian
Separate Account N
9............................... Legal proceedings
10(a),(b)....................... Partial withdrawals; your right to Cancel
your policy; Surrendering your policy
10(d)........................... Fixed-benefit insurance during the
first 24 months; Transfers between the
investment options; Dollar cost averaging
transfer option; Decreasing the face amount
10(e)........................... Premiums (Default; Grace Period;
Reinstating your policy)
10(f)........................... Voting rights
10(g),(h)....................... Rights Reserved by GIAC
10(i),44(a),51(g)............... Premiums; Benefits and policy values; Policy
proceeds
11.............................. The variable investment options
12.............................. The variable investment options
13(a),(b),(c),51(g)............. Premiums, deductions and charges
13(d),(g)....................... Not Applicable
13(e),(f)....................... Deductions and charges; Distribution of the
policy and other contractual arrangements
14.............................. Issuing the policy
15.............................. Premiums (How your premiums are allocated;
Crediting payments)
16.............................. Premiums (How your premiums are allocated;
Transfers between the investment options);
Dollar cost averaging transfer option;
Policy loans
17.............................. Surrendering your policy; Partial
withdrawals; Your right to cancel your
policy; Policy proceeds
18.............................. The variable investment options
19.............................. Communications from GIAC
20.............................. Not Applicable
21(a),(b)....................... Policy Loans; Premiums (Automatic Premium
Loan); 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 variable investment options (The Funds'
Investment Advisers)
41(b),(c),42,43................. Not Applicable
44(a)........................... Premiums; Benefits and policy values
44(b)........................... Exhibits
44(c)........................... Premiums
45.............................. Not Applicable
46(a),47........................ Benefits and policy values (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; Deductions and
charges; Cost of insurance charge;
Deductions from the Separate Account
51(e),(f)....................... The Policyowner; The 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 of the Guardian
Separate Account N
<PAGE>
_______________, 2000
PROSPECTUS FOR PARK AVENUE SVUL --
MILLENNIUM SERIES(SM)
PARK AVENUE SVUL -- MILLENNIUM SERIES(SM) (Park Avenue SVUL) is a survivorship
variable universal life insurance policy providing lifetime insurance
protection. It also offers flexibility in the timing and amount of the premiums
you pay, how your premiums are invested, and the amount of coverage you have,
but you bear the risk of investment losses for any premiums or cash values
allocated to the variable investment options.
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 terminate existing life insurance coverage and
replace it with a Park Avenue SVUL policy. Variable life insurance is not a
short-term investment. 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) through its Separate Account N (Separate
Account). Our offices are located at 7 Hanover Square, Mail Station 215-B, New
York, New York 10004.
This prospectus sets forth information that you should know about the policy
before investing, and you should retain it for future reference. It must be
accompanied by the current prospectuses for:
o The Guardian Variable Contract Funds, Inc.
- The Guardian Stock Fund
- The Guardian VC 500 Index Fund
- The Guardian VC Asset Allocation Fund
- The Guardian VC High Yield Bond Fund
o The Guardian Bond Fund, Inc.
o The Guardian Cash Fund, Inc.
o GIAC Funds, Inc.
- Baillie Gifford International Fund
- Baillie Gifford Emerging Markets Fund
- The Guardian Small Cap Stock Fund
o AIM Variable Insurance Funds, Inc.
- AIM V.I. Capital Appreciation Fund
- AIM V.I. Global Utilities Fund
- AIM V.I. Value Fund
o Davis Variable Account Fund, Inc.
- Davis Financial Portfolio
- Davis Real Estate Portfolio
- Davis Value Portfolio
o Fidelity Variable Insurance Products Fund
- Fidelity VIP II Contrafund(R) Portfolio
- Fidelity VIP Equity-Income Portfolio
- Fidelity VIP III Growth Opportunities Portfolio
- Fidelity VIPIII Mid Cap Portfolio
o Gabelli Capital Series Funds, Inc.
- Gabelli Capital Asset Fund
o Janus Aspen Series
- Janus Aspen Aggressive Growth Portfolio
- Janus Aspen Capital Appreciation Portfolio
- Janus Aspen Growth Portfolio
- Janus Aspen Worldwide Growth Portfolio
o MFS(R) Variable Insurance Trust(SM)
- MFS Emerging Growth Series
- MFS Growth With Income Series
- MFS New Discovery Series
- MFS Research Series
- MFS Total Return Series
o Value Line Strategic Asset Management Trust
o Value Line Centurion Fund
These funds correspond to the policy's variable investment options. You can also
allocate premiums to a fixed-rate option. Special limits apply to transfers out
of the fixed-rate option.
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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.
The policy is not a deposit or obligation of or guaranteed or endorsed by, any
bank or depository institution, or federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency, and
involves investment risk, including possible loss of principal amount invested.
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<PAGE>
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CONTENTS
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Summary ........................................................
About the Park Avenue SVUL Policy
- Issuing the policy ...........................................
- The Policyowner ..............................................
- The Beneficiary ..............................................
Benefits and policy values .....................................
- Additional sum insured .......................................
- No Lapse Guarantee ...........................................
- Death benefit options ........................................
- Changing your death benefit option ...........................
- Paying the death benefit .....................................
- Policy values ................................................
Premiums, deductions and charges ...............................
- Premiums .....................................................
- Deductions and charges .......................................
Your allocation options ........................................
- The variable investment options ..............................
- The fixed-rate option ........................................
Special features of your policy ................................
- Policy loans .................................................
- Decreasing the face amount ...................................
- Increasing the face amount ...................................
- Partial withdrawals ..........................................
- Surrendering your policy .....................................
- Transfers between the investment options .....................
- Transfers from the fixed-rate option .........................
- Dollar cost averaging transfer option ........................
- Policy proceeds ..............................................
- Exchanging a policy ..........................................
- Payment options ..............................................
Tax considerations .............................................
- Tax status of the policy .....................................
- Treatment of policy proceeds .................................
- Exchanges ....................................................
- Policy changes ...............................................
- Estate and generation skipping transfer taxes ................
- Possible tax law changes .....................................
- GIAC's taxes - Income tax withholding ........................
<PAGE>
Rights and responsibilities .....................................
- Assigning the rights to your policy ...........................
- Voting rights .................................................
- Limits to GIAC's right to challenge a policy ..................
- Rights reserved by GIAC .......................................
- Your right to cancel your policy ..............................
Other Information ...............................................
- Distribution of the policy and other contractual arrangements .
- Communications we'll send you .................................
- Special provisions for group or sponsored arrangements ........
- Legal considerations for employers ............................
- Advertising practices .........................................
- Legal proceedings .............................................
- Legal matters .................................................
- Registration statement ........................................
- Financial statements ..........................................
- Financial and actuarial experts ...............................
- GIAC's management .............................................
Special terms used in this prospectus ...........................
Financial Statements ............................................
- Consolidated Financial Statements of
The Guardian Insurance & Annuity Company, Inc. ................
Appendices A to D ...............................................
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The Park Avenue SVUL 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 supplement thereto
or in any supplemental sales material authorized by GIAC.
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SUMMARY
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This summary outlines the principal features of your Park Avenue SVUL
survivorship variable universal life insurance policy. It is qualified by the
detailed explanation which follows and the terms of your SVUL policy. We deliver
this prospectus with a copy of the prospectuses for each of the mutual funds
corresponding to the variable investment options in which you may invest your
Park Avenue SVUL premiums.
Please read this prospectus and the fund prospectuses carefully before
investing.
Terms we've used
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In this document, we, us, and our refer to The Guardian Insurance & Annuity
Company, Inc., and you and your refer to the policyowner. You can find
definitions of special terms used in this prospectus at the end of this
document. We've used italic script to highlight these terms the first time they
appear in the text.
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WHAT IS VARIABLE LIFE INSURANCE AND HOW DOES IT WORK?
Variable life insurance is intended to provide two important benefits:
o a death benefit that is not taxable to your beneficiary
o a cash value that can grow, with taxes on the growth being deferred.
You allocate your net premium payments and cash value among the variable
investment options and the fixed-rate option. Most of these options provide
variable returns. That's why it's called variable life insurance. Under a
variable universal life insurance policy, you are also able to change:
o the death benefit option
o your policy's face amount, and
o the frequency and amounts of payments.
If the investment options that you choose perform well, the cash value of your
policy will increase, and the death benefit may also increase. As a variable
life insurance policyowner, however, you bear the risk of investment losses to
the extent that your cash values are invested in the variable options. Your
policy has no guaranteed cash value.
WHO CAN BUY A PARK AVENUE SVUL POLICY?
You can buy an SVUL policy if:
o you live in a state or jurisdiction where we offer the policy,
o the persons being insured are between the ages of 20 and 90 and meet our
insurance requirements, and
o no more than one of the insureds is in the uninsurable risk class.
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S U M M A R Y P R O S P E C T U S 1
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<PAGE>
Consult your legal or tax adviser about the consequences of exchanging your
existing policy for a Park Avenue SVUL policy. See the sections in this
prospectus called Deductions and charges, Tax considerations, and Special
provisions for group or sponsored arrangements.
WHAT ARE THE BENEFITS UNDER YOUR POLICY?
There are two types of insurance benefits available through this policy: death
benefits and rider benefits. We pay death benefits to the beneficiary named in
the policy when we receive proof that the surviving insured has died while the
policy was in force. Rider benefits offer special optional coverage in addition
to the death benefit. The rider benefits you choose will determine the
additional amount, if any, that's paid to the beneficiary.
Benefits
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There are two types of insurance benefits available through this policy: death
benefits and rider benefits. We pay death benefits to the beneficiary named in
the policy when we receive proof that the insured has died while the policy was
in force. Rider benefits offer special optional coverage in addition to the
death benefit.
Death benefits
You have a choice of three death benefit options with this policy:
o under Option 1, the death benefit is a fixed amount, your policy's face
amount.
o under Option 2, the death benefit is a variable amount, based on your
policy's face amount and the value of the investments held in your policy,
your policy account value. These values can change depending on the
performance of the investments held in your policy.
o under Option 3, the death benefit is an amount based on your policy's face
amount and the sum of your net accumulated premiums. The death benefit
amount will increase when you make premium payments, but will decrease
when you make partial withdrawals.
You may choose among these options, with some restrictions, until the policy
anniversary (the anniversary each year of the date your policy was issued)
closest to the younger insured's 100th birthday. On or after this date, the
death benefit will be the policy account value.
You can change your policy's death benefit option on any policy anniversary
after your policy has been in force for one year, and as long as either insured
is still living. If you want option 3, you must select it at issue; you cannot
change to Option 3 after that time. If you are changing from Option 1 to Option
2, you will need to prove that the insureds meet our insurance requirements. For
more information see Death benefit options.
Additional sum insured
You may purchase an additional sum insured when this policy is issued. The
additional sum insured will be part of your policy's face amount. This option
may not be available in all jurisdictions. See Benefits and policy values.
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2 P R O S P E C T U S S U M M A R Y
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<PAGE>
Rider benefits
Riders are a way to add to the coverage offered by your policy. The following
riders are offered under this policy. They are subject to GIAC's insurance and
policy issuing requirements, and all may not be available in all states:
o survivorship adjustable annual renewable term rider
o guaranteed coverage rider
o select security rider
o exchange of insureds rider
o single life term rider
o policy split option
Depending on your individual circumstances, it may or may not be to your
advantage to add coverage to your policy through a rider. Some of the
circumstances to consider include the premium you want to pay, the amount of
coverage and how long you want this additional coverage for, and the age and
underwriting classifications of the insureds. Your GIAC representative can help
you decide whether adding rider benefits to your policy would be in your best
interest.
The cost of any rider benefits you have added to your policy will be included in
your monthly deduction, which is withdrawn from your policy account value each
month.
HOW MUCH DO WE PAY OUT IF THE INSURED DIES?
The amount we pay when the surviving insured dies is:
o the proceeds of the death benefit option in effect as of the monthly
processing date immediately preceding the surviving insured's death, plus
o the extra insurance provided by any riders included in your policy, minus
o any outstanding policy loans, plus accrued interest, as of the date of the
surviving insured's death, minus
o as of the date of the surviving insured's death, the lesser of:
o any premium required under the no lapse guarantee, or
o the amount required to bring the cash surrender value up to zero,
and minus
o any partial withdrawals between the last monthly processing date and the
date of death of the surviving insured.
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S U M M A R Y P R O S P E C T U S 3
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<PAGE>
If Option 3 is in effect when the surviving insured dies, the amount we pay will
increase by the amount of premiums paid between the last monthly processing date
and the date of death.
We pay these benefits in a lump sum, or under one of the options described in
Payment options.
HOW MUCH DO YOU HAVE TO PAY IN PREMIUMS?
Premiums are the payments you make to buy and keep your insurance in force.
There are several types of premiums associated with your Park Avenue SVUL, which
together form your policy premium. They are:
o the initial premium, which you pay to begin your policy. It must be at
least one-sixth of your minimum annual premium,
o the minimum annual premium, which is set out in your policy. It is used to
calculate the amount of premium that must be paid as of the most recent
monthly processing date to satisfy the No Lapse Guarantee Premium Test
during the first three years of your policy,
o your planned premium, which is a premium amount that you choose when you
apply for a policy. You do not have to pay your planned premiums; however,
we will send you reminder notices for them,
o your target premium, which is based on the insureds' ages, sex (unless
gender-neutral rates are required by law), riders, face amount and
underwriting class. It is used to determine premium charges and agent
commissions. You have a separate target premium for your policy (including
any additional sum insured) and for each policy segment that you add to
your policy in order to increase its face amount. Certain riders also have
target premiums associated with them,
After you have paid the initial premium, you may pay premiums on your policy at
any time and in any amount while either insured is alive. However, if the cash
value of your policy is not sufficient to cover the monthly deduction from your
policy, your policy may lapse, unless the No Lapse Guarantee is in effect and
you have satisfied its requirements. We will warn you if your policy is in
danger of lapsing.
WHAT DEDUCTIONS AND CHARGES DO YOU HAVE TO PAY?
There are various deductions and charges associated with maintaining your Park
Avenue SVUL policy. Each of these charges is outlined below and in detail in
Deductions and charges. Some of these charges can vary, depending on certain
circumstances, and there may be a guaranteed or maximum charge, and a current
charge. The guaranteed or maximum charge is the most that we can charge you
Paying premiums
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After you have paid the initial premium, you may pay premiums on your policy at
any time and in any amount while either insured is alive.
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4 P R O S P E C T U S S U M M A R Y
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<PAGE>
for a particular item. The current charge is what we are now charging for that
item. We have the right to increase the current charge up to the maximum charge.
We will tell you if we increase these charges.
Charges deducted from your policy premiums
During each of the first 12 policy years after issue or after an increase in
coverage, a charge of 8% is deducted from each premium you pay until you have
paid one target premium in a policy year, and 4% is deducted from premiums paid
in excess of the target premium. After the 12th year, this charge drops to 4%
for premiums paid in a policy year, until you have paid one target premium, and
no charge for premiums paid in excess of one target.
The monthly deduction
We deduct certain charges from your policy account value on the same date each
month. The monthly deduction consists of the following:
Administrative Charges: There are two administrative charges. At the beginning
of each policy month, we will deduct an administrative charge of $7.50. In
addition, for the first 12 policy years after issue or after an increase in face
amount, we will deduct a monthly charge based on the age, sex, and underwriting
class of the younger insured and the basic sum insured amount at the time the
policy is issued or the face amount increased.
Mortality and expense risk charge: This charge is based on the policy account
value in the variable investment options and is guaranteed never to exceed the
current rates stated below plus 0.25% of the policy account value. Through the
twelfth policy anniversary, we will deduct a monthly charge at a current annual
rate of 0.60% of the policy account value in the variable investment options.
Starting in the thirteenth policy year, we will deduct a monthly charge at a
current annual rate of 0.40% of the policy account value in the variable
investment options, up to the account value breakpoint, and 0.20% on the amount
in excess of the account value breakpoint. See Charges and deductions (Mortality
and expense risk charge).
Cost of insurance charge: This charge is based on our current cost of insurance
rates for insured people of the same age, sex, policy duration (the number of
policy years that have elapsed since the policy date) and underwriting class as
each insured under your policy. The maximum that we can charge for each $1,000
of the net amount at risk (the difference between your policy's death benefit
and your policy account value) is set out in your policy. See Charges and
deductions (Cost of insurance charge).
Charges for additional insurance benefits: If you buy additional insurance
coverage by adding one or more riders to your policy, the charges will be
deducted monthly from your policy account value.
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S U M M A R Y P R O S P E C T U S 5
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<PAGE>
After the anniversary closest to the younger insured's 100th birthday, whether
or not the younger insured is alive, all monthly deductions cease.
Transaction deductions
We deduct these charges from the policy account value when you ask us to do
certain transactions. The charges are as follows:
Surrender charge: This charge applies if you surrender your policy or let it
lapse during the nine years following issue or an increase in face amount. The
surrender charge during the first policy year is set forth in your policy. It
declines proportionally each year until it is zero after 9 years. The charge
will vary depending on the insureds' ages when the policy was issued or the face
amount increased, sex and underwriting classes.
Transfer charge: After you make twelve transfers of policy account value among
the allocation options within a policy year, we may charge you $25 for each
additional transfer. We don't currently impose this charge.
Deductions associated with the Separate Account
We have the right to charge the Separate Account to cover any taxes that are
applicable to the Separate Account or the policies. We don't currently impose
this charge.
Deductions associated with the mutual funds
Daily deductions are made from the value of the mutual funds in which you invest
through the Separate Account, to cover advisory fees and other expenses. As a
result, you pay these fees and expenses indirectly. The fees and expenses vary
for each mutual fund and are described in more detail in the fund prospectuses.
WHAT ARE YOUR ALLOCATION OPTIONS?
You choose where your net premiums are invested. There are a number of variable
investment options and a fixed-rate option. Your premiums may be allocated to a
maximum of twenty allocation options at one time.
Each variable investment option invests in a series of a mutual fund. The value
of these options, and your policy account value in them, will vary depending on
the performance of the mutual funds. There is no minimum guaranteed policy
account value for amounts allocated to the variable investment options.
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6 P R O S P E C T U S S U M M A R Y
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<PAGE>
The mutual funds that are currently available through the variable investment
options are:
o The Guardian Variable Contract Funds, Inc.
- The Guardian Stock Fund
- The Guardian VC 500 Index Fund
- The Guardian VC Asset Allocation Fund
- The Guardian VC High Yield Bond Fund
o The Guardian Bond Fund, Inc.
o The Guardian Cash Fund, Inc.
o GIAC Funds, Inc.
- Baillie Gifford International Fund
- Baillie Gifford Emerging Markets Fund
- The Guardian Small Cap Stock Fund
o AIM Variable Insurance Funds, Inc.
- AIM V.I. Capital Appreciation Fund
- AIM V.I. Global Utilities Fund
- AIM V.I. Value Fund
o Davis Variable Account Fund, Inc.
- Davis Financial Portfolio
- Davis Real Estate Portfolio
- Davis Value Portfolio
o Fidelity Variable Insurance Products Fund
- Fidelity VIP II Contrafund(R) Portfolio
- Fidelity VIP Equity-Income Portfolio
- Fidelity VIP III Growth Opportunities Portfolio
- Fidelity VIPIII Mid Cap Portfolio
o Gabelli Capital Series Funds, Inc.
- Gabelli Capital Asset Fund
o Janus Aspen Series
- Janus Aspen Aggressive Growth Portfolio
- Janus Aspen Capital Appreciation Portfolio
- Janus Aspen Growth Portfolio
- Janus Aspen Worldwide Growth Portfolio
o MFS(R) Variable Insurance Trust(SM)
- MFS Emerging Growth Series
- MFS Growth With Income Series
- MFS New Discovery Series
- MFS Research Series
- MFS Total Return Series
o Value Line Strategic Asset Management Trust
o Value Line Centurion Fund
You will find the investment objectives, policies, risks, fees and expenses for
each of these funds listed in the accompanying prospectus for that fund. You
should read the corresponding fund prospectus carefully before investing in any
variable investment option. For a summary of this information see The variable
investment options.
Amounts allocated to the fixed-rate option earn a set rate of interest. You earn
interest on the total that you have invested in the fixed-rate option, including
interest you have earned in previous years. Interest accrues daily at a minimum
annual interest rate of 4%. GIAC sets the rate of interest for the fixed-rate
option in its sole discretion and guarantees your principal and interest under
this option.
Allocation options
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You choose where your net premiums are invested. There are a number of variable
investment options and a fixed-rate option. Your premiums may be allocated to a
maximum of twenty allocation options at one time.
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S U M M A R Y P R O S P E C T U S 7
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<PAGE>
Withdrawing money
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After your policy has been in force for one year, you may, within limits, make
partial withdrawals of your policy's net cash surrender value. You may also
borrow up to 90% of your policy's cash surrender value less any interest due on
the outstanding policy debt and the amount borrowed at the next policy
anniversary. You may at any time surrender your policy for the net cash
surrender value.
CAN YOU TRANSFER THE MONEY IN YOUR POLICY AMONG DIFFERENT ALLOCATION OPTIONS?
To the extend that the money in your policy is not being held as collateral
against a loan, you can transfer it among the variable investment options, and
into the fixed-rate option, at any time. You may choose up to twenty allocation
options at any time. We limit transfers out of the fixed-rate option. See The
fixed-rate option.
DO YOU HAVE ACCESS TO THE MONEY YOU'VE INVESTED IN YOUR POLICY?
After your policy has been in force for one year, you may, within limits, make
partial withdrawals of your policy's net cash surrender value. The net cash
surrender value is your policy account value minus any surrender charges and
policy debt.
You may also borrow up to 90% of your policy's cash surrender value less: (i)
any outstanding policy debt; (ii) any interest due at the next policy
anniversary on the outstanding policy debt; and (iii) any interest that will be
due at the next policy anniversary on the amount being borrowed. The cash
surrender value is the policy account value minus any surrender charges. We will
charge you an annual interest rate of 5% on all outstanding loans that you have
taken against your policy. This rate will decrease to 4.5% after your policy's
20th anniversary.
You may at any time surrender your policy for the net cash surrender value.
After you surrender your policy, you no longer have insurance coverage.
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8 P R O S P E C T U S S U M M A R Y
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<PAGE>
HOW IS YOUR POLICY AFFECTED BY TAXES?
Increases in the value of your policy and the death benefit
We believe it is reasonable to conclude that your Park Avenue SVUL policy will
receive the tax benefits generally associated with life insurance contracts
under existing federal tax laws. This means that increases in the value of your
policy should not be taxed unless you make a withdrawal in excess of your
"basis" in the policy -- which is generally equal to the total amount that you
have paid in premiums -- (or, in some cases, take a loan) or surrender your
policy before the surviving insured dies. Partial withdrawals, surrenders and
policy loans all result in money being taken out of your policy before the
surviving insured dies. We believe that the money the beneficiary receives when
the surviving insured dies generally should not be subject to federal income
tax, but may be subject to federal estate taxes or generation skipping transfer
taxes. See Tax Considerations.
Tax on increases
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Increases in the value of your policy should not be taxed unless you make a
withdrawal (or, in some cases, take a loan) or surrender your policy before the
surviving insured dies.
WHAT CHANGES CAN YOU MAKE TO YOUR POLICY?
Decreasing the face amount of the policy
On or after your first policy anniversary you may request a decrease in the face
amount. The decrease must be at least $5,000, and at least one insured must be
alive when we receive your request. The new face amount cannot be lower than
GIAC's current minimum face amount. See Decreasing the face amount.
Increasing the face amount of the policy
Provided both insureds are living, on your first policy anniversary, and on each
anniversary up to and including the anniversary nearest the younger insured's
70th birthday, you may request an increase in your policy's face amount. The
increase is subject to evidence of insurability, and must be for at least
$10,000. The amount of each increase will be treated as a separate policy
segment, with its own underwriting class, cost of insurance rates, surrender
charges, administrative charges, target premiums, and, during the first three
policy years, minimum annual premium.
After you increase the face amount, your new premiums will be applied first to
the target premium on your original policy, and then to the target premium for
any policy segments, in the order that you bought them. See Increasing the face
amount.
Policy changes
--------------------------------------------------------------------------------
With certain restrictions, you may:
o request an increase or decrease in the face amount of your policy
o exchange your Park Avenue SVUL Policy for a fixed benefit life insurance
policy
o cancel your policy after it has been issued.
See accompanying text for details.
----------------------
S U M M A R Y P R O S P E C T U S 9
----------------------
<PAGE>
Exchanging your Park Avenue SVUL policy for a fixed-benefit life insurance
policy
At any time prior to the second policy anniversary, you may exchange all or a
portion of your Park Avenue SVUL policy for a fixed-benefit whole life insurance
policy issued by GIAC or one of our affiliates. If you do this, you don't have
to prove that the persons being insured meet our insurance requirements for
issuing a policy. There may be a credit or a cost to be paid. See Special
Features of your policy.
Canceling your policy after it has been issued
You may cancel your policy by returning it with a written cancellation notice to
either our customer service office or the agent from whom you bought the policy.
You must do this within:
o 10 days after you receive your policy, or
o 45 days after you sign the completed application for your policy.
Longer periods may apply in some states. Once we receive your notice, we will
refund all of the premiums you paid, and your policy will be considered void
from the beginning. See Your right to cancel your policy.
Could your policy lapse?
--------------------------------------------------------------------------------
Your policy may lapse if you don't pay enough policy premium or if you have
excess policy debt.
COULD YOUR POLICY LAPSE?
Your policy may lapse if its net cash surrender value is less than zero after
deducting the monthly deduction in a given month, and you do not make the
required premium payment within 61 days of the time the monthly deduction is
due.
For the first three years of your policy the No Lapse Guarantee ensures that it
will not lapse, even if the net cash surrender value of your policy is
insufficient to pay the policy's monthly deduction in a given month, so long as
the No Lapse Guarantee Premium Test is met. See Premiums and No Lapse Guarantee.
Your policy may also lapse if you have not made a loan repayment 61 days after
the monthly date on which the amount of any unpaid loans or interest exceeds
your policy's cash surrender value.
We will warn you at least 30 days in advance if we see that your policy is in
danger of lapsing. We will tell you the premium or the portion of your loan that
you must pay in order to keep your policy in force, and will keep your policy in
force if we receive the required payment when requested. See Grace Period.
-----------------------
10 P R O S P E C T U S S U M M A R Y
-----------------------
<PAGE>
HOW CAN YOU COMMUNICATE WITH US?
We cannot act on any request (except for proper telephone transfer requests)
unless it is received in writing at our customer service office, in a form
acceptable to us. Your request must include:
o your policy number
o the full name of all policyowners
o the full name of the insured, and
o your current address.
Our address for regular mail is:
The Guardian Insurance & Annuity Company, Inc.
P.O. Box 26210
Lehigh Valley, PA 18002-6210
Our address for registered, certified or express mail is:
The Guardian Insurance & Annuity Company, Inc.
3900 Burgess Place
Lehigh Valley, PA 18002-6240
If you need information on the value of your policy, you may call us at
1-800-441-6455 between 9 a.m. and 4 p.m. Eastern time.
WHO ISSUES YOUR PARK AVENUE SVUL POLICY?
Your Park Avenue SVUL policy is issued, through its Separate Account N, by The
Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware stock insurance
company formed in 1970. GIAC is licensed to sell life insurance in all 50 states
of the United States of America and the District of Columbia. As of December 31,
1999, our total assets (gaap basis) exceeded $12 billion.
We are wholly owned by The Guardian Life Insurance Company of America (Guardian
Life). The offices of both Guardian Life and GIAC are located at 7 Hanover
Square, New York, New York 10004.
Both Guardian Life and GIAC 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 meet its insurance-related obligations and the guaranteed return on
the fixed-rate option. These ratings do not apply to the variable investment
options, which are subject to the risks of investing in any securities. Guardian
Life does not issue the Park Avenue SVUL policies, and does not guarantee the
benefits provided by the policy.
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S U M M A R Y P R O S P E C T U S 11
-----------------------
<PAGE>
The Park Avenue SVUL policy diagram(1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
POLICY PREMIUMS ----- Less -------> Premium charge
|
|
|
|
POLICY ACCOUNT VALUE
THE SEPARATE ACCOUNT
Fund level expenses
THE MUTUAL FUNDS ------------ Less ------> Advisory fees and other expenses
(including any investment return)
Guardian Investor Services Corporation
The Guardian Stock Fund
The Guardian VC Asset Allocation Fund
The Guardian VC High Yield Bond Fund
The Guardian VC 500 Index Fund
The Guardian Small Cap Stock Fund
The Guardian Bond Fund
The Guardian Cash Fund
Guardian Baillies Gifford Limited
Baillie Gifford International Fund
Baillie Gifford Emerging Markets Fund
Value Line, Inc.
Value Line Centurion Fund Policy level expenses
Value Line Strategic Asset Management Trust --------- Less ------> Monthly deductions
o Administrative charges
Gabelli Funds, LLC o Mortality and expense risk charge
Gabelli Capital Asset Fund o Charge for the cost of insurance
o Charge for additional insurance benefits
Davis Selected Advisers, LP
Davis Financial Portfolio
Davis Real Estate Portfolio
Davis Value Portfolio
Janus Capital Corporation
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Capital Appreciation Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Massachusetts Financial Services Company
MFS Emerging Growth Series
MFS Total Return Series
MFS Growth With Income Series
MFS Research Series
MFS New Discovery Series
A I M. Advisors, Inc
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
AIM V.I. Global Utilities Fund
Fidelity Managment & Research Company
Fidelity VIP III Growth Opportunities Portfolio
Fidelity VIP Equity Income Portfolio
Fidelity VIP II Contrafund(R) Portfolio
Fidelity VIP III Mid Cap Portfolio
FIXED-RATE OPTION LOAN ACCOUNT
(plus interest credited) (plus loan interest account)
|
|-------------------- Less-------> Transaction deductions
| o Surrender charge
---------------------------------------------
CASH SURRENDER VALUE
---------------------------------------------
|
|-------------------- Less-------> Policy Debt
|
---------------------------------------------
NET CASH SURRENDER VALUE
---------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
(1) 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.
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12 P R O S P E C T U S S U M M A R Y
-----------------------
<PAGE>
--------------------------------------------------------------------------------
ABOUT THE PARK AVENUE SVUL POLICY
--------------------------------------------------------------------------------
THIS SECTION provides detailed information about your policy. It explains your
rights and responsibilities under the policy, and those of GIAC. Because the
laws and regulations that govern the policy vary among the jurisdictions where
the policy is sold, some of the policy's terms will vary depending on where you
live. These will be outlined in the policy we send you.
Issuing the policy
--------------------------------------------------------------------------------
A Park Avenue SVUL insurance policy must have basic sum insured coverage of at
least $250,000.
Issuing the policy
A Park Avenue SVUL insurance policy must have basic sum insured coverage of at
least $250,000. To issue a policy:
o the insureds must be between 20 and 90 and meet our insurance
requirements,
o no more than one of the insureds can be in the uninsurable risk class, and
o you must live in a state or jurisdiction in which we offer the policy.
If you have a whole life policy with a convertible term rider issued by us or by
Guardian Life, you may receive a credit of up to one minimum annual premium if
you convert it to a Park Avenue SVUL policy.
If you are interested in exchanging an existing policy for a Park Avenue SVUL
policy, we recommend that you speak with your lawyer or tax adviser first.
Replacing your existing policy may not be advantageous.
Some jurisdictions do not allow insurance companies to provide different
benefits based on the sex of the insured. For these jurisdictions we offer a
version of the Park Avenue SVUL policy with the same benefits for men and women.
Backdating your policy
Under certain circumstances we will backdate your policy if you ask us to,
giving you a policy date up to six months before the application was actually
signed. Backdating your policy will only be allowed if it would allow you to
qualify for a lower premium because the insureds were younger on an earlier
policy date. On the date the policy is actually issued, we deduct the monthly
deductions due from the backdated policy date to the issue date. We will not
backdate a policy to a date before which the policy was available in the state
of issue.
-----------------------
A B O U T T H E P O L I C Y P R O S P E C T U S 13
-----------------------
<PAGE>
THE POLICYOWNER
The Policyowner
--------------------------------------------------------------------------------
The policyowner is the person named on the application as the owner of the
policy. You may own a policy jointly with more than one person. A policyowner
does not have to be an insured.
The policyowner is the person named on the application as the owner of the
policy. You may own a policy jointly with more than one person. A policyowner
does not have to be an insured. While the insured is living, only the
policyowner named in our records has the right to exercise rights granted by the
policy unless ownership of the policy has been assigned to someone else. Except
for transfers, all of the policy's joint owners must approve policy transactions
or changes in writing, including assigning ownership of the policy to someone
else. When a joint policyowner dies, we will divide his or her share of the
policy equally among the other policyowners, unless the deceased policyowner has
indicated otherwise.
If you want to change the policyowner, you must request it in writing in a form
acceptable to us. Your request must be signed and dated by all of the
policyowners. The change will be made effective on the date your request was
signed, but will not apply to any payments or actions taken before we receive
your request. If you are not an insured and die before the surviving insured,
your estate (or if there had been joint owners, the estate of the last surviving
joint owner) becomes the policyowner, unless you have named someone to take over
ownership of the policy (a successor owner). If you are both the policyowner and
the surviving insured, a successor owner may not be named, because the policy
ends when you die.
THE BENEFICIARY
The Beneficiary
--------------------------------------------------------------------------------
The beneficiary is the person you name to receive the proceeds when the
surviving insured dies.
The beneficiary is the person you name to receive the proceeds when the
surviving insured dies. You can change the beneficiary until the insured dies.
Also, you may name a 'contingent' beneficiary, who will receive the proceeds if
the first beneficiary dies before the surviving insured, or a second or
'concurrent' beneficiary, who will receive a portion of the proceeds when the
surviving insured dies. The beneficiary must live longer than the surviving
insured to qualify as a beneficiary, and has no rights under the policy until
the surviving insured dies. If the surviving insured outlives all of the
beneficiaries named in the policy, then the policyowner or the policyowner's
estate becomes the beneficiary. If you want to change the beneficiary, you must
give us your instructions in writing in a form acceptable to us. Your request
must be signed and dated by all of the policyowners listed in our records. The
change is made effective on the date your request was signed, but will not apply
to any payments or actions taken before we receive your request.
-----------------------
14 P R O S P E C T U S A B O U T T H E P O L I C Y
-----------------------
<PAGE>
--------------------------------------------------------------------------------
BENEFITS AND POLICY VALUES
--------------------------------------------------------------------------------
ADDITIONAL SUM INSURED
If you choose death benefit Option 1 at issue, you may purchase an additional
sum insured under the policy. This feature is only available at issue. If you
wish to increase your face amount at any time thereafter, we will issue a new
policy segment for the amount of the increase. See Increasing the face amount.
The additional sum insured provides a level death benefit to age 100 of the
younger insured. The amount of this coverage, if any, plus the basic sum insured
are the two components of your policy's initial face amount. The minimum
additional sum insured amount you can purchase is $25,000; the maximum amount
cannot exceed 400% of the basic sum insured.
Coverage provided by the additional sum insured will be treated like coverage
provided by the basic sum insured. In particular:
o it will affect the minimum death benefit under Section 7702 of the
Internal Revenue Code; and
o it will affect the calculation of premiums for determining whether the
policy is a modified endowment contract.
See Deductions and charges; Death benefit options; and Tax considerations.
You should consider several factors in deciding whether to purchase coverage as
basic sum insured or additional sum insured, including:
o The additional sum insured has no additional surrender charges and the
administrative charge is lower than the administrative charge for a
comparable amount of basic sum insured.
o Cost of insurance rates for the additional sum insured are the same as for
the basic sum insured.
o The target premium for the additional sum insured is zero.
o The amount of premium charges you will pay may be less if you purchase
coverage as additional sum insured, rather than basic sum insured.
o If the coverage provided by the additional sum insured is greater than the
coverage under the basic sum insured at issue, you cannot purchase the
Guaranteed Coverage rider.
o If you purchase an additional sum insured , you may not purchase coverage
under the adjustable annual renewable term insurance rider.
You may purchase additional sum insured coverage only at issue and only if you
select Option 1. If you change your death benefit option at any time, we will
terminate the additional sum insured. Once terminated, the additional sum
insured cannot be reinstated.
This option may not be available in all jurisdictions. Please check with your
registered representative.
NO LAPSE GUARANTEE
The No Lapse Guarantee ensures that your policy will not lapse, even if high
surrender charges, poor investment performance, or excess policy debt mean that
the net cash surrender value of your policy is not enough to pay the policy's
monthly deductions on a monthly processing date. This guarantee is in effect for
the first three years of your policy so long as the No Lapse Guarantee Premium
Test is met.
-----------------------
B E N E F I T S A N D P O L I C Y V A L U E S P R O S P E C T U S 15
-----------------------
<PAGE>
To meet this test, as of the most recent monthly processing date, you must have
paid at least as much into your policy (minus any withdrawals or policy debt) as
the sum of minimum annual premiums up to this date, as stated on page 3 of your
policy. To calculate your minimum annual premium for the current policy year, we
multiply your minimum annual premium by a ratio equal to:
the number of completed policy months since the last policy anniversary plus 1
--------------------------------------------------------------------------------
12
If you increase the face amount of your policy after the first policy year, your
minimum annual premium will change, which in turn changes the amount that you
must contribute in order to meet the No Lapse Guarantee Premium Test. As of the
most recent monthly processing date, you must have paid at least as much into
your policy (minus any withdrawals or policy debt) as the original minimum
annual premium for the period up to the increase, plus the new minimum annual
premium for the period after the increase in your policy's face amount,
multiplied by a ratio equal to:
the number of completed policy months since the increase plus 1
---------------------------------------------------------------
12
If your policy does not meet the No Lapse Guarantee Premium Test, and the cash
value is insufficient to cover the monthly deduction, you will have a 61-day
grace period from that date to make a required premium payment or loan repayment
if there is outstanding policy debt. If you do not make the required payment,
the policy will lapse.
Death benefit options
--------------------------------------------------------------------------------
You have a choice of three death benefit options with this policy. If a fixed
amount of insurance coverage and potentially lower monthly deductions best fits
your needs, you should choose Option 1. If you want the potential to increase
the amount of your insurance coverage beyond your policy's face amount you
should choose Option 2. If you want to recapture the premiums you have paid into
the policy, you should choose Option 3. See accompanying text for details.
DEATH BENEFIT OPTIONS
You have a choice of three death benefit options with this policy. You should
choose the death benefit option that best meets your insurance needs and
investment objectives. If a fixed amount of insurance coverage and potentially
lower monthly deductions best fit your needs you should choose Option 1. If you
want the potential to increase the amount of your insurance coverage beyond your
policy's face amount you should choose Option 2. If you want to recapture the
premiums you have paid into the policy, you should choose Option 3.*
Option 1
Under Option 1, your death benefit on any monthly processing date prior to the
policy anniversary nearest the younger insured's 100th birthday is the greater
of:
o the face amount; or
o the minimum death benefit required under Section 7702 of the Internal
Revenue Code.
----------
* Option 3 may be appropriate for split dollar cases where an employer advances
premium payments on behalf of an employee under an agreement that the employee
will reimburse the premium advances.
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16 P R O S P E C T U S B E N E F I T S A N D P O L I C Y V A L U E S
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<PAGE>
Under this option, if your investments perform well or you contribute more than
the minimum annual premium and the policy account value increases by a
sufficient amount, then the net amount at risk will be lower. When this happens,
the amount that we deduct for the cost of insurance charges each month may also
go down.
Option 2
Under Option 2, your death benefit on any monthly processing date prior to the
policy anniversary nearest the younger insured's 100th birthday is the greater
of:
o the face amount plus the policy account value, if positive, or
o the minimum death benefit required under Section 7702 of the Internal
Revenue Code.
Under this option, your death benefit will vary based on your investment
performance and the premiums you pay. Even if your investments perform poorly,
your death benefit will never be lower than the face amount. The net amount at
risk will not change unless we have to increase the death benefit to comply with
Section 7702 of the Internal Revenue Code.
Option 3
Under Option 3, your death benefit on any monthly processing date prior to the
policy anniversary nearest the younger insured's 100th birthday is the greater
of:
o the face amount plus net accumulated premiums, or
o the minimum death benefit required under Section 7702 of the Internal
Revenue Code.
Under this option, as under Option 1, if your investments perform well, or you
contribute more than the minimum annual premium and the policy account value
increases by a sufficient amount, then the net amount at risk will be lower.
When this happens, the amount that we deduct for the cost of insurance charges
each month may also go down.
Regardless of which option you choose, after the policy anniversary closest to
the younger insured's 100th birthday, whether or not the younger insured is
alive, the death benefit is the policy account value. The tax consequences of
continuing the policy beyond the younger insured's 100th birthday are unclear.
You should consult a tax adviser for more information.
If you make a partial withdrawal from your policy between the most recent
monthly processing date and the death of the insured, the death benefit under
all options will be reduced by the amount of your withdrawal. Under Option 3,
the death benefit will be increased by the amount of any premium paid between
the most recent monthly processing date and the date of death of the insured.
To qualify as insurance under the Internal Revenue Code, all three options must
pay at least the minimum death benefit required under
Minimum death benefit
--------------------------------------------------------------------------------
The minimum death benefit required under Section 7702 of the Internal Revenue
Code on any monthly processing date is the policy account value multiplied by
the death benefit factor shown in your policy on page 4.
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B E N E F I T S A N D P O L I C Y V A L U E S P R O S P E C T U S 17
-----------------------
<PAGE>
Section 7702. We calculate this minimum using the Guideline Premium and Cash
Value Corridor Test (Guideline Premium Test).
To satisfy the Guideline Premium Test the total of all premiums you pay must not
exceed certain maximums. The total of premiums paid, minus the nontaxable
portion of partial withdrawals, must not be greater than the larger of the
following:
o the guideline single premium on the date the calculation is done, or
o the sum of the guideline level premiums to the date the calculation is
done.
For the purposes of this test, the guideline single premium is the premium that
would be necessary to pay for future benefits under the policy as calculated at
the time the policy is issued or at the time of certain policy changes,
including face amount increases and decreases, death benefit option changes and
changes to rider amounts. It's generally based on "reasonable" mortality and
expense charges (as defined in Section 7702 of the Internal Revenue Code) and an
effective annual interest rate of 6%.
The guideline level premium is the level annual premium payable to age 100 that
would be necessary to pay for all future benefits under the policy as calculated
at the time the policy is issued. It's generally based on "reasonable" mortality
and expense charges (as defined in Section 7702 of the Internal Revenue Code)
and an effective annual interest rate of 4%.
Payment of premiums in excess of the guideline premium limit is permitted if
those premiums are necessary to keep the policy in force.
To satisfy the Cash Value Corridor Test, the death benefit must at least equal
the percentage of the policy account value shown in the following table:
Attained age Percentage of policy
of younger insured account value *
--------------------------------------------------------------------------------
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 percentage decreases uniformly as attained age of the younger insured
increases within the age ranges.
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18 P R O S P E C T U S B E N E F I T S A N D P O L I C Y V A L U E S
-----------------------
<PAGE>
The minimum death benefit required on any monthly processing date is equal to
the policy account value on that date multiplied by the death benefit factor
shown in your policy.
CHANGING YOUR DEATH BENEFIT OPTION
On any policy anniversary you may change your death benefit option, as long as
either insured is alive when we make the change. You must send us your
instructions in writing at our customer service office. Such changes take effect
on the policy anniversary following or coinciding with our receipt of the
request. Changing the death benefit option may have adverse tax consequences.
You should consult a tax adviser before doing so.
If you change the death benefit option, we will change the policy's face amount
to keep the death benefit the same immediately before and after the change.
If you're changing from Option 1 to Option 2, we will decrease the face amount
by the lesser of (i) the policy account value on the date the change takes
effect or (ii) the face amount divided by the applicable death benefit factor
shown on page 4 of your policy. You must also prove that the insured meets our
insurance requirements and we will terminate any additional sum insured.
If you're changing from Option 2 to Option 1, we will increase the face amount
by the lesser of (i) the policy account value on the date the change takes
effect, or (ii) the face amount divided by [the applicable death benefit factor,
minus 1]. The applicable death benefit factor is shown on page 4 of your policy.
If you're changing from Option 3 to Option 1, we will increase the face amount
by the amount of net accumulated premiums on the date the change takes effect.
If you're changing from Option 3 to Option 2, we will adjust the face amount by
an amount equal to net accumulated premiums on the effective date of the change
minus the lesser of: (i) policy account value on the effective date of the
change or (ii) the face amount divided by the applicable death benefit factor
shown on page 4 of your policy.
We will not permit any change if it results in a reduction of the face amount
below our minimum face amount, currently $250,000. We will not approve any
request to change from Option 1 or Option 2 to Option 3.
Any increase is applied directly to the initial face amount. A decrease
-----------------------
B E N E F I T S A N D P O L I C Y V A L U E S P R O S P E C T U S 19
-----------------------
<PAGE>
reduces coverage in the same manner as a requested face amount decrease. See
Decreasing the face amount.
We won't deduct a surrender charge or impose new surrender charges in connection
with changes in the death benefit option.
PAYING THE DEATH BENEFIT
We will pay a death benefit to the beneficiaries named in your policy when we
receive proof that the surviving insured has died while the policy was in
effect. You must also provide us, at our customer service office, with due proof
of the death of the first of the insureds to die as soon as death occurs, or as
soon thereafter as is reasonably possible. If there is reason to dispute the
policy, then we may delay the payment of death benefits. See Limits to GIAC's
right to challenge a policy.
POLICY VALUES
The following is a detailed breakdown of how we calculate the different values
associated with your policy.
Amounts in the Separate Account
Any net premiums that you allocate or transfer to a variable investment option
are used to buy shares in the mutual fund corresponding to the variable
investment option, according to your instructions. We will sell these shares
when you make a withdrawal, transfer or take a policy loan, or when we withdraw
your monthly deduction, or make dollar cost averaging transfers. Based on the
value of each share on the transaction date, we will sell the number of shares
needed to cover the cost of that transaction. To calculate the value of your
investment in a particular variable investment option, multiply the unit value
of the option by the number of units you own. Unit values change based on the
investment performance of mutual fund shares. We calculate the unit value for
each variable investment option at the end of each business day. Note that you
bear all risks associated with the investments in the Separate Account.
Policy account value
Your policy account value is the total value of the investments held in your
policy. This includes the value of your allocations to the fixed-rate and
variable investment options, and any policy values that may be in the Loan
Account or the Loan Interest Account as collateral for a policy loan. It is
calculated as:
o net premiums that you contribute to your policy; plus or minus
o any profit or loss generated by your policy account value in the variable
investment options; plus
o any interest you earn on allocations to the fixed-rate option or interest
we credit on the Loan Account and the loan interest account; minus
o your total monthly deductions; minus
o any partial withdrawals you've made, minus
o any transfer charges.
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20 P R O S P E C T U S B E N E F I T S A N D P O L I C Y V A L U E S
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<PAGE>
Cash surrender value and net cash surrender value
--------------------------------------------------------------------------------
Cash surrender value is the policy account value minus any surrender charges.
There are no surrender charges after your policy or any face amount increase has
been in effect for a maximum of 9 years. The net cash surrender value is the
amount you would actually receive if you surrendered your life insurance policy.
Cash surrender value and net cash surrender value
Cash surrender value is the policy account value minus any surrender charges.
The amount of your surrender charge is based on the insureds' ages, sexes,
underwriting classes, the amount of the basic sum insured, and a number of
actuarial assumptions. There are no surrender charges after your policy or any
face amount increase has been in effect for 9 years (in some cases the surrender
charge period may be less than 9 years). Net cash surrender value is the amount
you would actually receive if you surrendered your life insurance policy. It is
your policy account value minus any surrender charges and policy debt.
The value of any investments in the variable investment options may increase or
decrease daily depending on how well the investments perform. A combination of
partial withdrawals, policy loans, unfavorable investment performance, surrender
charges and the ongoing monthly deduction can cause a policy's net cash
surrender value to drop below zero. Even if this happens, the policy will not
lapse during the first three 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 the policy may also prevent your policy
from lapsing. See Appendix C.
Net investment factor
We calculate the unit value of each variable investment option on each business
day by multiplying the option's immediately preceding unit value by the net
investment factor for that day. We calculate the net investment factor as
follows on each business day:
o the net asset value of one share of the mutual fund corresponding to the
variable investment option at the close of the current business day, plus
o the amount per share of any dividends or capital gains distributed by the
fund on the current business day, minus any federal, state or local taxes
payable by GIAC and allocated by GIAC to the variable investment option;
divided by
o the net asset value of one share of the same mutual fund at the close of
the previous business day.
The accompanying prospectuses for each fund describe how they calculate the net
asset values of their mutual fund shares.
-----------------------
B E N E F I T S A N D P O L I C Y V A L U E S P R O S P E C T U S 21
-----------------------
<PAGE>
--------------------------------------------------------------------------------
PREMIUMS, DEDUCTIONS AND CHARGES
--------------------------------------------------------------------------------
PREMIUMS
Your policy will take effect once you have paid your initial premium, but not
before your policy's issue date. Once it has taken effect you decide the amount
of your premium payments and when you want to make them. However, your premiums
must meet certain requirements for your policy to remain in force.
Your initial premium must equal at least one sixth of your minimum annual
premium. The minimum annual premium is outlined in your policy, and is used to
calculate your initial premium and compliance with the No Lapse Guarantee
Premium Test.
When you set up your policy, you must choose a planned premium. This is the
premium that you intend to pay periodically. We will send you a reminder when
your planned premium is due, annually, semi-annually or quarterly, as requested
unless you are paying your premiums through a pre-authorized checking plan. You
are under no obligation to pay this premium as long as the net cash surrender
value is sufficient to pay the monthly deduction when due.
All premiums must be paid to GIAC's customer service office. Each premium you
pay must be at least $100, unless you are paying through a pre-authorized
checking plan, in which case each premium must be at least $25. No premiums may
be paid after the policy anniversary closest to the insured's 100th birthday.
We may limit the amount that you can pay into your policy, including refusing or
refunding premiums you pay, to attempt to preserve your policy's treatment as
life insurance under federal tax laws.
Under the guideline premium test, the maximum premium we will accept in any
policy year is the greatest amount that will not violate Section 7702. We will
refund to you any portion of a premium payment that violates these section 7702
limits with interest at an annual rate of 6% within 60 days of receipt of such
premium.
Crediting payments
When you make a payment towards your policy, we will credit it according to your
instructions. If you do not provide specific instructions, we will use the
payment:
o first to repay any policy debt
o then, as a premium payment.
We normally credit your payment and allocate the net premium as of the business
day we receive it, as long as we receive it at our customer service office by
the close of the business day, which is 4:00 p.m. New York time. However, any
payments that we receive before your policy has been issued will be held and
credited on the policy issue date, and any payments that we receive after your
policy has been issued that require additional underwriting will be held and
credited as of the date the underwriting process is complete.
-----------------------
22 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
Investing net premiums
--------------------------------------------------------------------------------
When you make a payment towards your policy, the amount that remains after we
deduct the premium charge is the net premium. We invest your net premiums
according to your instructions. When net premiums have been invested, they
become part of your policy account value.
See How your premiums are allocated and Policy loans for specific information on
how your payments are distributed among the fixed-rate and variable investment
options.
How your premiums are allocated
When you make a payment towards your policy, the amount that remains after we
deduct the premium charge (see Deductions and charges) is the net premium. We
invest your net premiums in the fixed-rate and/or variable investment options
according to your instructions. When net premiums have been invested they become
part of your policy account value.
As part of your initial application, you tell us how you would like your net
premiums distributed among the various allocation options. The percentage you
choose for each allocation option must be in whole numbers, and the total must
equal 100%. You may change how your net premiums are invested at any time by
telling us in writing. The change will be effective on and after the date we
receive your instructions at our customer service office, but will not affect
any existing policy values. To change the allocation of these amounts, you must
effect a transfer. See Transfers between the investment options.
Currently you may invest your net premiums and policy account value in up to 20
different allocation options, although we reserve the right to change this
number from time to time.
-----------------------
P R E M I U M S , D E D U C T I O N S P R O S P E C T U S 23
A N D C H A R G E S -----------------------
<PAGE>
Default
During the first three years of your policy, it is protected from lapsing by the
No Lapse Guarantee as long as the No Lapse Guarantee Premium Test is met. This
feature guarantees that your policy will not lapse, even if its net cash
surrender value is not enough to pay your policy's monthly deduction on a
monthly processing date. See No Lapse Guarantee.
If your policy does not meet this test, and your net cash surrender value isn't
enough to cover your monthly deduction (or you have borrowed too much--see
below), you will have a 61-day grace period to make a required payment. We will
tell you that your policy is in danger of lapsing, and the premium payment or
loan repayment you must pay to keep it from lapsing, at least 30 days before the
end of this grace period. If you must make a premium payment, the premium
required will be the lesser of (i) the amount of the deficiency in the net cash
surrender value, plus three times your policy's current monthly deduction or
(ii) the amount necessary for your policy to meet the no lapse Guarantee Premium
Test, plus one quarter of the minimum annual premium. If we do not receive the
requested payment by the end of the 61-day grace period, the policy will lapse.
After the No Lapse Guarantee has ended, your policy will go into default if its
net cash surrender value is less than the monthly deduction due at each monthly
processing date. We will give you a 61-day grace period from the date of default
to make a required payment. We will tell you that your policy is in danger of
lapsing, and the premium or loan repayment you must pay to keep it from lapsing,
at least 30 days before the end of this grace period. The required premium will
be an amount equal to the difference between the monthly deduction due and the
net cash surrender value, plus three times your policy's current monthly
deduction.
If we do not receive the required payment by the end of the 61-day grace period,
your policy will lapse without value.
Your policy will also go into default if the amount of any unpaid policy loans
and interest, which is your policy debt, exceeds the value of the investments in
your policy, minus any surrender charges. We will then tell you that a loan
repayment is required. Your policy will lapse 61 days from the default date if
you do not make the required loan repayment. The required repayment will be the
amount by which policy debt exceeds cash surrender value. If the surviving
insured person dies after we have mailed our notice that a loan repayment is
due, but before the 61-day grace period is up, we will pay the beneficiary the
policy's death proceeds minus the unpaid policy debt.
-----------------------
24 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
DEDUCTIONS AND CHARGES
There are various deductions and charges required to maintain your Park Avenue
SVUL policy. These charges cover certain costs we incur with respect to the
policies, including
o the cost of underwriting, issuing and maintaining the policies, including
preparing and sending billing notices, reports and policy owner
statements, communications with insurance agents and other overhead costs.
o the risk that those insured under the policies may not live as long as we
estimated when we issued the policy, and our administrative expenses may
also be higher than expected.
o the cost of paying death benefits, especially in the early policy years
when the policy account value may be far below the death benefit we pay if
the insured dies.
o our sales and promotional expenses, commissions, and local, state and
federal taxes. You may not claim the portion of these charges used to pay
taxes as a federal income tax deduction.
The amount of a charge does not necessarily correspond to our costs in providing
the service or benefits associated with a particular policy. For example, the
premium charge and the surrender charge may not cover all of our actual sales
expenses for the policies, and proceeds from other charges, including the
mortality and expense risk charge and cost of insurance charges, may be used in
part to cover sales expenses. Once deductions and charges are taken from your
policy they do not contribute to the value of your policy.
All of the deductions and charges are summarized and explained below.
Premium charge
During each of the first 12 policy years after issue or after an increase in
coverage, a charge of 8% is deducted from each premium you pay until you have
paid one target premium in a policy year and 4% is deducted from premiums paid
in excess of the target premium. After the 12th year, this charge drops to 4%
for premiums paid in a policy year until you have paid one target premium in a
policy year and no charge for premiums paid in excess of one target.
Your policy has a separate target premium for the initial face amount and for
any additional coverage you have added through policy segments. The premium
charge will be applied in the order that these were issued. In order to
calculate your premium charge, we will allocate each premium you pay as follows:
o first to your policy's initial face amount, up to the target premium for
that amount
o then to any policy segments that are in force, in the order that they were
purchased, up to the target premium for each segment
o then proportionately, based on the target premium, among the initial face
amount and any policy segments that are in force.
-----------------------
P R E M I U M S , D E D U C T I O N S P R O S P E C T U S 25
A N D C H A R G E S -----------------------
<PAGE>
--------------------------------------------------------------------------------
Example
A 50 year-old male and 45 year-old female (both Preferred Plus underwriting
class) buy a policy with a face amount of $500,000 on January 1, 2000. Five
years later, on January 1, 2005, the same insureds, now ages 55 and 50 (still
Preferred Plus underwriting class), request an increase in the face amount of
$250,000. The initial target premium is $4,663, and the target premium for the
increase is $2,998, bringing the total target premium to $7,661. Assume the
policyowner pays $5,000 per year for the first 10 years and $8,000 per year for
the next 10 years. The premiums are allocated as follows:
Years 1-5: All premiums are allocated to the initial face amount since
that is the only coverage.
Years 6-10: Premiums up to the target for the initial face amount
($4,663) are allocated to the initial face amount, and the excess
($5,000 - $4,663 = $337) is allocated to the face amount
increase.
Years 11-20: Again, premiums up to the target for the initial face
amount ($4,663) are allocated to the initial face amount. The
excess amount up to the target premium for the face amount
increase ($2,998) is allocated to the face amount increase. The
remaining premium ($8,000 - 4,663 - 2,998 = $339) is allocated
proportionally based on the target premium for each segment:
Initial face amount: $339 x (4,663 / 7,661) = $206 Face amount
increase segment: $339 x (2,998 / 7,661) = $133 Therefore, the
total premium allocated to the initial face amount is $4,663 +
206 = $4,869, and the total allocated to the face amount increase
segment is $2,998 + 133 = $3,131.
--------------------------------------------------------------------------------
Note that all figures above are rounded to the nearest dollar.
The following chart shows the allocation of premiums and calculation of premium
charges.
Premium Allocation
Initial Face Amount First Face Amount Increase
--------------------------------------------------------------------------------
Premium Premium
Date Premium Charge Premium Charge
--------------------------------------------------------------------------------
2000-2004 $5,000.00 $ 386.52 $ 0 $ 0
--------------------------------------------------------------------------------
2005-2009 4,663.00 373.04 337.00 27.00
--------------------------------------------------------------------------------
2010-2011 4,869.00 381.28 3,131.00 245.16
--------------------------------------------------------------------------------
2012-2016 4,869.00 186.52 3,131.00 245.16
--------------------------------------------------------------------------------
2017-2019 4,869.00 186.52 3,131.00 119.92
--------------------------------------------------------------------------------
-----------------------
26 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
Monthly deductions
--------------------------------------------------------------------------------
We deduct from the policy account value, on the same date each month, amounts
for administrative costs, the cost of insuring the insured, the mortality and
expense risk charge and any riders. These deductions are made proportionately
from your investments in the fixed-rate and variable investment options.
Monthly deductions from the policy account value
We deduct from the policy account value, on the same date each month, amounts to
cover administrative costs, the cost of insuring the insured, the mortality and
expense risk charge and the cost of any riders. These deductions are made
proportionately from your policy account value in the fixed-rate and variable
investment options. We do not make these monthly deductions after the policy
anniversary closest to the younger insured's 100th birthday.
Administrative charges
We deduct a monthly charge of $7.50.
We also deduct a monthly charge based on the basic sum insured portion of the
face amount on each monthly processing date for the first 12 policy years after
issue or after any increase in face amount. The amount of this charge depends on
the younger insured's age, sex and underwriting class when the policy is issued
or the face amount is increased. This charge is not reduced if you decrease your
face amount.
The charge will range from $0.09 to $0.65 per $1,000 of the basic sum insured.
Representative monthly rates per $1,000 are shown in Appendix D. Your policy's
charge is set forth in your policy.
There is also a charge of $0.01 per $1,000 of the amount of the additional sum
insured and $0.01 per $1,000 of the amount of the survivorship adjustable annual
renewal term rider per month for the first 12 years after issue.
Mortality and expense risk charge
We deduct this charge based on the policy account value in the variable
investment options. Through the twelfth policy anniversary, we deduct a monthly
charge at a current annual rate of 0.60% of the policy account value in the
variable investment options. Starting in the thirteenth policy year, we deduct a
monthly charge at a current annual rate of 0.40% of the policy account value in
the variable investment options, up to the account value breakpoint, and 0.20%
on the amount in excess of the account value breakpoint. The account value
breakpoint is equal to $100,000 less any policy account value allocated to the
fixed-rate option, but not less than zero. This charge is guaranteed never to
exceed the current charge stated above plus 0.25% of the policy account value.
Cost of insurance charge
This charge is based on our cost of insurance rates for insured people of the
same age, sex, duration, and underwriting class as each insured. Any additional
rating charges which are applied to the insureds because either does not satisfy
our insurance requirements for standard insurance are added to the cost of
insurance charge. The maximum that we can charge for each $1,000 of net amount
at risk is set out in your policy and is based on the 1980 Commissioners'
Standard Ordinary Mortality Tables published by the National Association of
Insurance Commissioners. Our current cost of
-----------------------
P R E M I U M S , D E D U C T I O N S P R O S P E C T U S 27
A N D C H A R G E S -----------------------
<PAGE>
insurance rates are lower than the guaranteed maximum.
We calculate the cost of insurance charge by multiplying your policy's net
amount at risk each month by the current cost of insurance rate that applies to
the insureds, and dividing the result by $1,000. Your policy's cost of insurance
charge is calculated before the calculation of the administrative charges, the
mortality and expense risk charge and the cost of any additional benefit riders.
A cost of insurance charge is determined separately for the basic sum insured,
additional sum insured and each policy segment, and any survivorship adjustable
annual renewable term coverage.
After the first policy year, we may change the cost of insurance rates
prospectively, at our discretion, up to the guaranteed maximum rate listed in
your policy. Changes in the health of either insured will not cause your cost of
insurance charge to increase. Increases in the cost of insurance rates are not
made to an individual policy, but are made equally to all policies where the
insured people are of the same attained age, sex, policy or segment duration,
and underwriting class. We may increase this charge when we expect:
o a higher number of deaths among people in a certain group
o higher expenses or federal income taxes
o a higher number of policies that are allowed to lapse by their
policyowners
o an increase in state or local premium taxes
o lower earnings
Cost of insurance charge
--------------------------------------------------------------------------------
This charge allows us to pay death benefits, especially in the early policy
years when the policy account value is far below the death benefit we pay if the
insured dies.
Generally, reducing the net amount at risk results in lower charges for cost of
insurance. Decreasing the net amount at risk partly depends on the death benefit
option you choose. The three options are explained under Death benefit options.
If you choose Option 1, in which the death benefit is the face amount of your
policy, you reduce the net amount at risk when you pay premiums. That's because
premiums increase the policy account value. If you choose Option 2, in which the
death benefit can increase to more than the face amount, paying premiums will
not affect the net amount at risk.
-----------------------
28 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
If you choose Option 3, in which the death benefit is the face amount of your
policy plus your net accumulated premiums, your net amount at risk could be
lower if your investments perform well.
The net amount at risk can increase, for example, when we increase a policy's
death benefit to meet the requirements of the Internal Revenue Code. See Death
benefit options. Having a higher net amount at risk results in higher deductions
for cost of insurance.
There will be different cost of insurance rates for the initial face amount of
your policy and for each subsequent increase in the face amount. As a result, we
calculate the net amount at risk separately for each segment of coverage.
Your policy account value is allocated first to your policy's basic sum insured,
then to the additional sum insured, and finally to each of the policy segments
in the order that they were added to the policy. The maximum amount of your
policy account value that will be allocated to any one policy segment or to the
initial face amount is the amount that the policy segment or initial face amount
provides as a death benefit, divided by 1.0032737. For the purposes of
determining the net amount at risk, if the death benefit is increased due to the
operation of death benefit Option 2 or 3, the increase will be allocated to the
basic sum insured. If the death benefit is further increased due to Section 7702
of the Internal Revenue Code the increase will be allocated to the most recent
policy segment.
Charges for additional insurance benefits
If you acquire additional insurance benefits by buying one or more riders to the
policy, we will deduct rider costs. We deduct these from the policy account
value monthly.
TRANSACTION DEDUCTIONS FROM THE POLICY ACCOUNT VALUE
When you ask us to make certain transactions, we will take a transaction
deduction from your policy account value. Except as described differently below,
we will make these deductions from your policy account value invested in the
variable investment options, until these are exhausted, and then from your
fixed-rate option.
Surrender charge
During a period of time that will not exceed the first 9 policy years of the
initial face amount and each policy segment, we impose a surrender charge if
you:
o surrender your policy, or
o let your policy lapse.
-----------------------
P R E M I U M S , D E D U C T I O N S P R O S P E C T U S 29
A N D C H A R G E S -----------------------
<PAGE>
The period during which the charge will be imposed depends on the age of the
younger insured when the policy is issued or the face amount increased.
Surrender charges range from $2.74 to $51.30 per $1,000 of the basic sum
insured. Your policy's surrender charges are set forth on page 3 of your policy.
The initial surrender charge is the surrender charge you will pay if you
surrender your policy or your policy lapses before the first policy anniversary
or first anniversary of a face amount increase. The initial surrender charge is
shown in your policy and is based on the insureds' ages, sexes, and underwriting
classes, the basic sum insured, and a number of actuarial assumptions. The
surrender charge grades down each policy year over a maximum of 9 years as shown
in the following chart:
Grade down of Initial Surrender Charge Upon Lapse or Surrender in the
Indicated Year of Coverage
<TABLE>
<CAPTION>
Based on Issue Age of Younger Insured
------------------------------------------------------------------------------------------------------
Coverage Up to Age 70
Year age 60 61 62 63 64 65 66 67 68 69 & over
-------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
2 88.9% 88.8% 88.6% 88.5% 88.4% 88.2% 88.1% 88.0% 87.8% 87.7% 87.5%
3 77.8% 77.5% 77.3% 77.0% 76.7% 76.5% 76.2% 75.9% 75.6% 75.3% 75.0%
4 66.7% 65.7% 64.8% 63.8% 62.8% 61.8% 60.7% 59.6% 58.5% 57.4% 56.3%
5 55.6% 53.9% 52.3% 50.6% 48.8% 47.1% 45.2% 43.4% 41.5% 39.5% 37.5%
6 44.4% 42.1% 39.8% 37.4% 34.9% 32.4% 29.8% 27.1% 24.4% 21.6% 18.8%
7 33.3% 30.3% 27.3% 24.1% 20.9% 17.6% 14.3% 10.8% 73.% 3.7% 0.0%
8 16.7% 12.9% 9.1% 5.2% 1.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
9 5.6% 1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
10+ 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
</TABLE>
(all percentages rounded to nearest 0.1%)
Example: Assume the younger insured is 45 years old when the policy is issued
and your initial surrender charge is $1,000. The policy has no additional policy
segments. If you surrender your policy during the first policy year you would
pay 100% of the initial surrender charge, or $1,000. If you surrendered your
policy in the fourth policy year, you would pay 66.7% of the initial surrender
charge, or approximately $667.00. If you surrender your policy in the ninth
policy year you would pay 5.6% of the initial surrender charge, or approximately
$56.00.
We do not reduce or deduct the surrender charge upon a change in death benefit
option or upon a partial withdrawal. In addition, we do not reduce or deduct the
surrender charge if you reduce or eliminate your coverage under a term rider, or
reduce your face amount. The surrender charge shown on page 3 of your policy
remains in effect until you either surrender your policy for its net cash
surrender value or the policy lapses, at which time the surrender charge will be
deducted, or until the expiration of the applicable surrender charge period.
A separate surrender charge is also calculated for each new policy segment,
based on the coverage it provides and the insured's ages, sexes, and
underwriting classes when it is added to your policy. This means that the total
surrender charges under your policy will be the sum of the different surrender
charges for your initial face amount and each policy segment. The surrender
charge compensates us for administrative and sales-related expenses.
-----------------------
30 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
Surrender charges
--------------------------------------------------------------------------------
EXAMPLE (Policy with initial face amount only)
The example on the right shows how the surrender charge declines over a maximum
nine year period so that in year 10 it equals $0.
--------------------------------------------------------------------------------
Male Insured, Age 50 and Female Insured, Age 45
--------------------------------------------------------------------------------
Male: Preferred Plus Underwriting Class, Nonsmoker
Female: Preferred Plus Underwriting Class, Nonsmoker
--------------------------------------------------------------------------------
Face Amount: $500,000
--------------------------------------------------------------------------------
All figures in the table following are rounded to the nearest dollar.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Actual
surrender
Policy charge
year ($)
--------------------------------------------------------------------------------
1 4,227
--------------------------------------------------------------------------------
2 3,757
--------------------------------------------------------------------------------
3 3,287
--------------------------------------------------------------------------------
4 2,817
--------------------------------------------------------------------------------
5 2,348
--------------------------------------------------------------------------------
6 1,878
--------------------------------------------------------------------------------
7 1,409
--------------------------------------------------------------------------------
8 704
--------------------------------------------------------------------------------
9 235
--------------------------------------------------------------------------------
10 0
--------------------------------------------------------------------------------
Assume in the above example you effect a face amount increase of $250,000 at the
beginning of policy year 6 (attained age 55 Male and 50 Female) and another face
amount increase of $250,000 at the beginning of policy year 11 (attained age 60
Male and 55 Female). At the time of the first increase, both insureds are again
classified in the Preferred Plus underwriting class, but at the time of the
second increase the male is classified in the Standard underwriting class.
For the purposes of calculating the applicable surrender charges, each face
amount increase is treated separately based on the insureds' attained ages and
underwriting classes 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 first 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.
First year
Age at Policy face surrender charge
Beginning beginning amount rate per $1000
of year of year ($) ($)
--------------------------------------------------------------------------------
Initial face amount 1 45 250,000 12.609
--------------------------------------------------------------------------------
1st increase 6 50 200,000 16.029
--------------------------------------------------------------------------------
2nd increase 11 55 100,000 26.973
--------------------------------------------------------------------------------
-----------------------
P R E M I U M S , D E D U C T I O N S P R O S P E C T U S 31
A N D C H A R G E S -----------------------
<PAGE>
The following is a calculation of the surrender charge for this example. Note
that the surrender charges are shown for policy years 1 through 20 only as,
after the 20th policy year, surrender charges equal zero for the initial face
amount as well as for the two face amount increases.
Total Surrender Charge
--------------------------------------------------------------------------------
Total policy
Initial First Second surrender
Policy coverage increase increase charge
year ($) ($) ($) ($)
--------------------------------------------------------------------------------
1 4,227 NA NA 4,227
--------------------------------------------------------------------------------
2 3,757 NA NA 3,757
--------------------------------------------------------------------------------
3 3,287 NA NA 3,287
--------------------------------------------------------------------------------
4 2,818 NA NA 2,818
--------------------------------------------------------------------------------
5 2,348 NA NA 2,348
--------------------------------------------------------------------------------
6 1,878 2,635 NA 4,514
--------------------------------------------------------------------------------
7 1,409 2,342 NA 3,751
--------------------------------------------------------------------------------
8 704 2,049 NA 2,754
--------------------------------------------------------------------------------
9 235 1,757 NA 1,992
--------------------------------------------------------------------------------
10 0 1,464 NA 1,464
--------------------------------------------------------------------------------
11 0 1,171 3,644 4,815
--------------------------------------------------------------------------------
12 0 878 3,239 4,118
--------------------------------------------------------------------------------
13 0 439 2,834 3,273
--------------------------------------------------------------------------------
14 0 146 2,429 2,576
--------------------------------------------------------------------------------
15 0 0 2,024 2,024
--------------------------------------------------------------------------------
16 0 0 1,620 1,620
--------------------------------------------------------------------------------
17 0 0 1,215 1,215
--------------------------------------------------------------------------------
18 0 0 607 607
--------------------------------------------------------------------------------
19 0 0 202 202
--------------------------------------------------------------------------------
20 0 0 0 0
--------------------------------------------------------------------------------
-----------------------
32 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
Transfer charge
You may transfer your policy account value among the allocation options. If you
make more than 12 transfers within a policy year, we reserve the right to charge
you $25 for each additional transfer. We will deduct the transfer charge from
the allocation options from which you are making the transfer, and will use this
amount for our processing costs.
We will not deduct a transfer charge when:
o you make multiple transfers under your policy's dollar cost averaging
feature
o you transfer amounts as part of taking or repaying a policy loan, or
o you transfer amounts out of a variable investment option because the
investment policies of the corresponding mutual fund have materially
changed.
We do not currently deduct transfer charges.
Deductions from the Separate Account
We have the right to charge the Separate Account, the account through which we
invest your premiums in the variable investment option, for any federal, state
or local income taxes relating to the Separate Account. We also have the right
to impose additional charges if there is a change in our tax status, if the
income tax treatment of variable life insurance changes for insurance companies,
or for any other tax-related charges associated with the Separate Account or the
policies. We don't currently charge for taxes attributable to the Separate
Account.
Deductions from mutual funds
Daily deductions are made from the assets of the mutual funds to cover advisory
fees and other expenses. As a result, you pay these fees and expenses
indirectly. These expenses vary from year to year. Except as noted below, the
following chart shows the actual fees and expenses for each fund for the year
ended December 31, 1999 as a percentage of the fund's average daily net assets.
-----------------------
P R E M I U M S , D E D U C T I O N S P R O S P E C T U S 33
A N D C H A R G E S -----------------------
<PAGE>
Fees and expenses for mutual funds
<TABLE>
<CAPTION>
Other Total
expenses expenses
(after any (after any
applicable waivers applicable waivers
Advisory and expense and expense
Fund name fee reimbursements) reimbursements)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Guardian Stock Fund 0.50% 0.02% 0.52%
----------------------------------------------------------------------------------------
Guardian Small Cap Stock Fund 0.75% 0.08% 0.83%
----------------------------------------------------------------------------------------
Guardian Cash Fund 0.50% 0.03% 0.53%
----------------------------------------------------------------------------------------
Guardian Bond Fund(1) 0.50% 0.05% 0.55%
----------------------------------------------------------------------------------------
Guardian VC 500 Index Fund(1) 0.25% 0.03% 0.28%
----------------------------------------------------------------------------------------
Guardian VCAsset Allocation Fund(1) 0.50% 0.17% 0.67%
----------------------------------------------------------------------------------------
Guardian VC High Yield Bond Fund 0.60% 0.39% 0.99%
----------------------------------------------------------------------------------------
Baillie Gifford International Fund 0.80% 0.16% 0.96%
----------------------------------------------------------------------------------------
Baillie Gifford Emerging
Markets Fund 1.00% 0.44% 1.44%
----------------------------------------------------------------------------------------
Value Line Centurion Fund(1) 0.50% 0.09% 0.59%
----------------------------------------------------------------------------------------
Value Line Strategic Asset
Management Trust(1) 0.50% 0.08% 0.58%
----------------------------------------------------------------------------------------
Gabelli Capital Asset Fund 1.00% 0.08% 1.08%
----------------------------------------------------------------------------------------
MFS Emerging Growth Series(1) 0.75% 0.09% 0.84%
----------------------------------------------------------------------------------------
MFS Total Return Series(1) 0.75% 0.15% 0.90%
----------------------------------------------------------------------------------------
MFS Growth With Income Series 0.75% 0.13% 0.88%
----------------------------------------------------------------------------------------
MFS New Discovery Series(1) 0.90% 0.27% 1.17%
----------------------------------------------------------------------------------------
MFS Research Series(1) 0.75% 0.11% 0.86%
----------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73%
----------------------------------------------------------------------------------------
AIM V.I. Global Utilities Fund 0.65% 0.49% 1.14%
----------------------------------------------------------------------------------------
AIM V.I. Value Fund 0.61% 0.15% 0.76%
----------------------------------------------------------------------------------------
Davis Financial Portfolio(1) 0.75% 0.25% 1.00%
----------------------------------------------------------------------------------------
Davis Real Estate Portfolio(1) 0.75% 0.25% 1.00%
----------------------------------------------------------------------------------------
Davis Value Portfolio(1) 0.75% 0.25% 1.00%
----------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities
Portfolio (Service Class 2)(1) 0.58% 0.38% 0.96%
----------------------------------------------------------------------------------------
Fidelity VIP Equity-Income
Portfolio (Service Class 2)(1) 0.48% 0.35% 0.83%
----------------------------------------------------------------------------------------
Fidelity VIP III
Mid Cap Portfolio (Service Class 2)(1) 0.57% 0.68% 1.25%
----------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio
(Service Class 2)(1) 0.58% 0.37% 0.95%
----------------------------------------------------------------------------------------
Janus Aspen Aggressive
Growth Portfolio(1) 0.65% 0.02% 0.67%
----------------------------------------------------------------------------------------
Janus Aspen Capital Appreciation
Portfolio(1) 0.65% 0.04% 0.69%
----------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio(1) 0.65% 0.02% 0.67%
----------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth
Portfolio(1) 0.65% 0.05% 0.70%
----------------------------------------------------------------------------------------
</TABLE>
(1) See Notes to fees and expense table
-----------------------
34 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
Notes to fees and expense table
These percentages reflect the actual fees and expenses incurred by each Fund
during the year ended December 31, 1999 except for the Fidelity Portfolios,
whose expenses are estimated for the year ending December 31, 2000, and except
for Janus Funds and Guardian VC 500 Index Fund whose expenses are restated as
described below.
Guardian VC Asset Allocation Fund. Expenses do not include expenses of the
underlying funds in which the Asset Allocation Fund invests its assets.
Including the expense of the underlying funds, the Fund's total expenses would
be 0.98%.
The Guardian Bond Fund, Inc. Expenses do not include interest expense. If
interest expense were included, total expenses would be 0.57%.
The Guardian VC 500 Index Fund. Expenses are based upon expenses for the fiscal
year ended December 31, 1999, restated to reflect a reduction in the management
fee for the Fund. Expenses for the year ended December 31, 1999 were 0.29% after
applicable waivers and expense reimbursements, and 0.36% before applicable
waivers and expense reimbursements.
The Guardian VC High Yield Bond Fund. Expenses have been grossed up to include
the effects of custody credits received by the Funds. Without these credits
total expenses would have been 1.14%.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund. Total
expenses have been grossed up to include custody credit arrangements. However,
the credit received does not affect the funds' total expenses.
MFS Emerging Growth Series, MFS Total Return Series, MFS New Discovery Series,
MFS Research Series. All of the MFS funds have expense offset arrangements which
reduce their custodian fees based upon the amount of cash maintained by each
fund with its custodian. The "Total expenses" in the table do not take into
account this expense reduction and are therefore higher than the actual expenses
of each fund.
The expenses shown for MFS New Discovery Series reflect an agreement by the
Fund's adviser to bear expenses, subject to reimbursement by the Fund, such that
the Fund's "Other expenses" will not exceed 0.25% of the Fund's average daily
net assets during 1999. Reimbursement by the Fund will be accomplished by the
payment of an expense reimbursement fee by the Fund to the adviser, subject to
the maximum 0.25% described above. Effective May 1, 2000, the adviser has
contractually agreed, subject to reimbursement, to bear expenses for the New
Discovery Series such that the New Discovery Series' "Other expenses" (after
taking into effect expense offset arrangements referred to above) will not
exceed 0.15%. This arrangement will continue until at least May 1, 2001,
-----------------------
P R E M I U M S , D E D U C T I O N S P R O S P E C T U S 35
A N D C H A R G E S -----------------------
<PAGE>
unless changed with the consent of the board of trustees which oversees the
Series.
Please see the Fund's prospectus for a complete explanation of the Fund's fees
and expenses.
Davis Value Portfolio, Davis Financial Portfolio and Davis Real Estate
Portfolio. Had the adviser not absorbed certain expenses, the ratio of expenses
to average net assets would have been 2.29%, 4.24%, and 11.70% for Davis Value
Portfolio, Davis Financial Portfolio and Davis Real Estate Portfolio,
respectively.
Fidelity VIP III Growth Opportunities Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP III Mid Cap Portfolio, and Fidelity VIP II Contrafund
Portfolio. Service Class 2 share expenses premiums, deductions and charges are
based on estimated expenses for the first year and are without reimbursement.
Janus Aspen Aggressive Growth Portfolio, Janus Aspen Capital Appreciation
Portfolio, Janus Aspen Growth Portfolio, and Janus Aspen Worldwide Growth
Portfolio. Expenses are based upon expenses for the fiscal year ended December
31, 1999, restated to reflect a reduction in the management fee for these
Portfolios. All expenses are shown without the effect of expense offset
arrangements.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund. The
operational expenses for Value Line Strategic Asset Management Trust and Value
Line Centurion Fund reflect expense reimbursements paid by those funds to us for
certain administrative and shareholder servicing expenses that we incur on their
behalf. For the year ended December 31, 1999, we were reimbursed $857,868 by
Value Line Strategic Asset Management Trust, and $586,401 by Value Line
Centurion Fund.
We have also entered into agreements with certain fund advisers under which we
will be reimbursed for certain administrative, distribution or other expenses
that we incur as a result of offering certain funds, including the MFS, AIM,
Davis, Fidelity and Janus funds, to our policyowners. The amount of compensation
may be based on assets of the fund attributable to policies we issue and may
vary from adviser to adviser.
-----------------------
36 P R O S P E C T U S P R E M I U M S , D E D U C T I O N S
----------------------- A N D C H A R G E S
<PAGE>
--------------------------------------------------------------------------------
YOUR ALLOCATION OPTIONS
--------------------------------------------------------------------------------
AS PART OF YOUR POLICY you are able to direct where a portion of your premiums
are allocated. There are several variable investment options and a fixed-rate
option. You may choose up to 20 allocation options at any time.
--------------------------------------------------------------------------------
THE VARIABLE INVESTMENT OPTIONS
The variable investment options give you the opportunity to invest a portion of
your net premiums, indirectly, in a series of mutual funds offering variable
rates of return. The value of your investments will vary depending on the
performance of the mutual funds. There is no minimum guaranteed policy account
value for the portion of your policy that is held in the variable investment
options.
The Separate Account
The Separate Account is the account through which we invest your net premiums in
the variable investment options. We are the record owner of the assets in the
Separate Account, and use them exclusively to support the variable life
insurance policies issued through the Separate Account. The Separate Account
consists of 31 investment divisions, each corresponding to a mutual fund in
which the Separate Account invests. The Separate Account was established by
GIAC's Board of Directors on September 23, 1999 under the insurance law of the
state of Delaware, and meets the definition of a separate account under the
federal securities laws. Our Separate Account is registered with the SEC as a
unit investment trust - a type of investment company under the Investment
Company Act of 1940 (the 1940 Act). 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. However, both GIAC and the Separate Account are
subject to regulation under Delaware law. GIAC is also subject to the insurance
laws and regulations of all states and jurisdictions where the company is
authorized to do 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 these 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.
-----------------------
Y O U R A L L O C A T I O N O P T I O N S P R O S P E C T U S 37
-----------------------
<PAGE>
Each mutual fund is described briefly below. Complete information can be found
in the accompanying fund prospectuses.
The Funds
Each of the funds corresponding to a variable investment option is either an
open-end diversified management company or a series of an open-end diversified
management company registered with the Securities and Exchange Commission. The
funds don't charge us for buying or selling their shares, allowing us to buy and
sell them at their net asset value in response to your instructions and other
policy-related transactions.
Currently, other investment products that we and other insurers offer are also
able to invest in certain of the mutual funds through the Separate Account.
While the Board of Directors of each fund monitors activities in an effort to
avoid or correct any material irreconcilable conflicts arising out of this
arrangement, we may also take actions to protect the interests of our
policyowners. For more information see Rights reserved by GIAC, and the
prospectuses for the individual mutual funds.
Investment objectives and policies of the funds
Each fund has a different investment objective that it tries to achieve by
following certain investment policies. These objectives affect the potential
risks and returns for each fund, and there is no guarantee that a fund will be
able to meet its investment objectives fully. Some funds have similar investment
objectives and policies to other funds managed by the same adviser. The
investment results of the funds, however, may be higher or lower than the
adviser's other funds. There is no assurance, and we make no representation,
that the performance of any fund will be comparable to the performance results
of any other fund.
The table below summarizes each fund's investment objective, along with the
typical investments that make up that fund.
-----------------------
38 P R O S P E C T U S Y O U R A L L O C A T I O N O P T I O N S
-----------------------
<PAGE>
Variable investment options
<TABLE>
<CAPTION>
Fund Investment objectives Typical investments
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Guardian Stock Fund Long-term growth of capital U.S. common stocks
--------------------------------------------------------------------------------------------------------------------------------
The Guardian VC 500 Index Fund Seeks to match the investment performance Common stocks of companies in the S&P
of the Standard & Poor's 500 Corporate Index, which emphasizes large U.S.
Stock Price Index ("the S&P Index") Companies
--------------------------------------------------------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund Long-term growth of capital U.S. common stocks of companies
with small market capitalization
--------------------------------------------------------------------------------------------------------------------------------
The Guardian Bond Fund Maximum income without undue Investment grade debt obligations
risk of principal; capital appreciation
is a secondary objective
--------------------------------------------------------------------------------------------------------------------------------
The Guardian VC High Yield Bond Fund Current income; capital appreciation is Corporate bonds and other debt
a secondary objective securities rated below investment grade
--------------------------------------------------------------------------------------------------------------------------------
The Guardian Cash Fund High level of current income consistent Money market instruments
with liquidity and preservation of
capital
--------------------------------------------------------------------------------------------------------------------------------
The Guardian VC Asset Allocation Fund Long-term total investment return Shares of The Guardian Stock Fund, The
consistent with moderate investment risk Guardian Bond Fund, and The Guardian
Cash Fund
--------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford International Fund Long-term capital appreciation Common stocks and convertible securities
issued by foreign companies
--------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Long-term capital appreciation Common stocks and convertible securities of
emerging market companies
--------------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund Long-term growth of capital U.S. common stocks with selections based on
rankings of the Value Line Ranking System
--------------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset High total investment return (current U.S. common stocks with selections
Management Trust income and capital appreciation) based on rankings of the Value Line
consistent with reasonable risk Ranking System, bonds and money
market instruments
--------------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund Growth of capital; current income as U.S. common stocks and convertible
a secondary objective securities
--------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund Growth of capital Common stocks of medium and
small-sized growth companies
--------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Global Utilities Fund High current income; growth of capital Common and preferred stocks
as a secondary objective of domestic or foreign public utilities
--------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund Long-term growth of capital; Equity securities judged to be
income as a secondary objective undervalued by the investment advisor
--------------------------------------------------------------------------------------------------------------------------------
Davis Financial Portfolio Growth of capital Common stocks of financial companies
--------------------------------------------------------------------------------------------------------------------------------
Davis Real Estate Portfolio Total return through a combination of Securities issued by companies that are
growth and income "principally engaged" in real estate
--------------------------------------------------------------------------------------------------------------------------------
Davis Value Portfolio Growth of capital U.S. common stocks of companies with
at least $5 billion market capitalization
--------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio Long-term capital appreciation U.S. and foreign common stocks of
companies believed to be undervalued
--------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio Reasonable income; also considers Income-producing equity securities
potential for capital appreciation
--------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities Capital growth U.S. and foreign common stocks
Portfolio
--------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Mid Cap Portfolio Long-term growth of capital Common stocks with medium market
capitalization, both U.S. and foreign
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------
Y O U R A L L O C A T I O N O P T I O N S P R O S P E C T U S 39
-----------------------
<PAGE>
Variable investment options (Continued)
<TABLE>
<CAPTION>
Fund Investment objectives Typical investments
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Janus Aspen Aggressive Long-term growth of capital Equity securities of medium-sized
Growth Portfolio companies
--------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Capital Long-term growth of capital Equity securities of companies of any size
Appreciation Portfolio
--------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio Long term growth of capital Common stocks of issuers of any size
in a manner consistent with
preservation of capital
--------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Long term growth of capital Common stocks of foreign and U.S.
Growth Portfolio in a manner consistent with issuers; usually invests in at least five
preservation of capital countries, including the U.S.
--------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series Long-term growth of capital Common stocks of emerging growth
companies of any size
--------------------------------------------------------------------------------------------------------------------------------
MFS Growth with Income Series Reasonable current income and long- Equity securities issued by U.S. and
term growth of capital and income foreign companies
--------------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series To seek capital appreciation Equity securities of companies that offer
superior prospects for growth, both U.S.
and foreign
--------------------------------------------------------------------------------------------------------------------------------
MFS Research Series Long-term growth of capital Equity securities of companies
and future income believed to possess better than average
prospects for long-term growth
--------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series Above average income consistent Broad list of securities, including a
with prudent employment of capital; combination of equity and fixed-
as a secondary objective, to provide income, both U.S. and foreign
reasonable opportunity for growth of
capital and income
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Some of these Funds may not be available in your state.
-----------------------
40 P R O S P E C T U S Y O U R A L L O C A T I O N O P T I O N S
-----------------------
<PAGE>
--------------------------------------------------------------------------------
Total returns do not reflect deductions
These total returns are for the funds only and do not reflect the effects of
deductions from policy premiums, monthly deductions, or transaction deductions.
Including the effects of these deductions reduces returns under the policy. See
Special terms used in this prospectus and Deductions and charges for additional
information.
--------------------------------------------------------------------------------
Investment performance of the Funds
The table below shows the average annual total returns for the mutual funds for
years ended December 31, 1999. The performance figures reflect the deduction of
fund investment advisory fees and operating expenses, and assume that any
dividends and capital gains are reinvested in the fund. These figures do not
reflect how the funds' investment performance will affect the value of your
policy, because they do not take into account the insurance and other charges we
deduct from your policy. If these charges were taken into account, total returns
would be lower. Also, past returns should not be used to predict future
performance. Total returns for The Guardian Cash Fund are not presented here.
Years ended December 31, 1999
----------------------------------
10 Years
or since
Fund name inception,
and inception date 1 Year 5 Years if less
--------------------------------------------------------------------------------
The Guardian Stock Fund(1)
(4/13/83) 31.17% 29.48% 20.04%
--------------------------------------------------------------------------------
The Guardian VC 500 Index Fund
(9/13/99) N/A N/A 6.38%*
--------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
(7/16/97) 35.04% N/A 16.25%*
--------------------------------------------------------------------------------
The Guardian Bond Fund(1)
(5/1/83) -0.84% 7.16% 7.27%
--------------------------------------------------------------------------------
The Guardian VC High Yield Bond Fund
(9/13/99) N/A N/A 2.78%*
--------------------------------------------------------------------------------
The Guardian VC Asset Allocation Fund
(9/13/99) N/A N/A 8.67%*
--------------------------------------------------------------------------------
Baillie Gifford International Fund
(2/8/91) 39.11% 19.35% 16.01%*
--------------------------------------------------------------------------------
Baillie Gifford Emerging
Markets Fund
(10/17/94) 72.30% 9.76% 6.71%*
--------------------------------------------------------------------------------
Value Line Centurion Fund
(11/15/83) 28.23% 26.67% 19.48%
--------------------------------------------------------------------------------
Value Line Strategic Asset
Management Trust
(10/1/87) 24.32% 22.24% 16.94%
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund(2)
(5/1/95) 19.81% N/A 19.49%*
--------------------------------------------------------------------------------
AIM V.I. Capital
Appreciation Fund(3)
(5/5/93) 44.61% 25.59% 22.33%*
--------------------------------------------------------------------------------
AIM V.I. Global Utilities Fund(3)
(5/2/94) 33.56% 21.87% 18.45%*
--------------------------------------------------------------------------------
AIM V.I. Value Fund(3)
(5/5/93) 29.90% 27.23% 23.07%*
--------------------------------------------------------------------------------
Davis Financial Portfolio(4)
(7/1/99) N/A N/A -7.17%*
--------------------------------------------------------------------------------
Davis Real Estate Portfolio(4)
(7/1/99) N/A N/A -10.79%*
--------------------------------------------------------------------------------
Davis Value Portfolio(4)
(7/1/99) N/A N/A 2.64%*
--------------------------------------------------------------------------------
-----------------------
Y O U R A L L O C A T I O N O P T I O N S P R O S P E C T U S 41
-----------------------
<PAGE>
Years ended December 31, 1999
----------------------------------
10 Years
or since
Fund name inception,
and inception date 1 Year 5 Years if less
--------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio
(Service Class 2)(5)
(1/3/95) N/A N/A N/A
--------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio
(Service Class 2)(5)
(10/9/96) N/A N/A N/A
--------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities
Portfolio (Service Class 2)(5)
(1/3/95) N/A N/A N/A
--------------------------------------------------------------------------------
Fidelity VIP III Mid Cap Portfolio
(Service Class 2)(5)
(12/28/98) N/A N/A N/A
--------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio(6)
(9/13/93) 125.40% 36.23% 34.42%*
--------------------------------------------------------------------------------
Janus Aspen Capital Appreciation Portfolio(6)
(5/1/97) 67.00% N/A 57.18%*
--------------------------------------------------------------------------------
Janus Aspen Growth Portfolio(6)
(9/13/93) 43.98% 29.89% 24.28%*
--------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio(6)
(9/13/93) 64.45% 33.60% 29.71%*
--------------------------------------------------------------------------------
MFS Emerging Growth Series(7)
(7/24/95) 76.71% N/A 36.44%*
--------------------------------------------------------------------------------
MFS Growth with Income Series(7)
(10/9/95) 6.69% N/A 21.12%*
--------------------------------------------------------------------------------
MFS New Discovery Series(7)
(5/1/98) 73.41% N/A 40.91%*
--------------------------------------------------------------------------------
MFS Research Series(7)
(7/26/95) 24.05% N/A 22.86%*
--------------------------------------------------------------------------------
MFS Total Return Series(7)
(1/3/95) 3.08% N/A 15.42%*
--------------------------------------------------------------------------------
* since inception
These total returns are for the funds only and do not reflect the effects of
deductions from policy premiums, monthly deductions, transaction deductions or
any deductions from the Separate Account. Including the effects of these
deductions reduces returns. See Special terms used in this prospectus and
Deductions and charges for additional information.
(1) 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 reimbursements, results
for these funds would be lower. The inception date for The Guardian Small
Cap Stock Fund is the date of commencement of the public offering of the
fund.
(2) 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.
(3) Total returns for AIM V.I. Value Fund, AIM V.I. Capital Appreciation Fund
and AIM V.I. Global Utilities Fund reflect the effects of fee waivers
and/or expense offset arrangements. In the absence of such arrangements
total returns would have been lower.
(4) Total returns for Davis Financial, Davis Real Estate and Davis Value
Portfolios reflect the effects of fee waivers and/or expense offset
arrangements. In the absence of such arrangements, total returns would
have been lower.
(5) Service Class 2 is a new class of shares issued by the Portfolio and no
historical performance is yet available.
(6) Total returns for Janus Aspen Aggressive Growth, Janus Aspen Capital
Appreciation, Janus Aspen Growth and Janus Aspen Worldwide Growth
Portfolios reflect the effects or fee waivers and/or expense offset
arrangements. In the absence of such arrangements total returns would have
been lower.
(7) Total returns for the MFS Growth With Income Series, Emerging Growth
Series, New Discovery Series, Research 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 0.25% of the average daily net assets of the
series for each fiscal year since inception. In the absence of this
agreement, except where a series is reimbursing its adviser for previous
years' expense payments on its behalf, total returns would be lower.
-----------------------
42 P R O S P E C T U S Y O U R A L L O C A T I O N O P T I O N S
-----------------------
<PAGE>
The funds' investment advisers
All of the funds' investment advisers are registered as investment advisers
under the Investment Advisers Act of 1940 (Advisers Act).
Guardian Investor Services Corporation
The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian Bond
Fund, The Guardian Cash Fund, The Guardian VC Asset Allocation Fund, The
Guardian VC High Yield Bond Fund, and The Guardian VC 500 Index Fund (the
Guardian funds) are advised by Guardian Investor Services Corporation (GISC), 7
Hanover Square, New York, New York, 10004. GISC is wholly owned by GIAC.
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 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. BG Overseas
is wholly owned by Baillie Gifford & Co., which is currently one of the largest
investment management partnerships in the United Kingdom.
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 a member of IMRO. No separate or additional fee is paid by the
fund to BG Overseas.
Value Line, Inc.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund are
advised by Value Line, Inc., 220 East 42nd Street, New York, New York 10017.
Gabelli Funds, LLC
Gabelli Capital Asset Fund is managed by GISC, which has appointed Gabelli
Funds, LLC as the investment adviser to the Fund. The adviser has its principal
offices at One Corporate Center, Rye, New York 10580. No separate or additional
fee is paid by the Fund to the adviser.
-----------------------
Y O U R A L L O C A T I O N O P T I O N S P R O S P E C T U S 43
-----------------------
<PAGE>
Massachusetts Financial Services Company
MFS Growth With Income Series, MFS Emerging Growth Series, MFS Total Return
Series, MFS Research Series, and MFS New Discovery Series are advised by
Massachusetts Financial Services Company (MFS), 500 Boylston Street, Boston, MA.
MFS is a subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings,
Inc. which is itself an indirect wholly owned subsidiary of Sun Life Assurance
Company of Canada.
A I M Advisors, Inc.
AIM V.I. Value Fund, AIM V.I. Global Utilities 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.
Fidelity Management & Research Company
The Fidelity VIP III Growth Opportunities Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP II Contrafund Portfolio, and Fidelity VIP III Mid Cap
Portfolio are advised by Fidelity Management & Research Company (FMR), 82
Devonshire Street, Boston, Massachusetts 02109.
On behalf of the Fidelity VIP II Contrafund Portfolio, Fidelity VIP III Growth
Opportunities Portfolio, and Fidelity VIP III Mid Cap Portfolio, FMR has
sub-advisory agreements with two affiliates, FMR U.K. and FMR Far East. No
separate or additional fee is paid by the portfolios to the sub-adviser.
Davis Selected Advisers, LP
Davis Financial Portfolio, Davis Real Estate Portfolio, and Davis Value
Portfolio are advised by Davis Selected Advisers, LP, 2949 East Elvira Road,
Suite 101, Tucson, Arizona 85706 (Davis). Davis Selected Advisers-NY, Inc. acts
as sub-adviser to the Funds. It is located at 609 Fifth Avenue, New York 10017.
Janus Capital Corporation
Janus Aspen Growth Portfolio, Janus Aspen Aggressive Growth Portfolio, Janus
Aspen Capital Appreciation Portfolio, and Janus Aspen Worldwide Growth Portfolio
are advised by Janus Capital Corporation (Janus), 100 Fillmore Street, Denver,
Colorado 80206.
-----------------------
44 P R O S P E C T U S Y O U R A L L O C A T I O N O P T I O N S
-----------------------
<PAGE>
Fixed-rate option
--------------------------------------------------------------------------------
The net premiums you allocate to the fixed-rate option earn a set rate of
interest. Your policy account value in the fixed-rate option is backed by GIAC's
general account.
THE FIXED-RATE OPTION
The net premiums you allocate to the fixed-rate option earn a set rate of
interest. You may allocate some or all of your net premiums to the fixed-rate
option, and may transfer some or all of your investments in the variable
investment options into the fixed-rate option. There are restrictions on making
transfers out of the fixed-rate option. See Transfers between the investment
options. Your policy account value in the fixed-rate option is backed by GIAC's
general account.
We have not registered the fixed-rate option or our general account as
investment companies, and interests in the fixed-rate option are not registered
under the Securities Act of 1933. The SEC staff does not review the prospectus
disclosure about the fixed-rate option or the general account, but the
information we present may be subject to certain generally applicable provisions
of the federal securities laws regarding the accuracy and completeness of
information appearing in a prospectus.
Amounts in the fixed-rate option
The total amount that you have invested in the fixed-rate option consists of:
o the portion of your net premiums and any loan repayments that you have
allocated to this option, plus
o any amounts that you have transferred to this option from the variable
investment options, plus
o the interest paid on your policy account value in this option, minus
o any deductions or withdrawals from the fixed-rate option, including
applicable charges.
Because different interest rates may be in effect as you make transfers and
contributions, your effective interest rate at any time may be a weighted
average of the different rates which apply to the portions of your policy
account value in the fixed-rate option. Interest accrues daily on the total that
you have invested in the fixed-rate option, including interest you have earned
in previous years. The minimum annual interest rate for the fixed-rate option is
4%. Interest rates may be changed at any time in our discretion. We are not
obliged to pay more than 4% in interest, although we may choose to do so.
Deductions from the fixed-rate option are made from amounts in the fixed-rate
option in the order in which they were added, beginning with amounts held there
the longest.
-----------------------
Y O U R A L L O C A T I O N O P T I O N S P R O S P E C T U S 45
-----------------------
<PAGE>
--------------------------------------------------------------------------------
SPECIAL FEATURES OF YOUR POLICY
--------------------------------------------------------------------------------
Policy loans
--------------------------------------------------------------------------------
While the insured is alive, you may borrow all or a portion of the loan value of
your policy, by assigning your policy to us as collateral for your loan.
POLICY LOANS
While either insured is alive, you may borrow all or a portion of the loan value
of your policy, by assigning your policy to us as collateral for your loan. Your
policy's loan value is:
o 90% of the cash surrender value of your policy on the date we receive your
written request, minus
o the amount of any outstanding policy debt, minus
o any interest due at the next policy anniversary on the outstanding policy
debt, minus
o any interest that will be due at the next policy anniversary on the amount
being borrowed.
The minimum loan amount is $500, or your policy's loan value, whichever is less.
We will normally pay loan proceeds to you within seven days of receiving your
request (see Policy proceeds for exceptions to this general rule).
We will not process any loan request that does not specify the variable
investment options from which the loan should be taken, or that exceeds the
amount available.
When taking out a policy loan, you should consider:
o amounts transferred out of the variable and fixed-rate options and into
our Loan Account are no longer affected by the investment experience,
positive or negative, or interest crediting, of those allocation options
o as a result, taking a policy loan will have a permanent effect on your
policy account value, even after the loan is repaid in full
o the amount of your policy that is available for withdrawal or surrender,
and your policy's death benefit proceeds, will also be reduced
dollar-for-dollar by the amount of any policy debt
o if your policy is considered to be a modified endowment contract under the
Internal Revenue Code, there may be tax consequences associated with
taking a policy loan. See Tax considerations for a discussion of modified
endowment contracts and the effects on policy loans
When you request a loan, we will first transfer that amount from the policy
account value in the variable investment options that you specify in your
request. If the amount of the loan requested exceeds the policy account value in
all variable investment options, we will transfer the excess from your policy
account value in the fixed-rate option into our Loan Account.
The investments in the Loan Account will earn interest at a minimum annual rate
of 4%. We credit this interest monthly to the Loan Interest Account.
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46 P R O S P E C T U S S P E C I A L F E A T U R E S
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Interest on policy loans
--------------------------------------------------------------------------------
We charge interest at an annual rate of 5% on all outstanding policy debt,
payable in arrears, until the 20th anniversary of your policy. After this point
the annual rate falls to 4.5% for all existing and new policy loans.
Interest on your policy loan
We charge simple interest that accrues daily at an annual rate of 5% on all
outstanding policy debt, payable in arrears, until the 20th anniversary of your
policy. After this, the annual rate falls to 4.5% for all existing and new
policy loans. Interest accrues daily and is due on each policy anniversary. If
you do not pay the interest on your loan when it is due, the amount will be
capitalized and added to the Loan Account. The maximum amount of loan interest
that can be capitalized and added to the Loan Account is 100% of the policy's
net cash surrender value.
We transfer the required amount from the Loan Interest Account to the Loan
Account. After the transfer, any amount remaining in the Loan Interest Account
is transferred to the variable investment options and the fixed-rate option in
accordance with the current premium allocation instructions. If the amount in
the Loan Interest Account is not sufficient to cover the loan interest due, any
deficiency will be transferred proportionately from the amounts in the variable
investment options and the fixed-rate option.
Repaying your policy loan
Except for required loan repayments, you may repay all or part of any
outstanding policy debt at any time while the insured is alive and the policy is
in force. The minimum loan repayment amount is $100 or the outstanding balance
of your policy debt, whichever is lower.
If the surviving insured has died and the death benefit proceeds have not been
paid, either in cash or under a payment option, you have 60 days after his or
her death to repay any policy debt. If you do, we will then increase the amount
payable to the beneficiary by the amount of your repayment.
Except for required loan repayments (see below), we will apply a loan repayment
first to the payment of loan interest due but not yet capitalized, then to
reduce amounts in the Loan Account and then to policy interest accrued since the
last policy anniversary but not yet due. We credit any repayment applied to
reduce amounts in the Loan Account to the variable investment options and the
fixed-rate option according to your current allocation instructions. The amount
credited to the fixed-rate option will earn the interest rate in effect at that
time until the next policy anniversary.
Transfers under your policy that are made in connection with policy loans are
not subject to transfer charges. Also, loan repayments are not subject to
premium charges, so it may be to your advantage, if you have outstanding loans
or interest, to make loan repayments rather than premium payments.
If, on any monthly processing date, you owe more in loans and interest than your
cash surrender value, we will notify you that a loan repayment is required for
your policy to remain in force. Your policy will lapse without value 61 days
after the default date set out
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S P E C I A L F E A T U R E S P R O S P E C T U S 47
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<PAGE>
in our notice if we do not receive a payment equal to the amount by which your
policy debt exceeds the cash surrender value on the monthly processing date in
question.
If the surviving insured dies after we have sent this notice, but before the 61
days are up, we will pay the beneficiary the death benefit proceeds, minus any
policy debt and unpaid interest.
There may be adverse tax consequences if your policy lapses and you have
outstanding policy debt.
Decreasing the face amount
--------------------------------------------------------------------------------
On and after the first policy anniversary, you may request a reduction in its
face amount, which is the guaranteed minimum amount your policy will pay at
death or maturity.
DECREASING THE FACE AMOUNT
On and after the first policy anniversary, you may request a reduction in face
amount, which is the guaranteed minimum amount your policy will pay at death. To
do this we require that:
o you make your request in writing and we receive it at our customer service
office
o at least one insured is alive when we receive your request
o the reduction is at least $5,000 unless it is caused by a partial
withdrawal, in which case the partial withdrawal rules apply, and
o the new face amount is not lower than our minimum face amount, currently
$250,000.
We reduce your face amount on the monthly processing date coinciding with or
next following the date we approve your request.
Your death benefit option will determine how your policy is affected by a
reduction in the face amount due to a partial withdrawal:
o under Option 1, a partial withdrawal will typically cause an immediate
reduction in your policy's face amount
o under Option 2, a partial withdrawal will not reduce your policy's face
amount. However, the amount of your death benefit will decline with each
partial withdrawal.
o under Option 3, a partial withdrawal will typically not cause an immediate
reduction in your policy's face amount. However, the amount of your death
benefit will decline with each partial withdrawal.
If you have made one or more increases to the initial face amount by adding
policy segments and then request a face amount decrease, we will apply the
decrease to your policy segments as follows. We start with the most recent
policy segment, followed by the next most recent, and so on, and then reduce the
additional sum insured portion of the initial face amount and, finally, reduce
the basic sum insured portion of the initial face amount.
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48 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
Since we do not deduct a surrender charge when you decrease the face amount, the
surrender charge does not change. Your policy account value must always be
greater than the surrender charge. Further, the administrative charge per $1,000
of coverage is not reduced by a decrease in face amount.
We will send you policy pages that reflect the changes resulting from your
reduction in the face amount.
Reducing the face amount of your policy may have tax consequences, including
possibly causing it to be considered a modified endowment contract under the
Internal Revenue Code. A decrease in face amount may also reduce federal tax law
limits on what you can put into the policy. In these cases you may need to have
a portion of the policy's cash value paid to you to comply with federal tax law.
See Tax considerations.
You can also reduce or cancel coverage provided by the Survivorship Adjustable
Annual Renewable Term rider. A reduction in the face amount of the Survivorship
Adjustable Annual Renewable Term rider will not affect the face amount of your
policy. Likewise, you can decrease the face amount of your policy without
reducing the coverage of your term rider.
Consult your sales representative for advice. See Appendix C for more
information on the Survivorship Adjustable Annual Renewable Term rider.
INCREASING THE FACE AMOUNT
Provided both insureds are living, on any policy anniversary up to and including
the anniversary closest to the younger insured's 70th birthday, you may ask us
to increase your policy's face amount. To do this we require that:
o you make your request in writing and we receive it at our customer service
office at least 30 days before your policy anniversary
o at the time of the increase, the younger insured must be at most age 70
and the other insured at most age 90
o you prove that the insureds meet our insurance requirements, and
o the increase be at least $10,000.
If we approve the increase, it will take effect on the policy anniversary on or
after we receive the request, provided the insureds are alive on that date.
We'll send you revised policy pages reflecting the changes to your policy.
We'll issue the increase in the form of a separate policy segment. Each policy
segment has its own underwriting class, rate for cost of insurance, surrender
charges, administrative charges, premium charge, target premium, and, during the
first three policy years,
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S P E C I A L F E A T U R E S P R O S P E C T U S 49
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<PAGE>
minimum annual premium.
After an increase in the face amount takes effect, to calculate premium charges
we will allocate premium payments first to the initial face amount and then to
each policy segment, starting with the oldest policy segment and ending with the
most recent one. We'll allocate premiums in such a way that they won't exceed
the annual target premium for the initial face amount or for each policy
segment. When the sum of the premiums paid during a policy year exceeds the
target premium for the initial face amount, we will allocate the excess to the
first policy segment. If the premiums you pay during a policy year exceed the
target premiums for all the policy segments and the initial face amount, we'll
allocate the excess proportionately according to the target premiums for the
initial face amount and each policy segment.
If you increase the face amount of your policy, it will be subject to new
surrender charges. We'll calculate the surrender charges as if you had bought a
new policy for the increase in the face amount. A new maximum 9-year surrender
charge will apply to the policy segment that increased the face amount. We'll
notify you about the new surrender charge after any increase in the face amount.
You don't have to pay an additional premium to increase the face amount.
However, you may have to make a premium payment to prevent the policy from going
into default. That's because the new surrender charges triggered by an increase
in the face amount would automatically reduce the net cash surrender value of
the policy. Depending on your circumstances, a premium payment may be necessary
to keep the net cash surrender value above zero.
Increasing the face amount of your policy may have tax consequences, including
possibly causing your policy to be considered a modified endowment contract. The
tax consequences associated with your policy being classified as a modified
endowment contract are discussed in Tax considerations.
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50 P R O S P E C T U S S P E C I A L F E A T U R E S
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Partial withdrawals
--------------------------------------------------------------------------------
After the first policy year, you may withdraw part of your policy's net cash
surrender value. The minimum partial withdrawal is $500.
PARTIAL WITHDRAWALS
After the first policy year, you may withdraw part of your policy's net cash
surrender value. You must make your request for withdrawal in writing, and at
least one insured must be alive when you make the withdrawal. The minimum
partial withdrawal is $500. We have the right to limit the number of partial
withdrawals you make in a policy year to 12.
If we approve your request, it will be effective as of the business day we
receive it at our customer service office. The proceeds will normally be paid
within seven days of the time we receive your request. For exceptions to this
general rule see Policy proceeds. We will not approve or process a partial
withdrawal if:
o your remaining net cash surrender value would be insufficient to cover
three times the most recent monthly deduction, or
o you have chosen death benefit Option 1 or Option 3 and the partial
withdrawal would cause your policy's face amount to fall below our minimum
face amount, or
o you do not specify the variable investment options from which the
withdrawal is to be deducted, or
We will tell you if these conditions apply.
A partial withdrawal will reduce your policy account value by the amount of the
partial withdrawal. In addition the face amount will be reduced by the amount of
any partial withdrawal that exceeds the reduction-free partial withdrawal
amount. So if you wish to make a partial withdrawal that does not reduce your
face amount, you should make a reduction-free partial withdrawal. The amount of
your reduction-free partial withdrawal depends on the death benefit option in
effect and is calculated as shown below. If you have increased your policy's
face amount by adding policy segments, we will reduce the face amount starting
with the most recent policy segment, and ending with the additional sum insured
and the basic sum insured, in that order. See Decreasing the face amount.
We will calculate the reduction-free partial withdrawal amount as of the close
of business on the date we receive your request. This amount will be affected by
which death benefit option you have chosen.
If you have chosen death benefit Option 1, your reduction-free partial
withdrawal amount is any positive amount resulting from:
o your policy account value, minus
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S P E C I A L F E A T U R E S P R O S P E C T U S 51
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<PAGE>
o your policy's face amount divided by the death benefit factor outlined in
your policy.
If you have chosen death benefit Option 2, all partial withdrawals are
reduction-free.
If you have chosen death benefit Option 3, your reduction-free partial
withdrawal amount is the greater of:
o your net accumulated premiums immediately prior to the partial withdrawal,
or
o any positive amount resulting from:
o your policy account value, minus
o your policy's face amount divided by the death benefit factor
outlined in your policy.
We deduct the amount of your withdrawal from the policy account value
attributable to the variable investment options that you specified in your
request. If the partial withdrawal exceeds the policy account value attributable
to all variable investment options, we will deduct the excess amount from the
policy account value attributable to the fixed-rate option.
The tax consequences of making partial withdrawals are discussed under Tax
considerations.
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52 P R O S P E C T U S S P E C I A L F E A T U R E S
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Surrendering your policy
--------------------------------------------------------------------------------
You may surrender your policy for its net cash surrender value while the insured
is alive. Your policy's net cash surrender value will normally be paid within
seven days of the time we receive your request.
SURRENDERING YOUR POLICY
You may surrender your policy for its net cash surrender value while either
insured is alive. We will calculate your policy's net cash surrender value as of
the close of the business day we receive your written request, which must
include your policy, or an acceptable affidavit confirming that you've lost your
policy, at our customer service office. Your policy's net cash surrender value
will normally be paid within seven days of the time we receive your request.
Your policy's net cash surrender value will be calculated as follows:
o your policy account value, including any amount held in the Loan Account
and Loan Interest Account, minus
o any surrender charges, minus
o any outstanding policy debt.
Your total surrender charges will be the total of the surrender charges for the
initial face amount, and for any policy segments. See Deductions and charges.
--------------------------------------------------------------------------------
Example
Surrender in policy year 5
--------------------------------------------------------------------------
Male insured, Age 50; Female insured, Age 45
--------------------------------------------------------------------------
Male: Preferred Plus Underwriting Class
Female: Preferred Plus Underwriting Class
--------------------------------------------------------------------------
Face Amount: $500,000
--------------------------------------------------------------------------
Annual Policy Premium: $4,696
--------------------------------------------------------------------------
Assuming, 6% hypothetical gross return: (5.19% net return)
(See Appendix A)
--------------------------------------------------------------------------
Policy Account Value $19,132
------------------------------- -----------------------------
Surrender Charge 2,348
------------------------------- -----------------------------
Policy Debt 0
------------------------------- -----------------------------
Net Cash Surrender Value $16,784
--------------------------------------------------------------------------------
All insurance coverage will end on the day we calculate your policy's net cash
surrender value. For a discussion of the tax consequences of surrendering your
policy, see Tax considerations.
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S P E C I A L F E A T U R E S P R O S P E C T U S 53
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Transfers
--------------------------------------------------------------------------------
You may ask us to transfer your policy account value in and out of the variable
investment options, or into the fixed-rate option, at any time. Each transfer
must be for a minimum of $500, or the total amount you have invested in the
option you are transferring funds out of, whichever is lower.
TRANSFERS BETWEEN THE INVESTMENT OPTIONS
You may ask us to transfer your policy account value in and out of the variable
investment options, or into the fixed-rate option, at any time. We will make
transfers based on the unit values at the end of the business day on which we
receive your instructions, either in writing or by telephone. You can request a
transfer by writing to our customer service office or by calling 1-800-441-6455.
Before you can request transfers over the telephone, you must first send us a
written authorization form.
Your policy account value may not be invested in more than twenty of our
allocation options at any one time. Each transfer must be for a minimum of $500,
or the total amount you have invested in the option you are transferring funds
out of, whichever is lower. If you make more than twelve transfers within a
policy year, we reserve the right to charge you $25 for each additional
transfer. We also reserve the right to limit you to one transfer every 30 days.
We do not currently charge for additional transfers. There are also restrictions
on making transfers out of the fixed-rate option, which are outlined below.
Written requests that are received after 4:00 p.m. New York time will be
effective on the next business day. We will accept transfer instructions by
telephone between 9:00 a.m. and 3:30 p.m. New York time on each business day. We
will ask callers to provide identification and a personal security code for the
policy, and will accept the instructions of anyone who can provide this
information. We may also record telephone transfer requests without notifying
the caller. If we reasonably believe that telephone instructions are genuine, we
are not liable for any losses, damages or costs resulting from a transaction. As
a result, you bear the risk of any losses caused by unauthorized or fraudulent
telephone transactions.
The rules for telephone transfers are subject to change, and we reserve the
right to suspend or withdraw this service without notice. During periods of
financial market or economic volatility, it may be difficult to contact us in
order to make a transfer by telephone. If this happens, you should send your
request to us in writing.
TRANSFERS FROM THE FIXED-RATE OPTION
You may only transfer your policy account value out of the fixed-rate option
once each policy year. We must receive your request within 30 days of your
policy anniversary. If we receive your request in the 30 days before your policy
anniversary, we will make the transfer on your policy anniversary. If we receive
your request in the 30 day period after your policy anniversary, we will make
the transfer on the business day we receive your request. We will not honor
requests to transfer investments out of the fixed-rate option that we receive at
any other time of the year.
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54 P R O S P E C T U S S P E C I A L F E A T U R E S
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When you request a transfer from the fixed-rate option, the amounts that you
have held in the fixed-rate option longest will be withdrawn first.
The maximum that you may transfer out of the fixed-rate option each policy year
is either 33 1/3% of your allocation in the fixed-rate option on the policy
anniversary on or immediately preceding the date of transfer, or $2,500,
whichever is higher. If you have less than $2,500 in the fixed-rate option, you
may transfer the entire amount.
Dollar cost averaging
--------------------------------------------------------------------------------
Under this option, you transfer the same dollar amount from The Guardian Cash
Fund to a particular variable investment option or options each month, over a
period of time. Dollar cost averaging may reduce the impact of price
fluctuations on unit values of the variable investment options over the period
that automatic transfers are made, but cannot guarantee an increase in the
overall value of your investments or offer protection against losses in a
declining market.
DOLLAR COST AVERAGING TRANSFER OPTION
Under this option, you transfer the same dollar amount from The Guardian Cash
Fund to a particular option or options each month, over a period of time. Using
dollar cost averaging, you purchase more units in the variable investment
options when their share prices are lower, and fewer units when prices are
higher. In this way, dollar cost averaging may reduce the impact of price
fluctuations on unit values of the variable investment options over the period
that automatic transfers are made. However, this strategy cannot guarantee an
increase in the overall value of your investments or offer protection against
losses in a declining market.
The amount of your monthly transfer under this option must be at least $100 for
each option you wish to invest in. Amounts will be transferred automatically on
each monthly processing date from The Guardian Cash Fund into the variable
investment options you have chosen.
Before the program can begin, you must submit an authorization form.
We will stop your dollar cost averaging program when:
o the period of time listed on your dollar cost averaging authorization form
ends
o your policy account value in The Guardian Cash Fund is insufficient to
cover your monthly investment in the variable investment options you have
chosen. If this happens we will divide what you do have in The Guardian
Cash Fund proportionally among the variable investment options you have
chosen, leaving a balance of zero in The Guardian Cash Fund
o you tell us in writing to end the program, and we receive this notice at
least three days before the next monthly processing date, or
o your policy lapses or you surrender it.
You may change your transfer instructions or reinstate the dollar cost averaging
program, subject to the rules above, if we receive a new authorization form at
least three business days before your policy's next monthly processing date.
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S P E C I A L F E A T U R E S P R O S P E C T U S 55
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<PAGE>
POLICY PROCEEDS
The amount that your beneficiaries will receive upon the death of the surviving
insured is determined as explained under Death benefit options, and is payable
when we receive proof that both insureds have died while the policy was in
effect. It is calculated as follows:
o the death proceeds based on the death benefit option in effect as of the
monthly processing date immediately preceding the surviving insured's
death, plus
o the proceeds of any coverage you have added to your policy through riders,
plus
o if you have chosen death benefit Option 3, any premiums paid between the
monthly processing date and the surviving insured's date of death, minus,
as of the date of the surviving insured's death,
o any outstanding policy debt, minus
o as of the date of the surviving insured's death, the lesser of:
o any premium required under the No Lapse Guarantee; or
o the amount required to bring the cash surrender value up to zero,
and minus
o any partial withdrawals between the monthly processing date and the
surviving insured's date of death.
We may adjust the death proceeds paid to the beneficiaries if:
o the age or sex of an insured listed on the policy application is incorrect
o an insured commits suicide within two years of the policy issue date, a
change in the face amount, or the date a change in the death benefit from
Option 1 or Option 3 to Option 2 takes effect (but only for any increase
in the death benefit over your policy's face amount that was a result of
the change)
o there are limits imposed by riders to the policy.
If the younger insured has or would have reached the attained age of 100 or
older, the death proceeds will be the policy account value minus any policy debt
as of the surviving insured's date of death.
The amount of all other transactions will be calculated at the end of the
business day on which we receive the necessary instructions, information or
documentation at our customer service office.
If the proceeds are being taken from your policy account value in the variable
investment options, we will normally pay proceeds within seven days of receiving
the necessary information. However,
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56 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
we may delay any transfers, loans or other payments made from the variable
investment options when:
o the New York Stock Exchange is closed, except for weekends or holidays, or
when trading has been restricted
o the Securities and Exchange Commission determines that a state of
emergency exists, making policy transactions impracticable, or
o when one or more of the mutual funds corresponding to the variable
investment options legally suspends payment or redemption of their shares.
We will pay interest on the death proceeds from the date of the surviving
insured's death until the proceeds are paid, either in a lump sum or through a
payment option.
If the proceeds are from your policy account value in the fixed-rate option,
they will normally be paid promptly once we have received the necessary
information. However, we may delay any transfers, loans or other payments made
from the fixed-rate option for up to six months from the date of your request.
If we do this, we will pay interest of at least 3% per year on payments that we
delay for 30 days or more. Please note that requests for transfers from the
fixed-rate option may only be made during certain periods. See Transfers from
the fixed-rate option.
Exchanging a policy
--------------------------------------------------------------------------------
You may exchange all or a portion of your Park Avenue VUL policy for a
fixed-benefit whole life policy issued by us or one of our affiliates, without
having to prove that the insureds meet our insurance requirements.
EXCHANGING A POLICY
EXCHANGE FOR FIXED-BENEFIT WHOLE LIFE INSURANCE OPTION
At any time prior to the second policy anniversary, you have the right to
exchange all or a portion of your Park Avenue SVUL policy for a fixed-benefit
whole life policy on the lives of the insureds issued by us or our affiliate,
Guardian Life, without having to prove that the insureds meet our insurance
requirements. Once exercised, this right terminates. Under the new policy, your
policy value will be held in the issuer's general account. Your face amount
cannot exceed the face amount of this policy on the date you make the exchange
nor be less than the minimum face amount under GIAC's or its affiliate's rules.
If you exchange a portion of the face amount, the face amount remaining must
meet GIAC's minimum face amount requirements. The insureds' ages when the Park
Avenue SVUL policy took effect will also be carried over. Before you can make
any exchange, however, you must repay any outstanding policy debt on your Park
Avenue SVUL policy, and all due monthly deductions must be paid. See your policy
for details. Both insureds must be alive on the date of the exchange.
The exchange may result in a cost or credit to you. The exchange cost or credit
is the greater of (a) or (b) where:
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S P E C I A L F E A T U R E S P R O S P E C T U S 57
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<PAGE>
o (a) is the cumulative premiums for the new policy (i.e., the premiums that
would have been paid to the date of exchange if the new policy had been in
force from the policy date) accumulated at an annual interest rate of 6%,
less the pro-rata portion of the cumulative premiums for this policy
(i.e., the actual premiums paid for this policy to the date of the
exchange) applicable to the face amount exchanged accumulated at an annual
interest rate of 6%; and
o (b) is the cash value of the new policy, less the pro-rata portion of this
policy's net cash surrender value on the exchange date applicable to the
face amount exchanged.
If this amount is greater than zero, you must pay the exchange cost to the
issuing company. If this amount is less than zero, the issuing company will pay
an exchange credit to you.
The new policy will be issued and effective either on the business day that we
receive your written exchange request at our customer service office along with
your policy, or on the date that any exchange cost is received by the issuer of
your new policy, whichever is later.
Additional rider benefits are available only if you provide the issuer of your
new policy with satisfactory evidence of insurability for the insureds, and will
be subject to the issuing company's rules on the exchange date.
EXCHANGE FOR FIXED BENEFIT PAID-UP INSURANCE OPTION (AVAILABLE IN NEW YORK ONLY)
On any policy anniversary, you may elect the Fixed Benefit Paid-Up Insurance
Option. To be eligible for this option, we must receive your written request to
elect this option at our customer service office on or within 30 days prior to a
policy anniversary, the insureds must be living, and the policy must have a cash
surrender value.
If you elect this option, we will transfer your policy account value to the
general account. If any policy debt is outstanding, you may apply a portion of
the policy account value to repay the policy debt. Any policy debt still
outstanding on the date this option takes effect will continue as policy debt
under this option with the same rate of interest. You may not make further
premium payments under this option and any riders attached to the policy will be
cancelled.
This option provides a level death benefit. The death benefit will be the amount
the net cash surrender value, if policy debt is being repaid, otherwise the cash
surrender value, will purchase as a net single premium at the insureds' attained
ages, sexes and underwriting classes.
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58 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
The Fixed Benefit Paid-Up Insurance Option will have a cash value and a policy
loan value. We will send you policy pages reflecting the table of guaranteed
values. The death benefit under this option will be reduced by the amount of any
outstanding policy debt. The cash value and the death benefit will be reduced
after a partial withdrawal. The new death benefit will be the current death
benefit multiplied by the ratio of the cash value after the partial withdrawal
to the cash value before the partial withdrawal. No monthly administration
charges will be deducted when this option is in effect. We will send you policy
pages reflecting the new values.
You should consult with legal and tax advisers before exchanging your policy
under either of the above options.
Payment options
--------------------------------------------------------------------------------
You have several payment options for the death or surrender proceeds from your
policy. These proceeds can either be paid in a single lump sum, or under one or
more of the payment options specified in the accompanying text.
PAYMENT OPTIONS
You have several payment options for the death or surrender proceeds from your
policy. These proceeds can either be paid in a single lump sum, or under one or
more of the payment options listed below. You may select a payment option while
an insured is living. If the surviving insured has died and you have not chosen
a payment option, the beneficiaries may choose the payment options, up to one
year after the surviving insured's death. If you are surrendering your policy,
you have 60 days after the proceeds of your policy become payable within which
to choose a payment option. You, or the beneficiaries, may choose to distribute
the proceeds under more than one payment option at a time, but you must
distribute at least $5,000 through each option selected. Monthly payments under
each option must be at least $50.
The proceeds of your policy must be paid to a 'natural person'. Payments will
not be made to his or her estate if he or she dies before the proceeds have been
fully paid. You may name a second person to receive any remaining payments if
this happens.
The proceeds that we hold in order to make payments under the payment options do
not share in the income, gains or losses of the variable investment options, nor
do they earn interest in the same way or amount as funds in the fixed-rate
option.
Under Payment Option 1, we will hold the proceeds and make monthly interest
payments at a guaranteed annual rate of 3%.
Under Payment Option 2, we 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 Payment Option 3, we will make monthly payments for a specified number of
years. The amount of the payments will include interest at 3% per year.
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Under Payment Option 4, we will make monthly payments for the longer of the life
of the payee or 10 years. The minimum amount of each payment will include
interest at 3% per year.
Under Payment Option 5, we will make monthly payments until the amount paid
equals the proceeds settled, and for the remaining life of the payee. The
minimum amount of each payment will include interest at 3% per year.
Under Payment Option 6, we will make monthly payments for 10 years and for the
remaining life of the last surviving of two payees. The minimum 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).
Your policy lists the monthly payment for every $1,000 of proceeds that the
payee applies under Options 3 to 6.
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60 P R O S P E C T U S S P E C I A L F E A T U R E S
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TAX CONSIDERATIONS
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THIS DISCUSSION of tax considerations for your Park Avenue SVUL policy is
general in nature, does not purport to be complete or to cover all tax
situations, and should not be considered as tax advice. It is based on our
understanding of federal income tax laws as they are currently being
interpreted. We cannot guarantee that these laws will not change while this
prospectus is in use, or while your policy is in force. If you are interested in
purchasing a policy, taking a policy loan or effecting policy transactions, you
should consult a legal or tax adviser regarding your particular circumstances.
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Tax status
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To qualify as a life insurance contract and to receive the tax treatment
normally accorded life insurance contracts under Federal tax law, a life
insurance policy must satisfy certain requirements which are set forth in the
Internal Revenue Code. For example, the underlying investments must be
"adequately diversified" in order for the policy to be treated as a life
insurance contract for Federal income tax purposes. It is intended that the
investment divisions of the Separate Account, through the mutual funds, will
satisfy these diversification requirements.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for federal income tax purposes
and to receive the tax treatment normally accorded life insurance contracts
under federal tax law, a life insurance policy must satisfy certain requirements
which are set forth in Section 7702 of the Internal Revenue Code. Guidance as to
how these requirements are to be applied is limited. Accordingly, there is some
uncertainty about the application of Section 7702 to a policy, particularly so
with respect to policies issued on an insured who does not meet our insurance
requirements for standard coverage. Nevertheless, we believe it is reasonable to
conclude that your policy should satisfy the applicable requirements. If it is
subsequently determined that a policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the policy into compliance
with such requirements and we reserve the right to modify the policy as
necessary in order to do so.
In certain circumstances, owners of variable life insurance policies have been
considered for federal income tax purposes to be the owners of the assets of the
separate account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the policyowners
have been currently taxed on income and gains attributable to separate account
assets. There is little guidance in this area, and some features of the Park
Avenue SVUL policy, such as your flexibility to allocate premiums and the policy
account value, have not been explicitly addressed in published rulings. While we
believe that the policy does not give policyowners investment control over the
Separate Account's assets, we reserve the right to modify the policy as
necessary to prevent the policyowner from being treated as the owner of the
Separate Account assets supporting the policy.
In addition, the Code requires that the investments of the investment divisions
of our Separate Account be "adequately diversified" in order for the policy to
be treated as a life insurance contract for federal income tax purposes. It is
intended that the investment divisions of the Separate Account, through the
mutual funds, will satisfy these diversification requirements.
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T A X C O N S I D E R A T I O N S P R O S P E C T U S 61
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The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
Treatment of policy proceeds
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We believe that the death benefits under your policy should be excludable from
the gross income of the beneficiary. Generally, under the existing federal tax
laws, increases in the value of your policy will not be taxed federally unless
you make a withdrawal before the insured dies.
TREATMENT OF POLICY PROCEEDS
We believe that the death benefits under your policy generally should be
excludable from the gross income of the beneficiary. Generally, under the
existing federal tax laws, increases in the value of your policy will not be
taxed federally unless you make a withdrawal before the insured dies. The money
that you receive when the insured dies is not subject to federal income tax, but
may be subject to federal estate taxes or generation skipping taxes.
Partial withdrawals, surrenders and policy loans all result in money being taken
out of your policy before the insured dies. How this money is taxed depends on
whether your policy is classified as a modified endowment contract.
Under the Internal Revenue Code, certain life insurance contracts are classified
as "modified endowment contracts," with less favorable tax treatment than other
life insurance contracts. Due to the flexibility of the policy as to premiums
and benefits, the individual circumstances of each policy will determine whether
it is classified as a modified endowment contract. The rules are too complex to
be summarized here, but generally depend on the amount of premium payments made
during the first seven policy years. Certain changes in a policy after it is
issued could also cause it to be classified as a modified endowment contract.
You should consult with a competent tax adviser to determine whether a policy
transaction will cause your policy to be classified as a modified endowment
contract.
If your policy is not considered a modified endowment contract:
o money that you withdraw from your policy will generally be taxed only if
the total that you withdraw exceeds your "basis" in the policy - which is
generally equal to the total amount that you have paid in premiums. The
difference between what you have put in and what you take out will be
taxed as ordinary income. When you withdraw money from your policy, your
basis is reduced by any amount withdrawn that is not taxed
o if you surrender your policy, you will generally be taxed only on the
amount by which the value of your policy, including any policy debt, is
greater than your basis in the policy. The tax consequences of
surrendering your policy may vary if you receive the proceeds under one of
the payment plans. Losses are generally not tax deductible
o policy loans are generally not taxable because they must be paid back. The
interest you pay on these loans is generally not tax deductible. However,
if your policy lapses while you have an outstanding policy loan, you may
have to pay tax on the amount that you still owe to your policy. The tax
consequences of a policy
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62 P R O S P E C T U S T A X C O N S I D E R A T I O N S
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loan are unclear if the difference between the rate we charge on the loan
and the interest rate earned on the loan is very small. You should consult
a tax adviser regarding these consequences.
If your policy is considered a modified endowment contract:
o all distributions other than death benefits, including partial
withdrawals, surrenders, assignments and policy loans, will be treated
first as distributions of gain, taxable as ordinary income to the extent
of any gain; and as a tax free recovery of basis only after all the gain
in the contract has been distributed.
o all modified endowment contracts issued by GIAC or its affiliates during
any calendar year will be treated as one modified endowment contract to
determine the taxable portion of any distribution
o a 10% penalty tax will also apply to any taxable distribution unless it is
made to a taxpayer who is 59 1/2 years of age or older; is attributable to
a disability; or is received as substantially equal periodic payments made
over the life of the taxpayer, or the life of the taxpayer and a
beneficiary.
EXCHANGES
Generally, there are no tax consequences when you exchange one life insurance
policy for another, as long as the same person is being insured. Paying
additional premiums under the new policy may cause it to be treated as a
modified endowment contract. Your policy may also lose any "grandfathering"
privilege, where you would be exempt from certain legislative or regulatory
changes made after your original policy was issued, if you exchange your policy.
You should consult with a tax adviser if you are considering exchanging any life
insurance policy.
POLICY SPLIT OPTION
One of the riders that you may purchase with this policy is the policy split
option. If you purchase this rider it will permit the policy to be split into
two single life insurance policies. It is not clear whether exercising this
option will be treated as a taxable transaction or whether the individual
policies that result would be classified as modified endowment contracts. A
competent tax adviser should be consulted before exercising the policy split
option.
POLICY CHANGES
We will make changes to policies and their riders where necessary to attempt to
ensure that they continue to qualify as life insurance under the Internal
Revenue Code, and policyowners are not considered the direct owners of the
mutual funds held in the Separate Account. Any changes will be made uniformly to
all policies affected. We will provide advance notice in writing of these
changes when required by state insurance regulators.
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T A X C O N S I D E R A T I O N S P R O S P E C T U S 63
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Federal, state and local governments may, from time to time, introduce new
legislation concerning the taxation of life insurance policies. They can also
change or adopt new interpretations of existing laws and regulations without
notice. If you have questions about the tax consequences of your Park Avenue
SVUL policy, please consult a legal or tax adviser.
Transfer taxes
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If you are both the policyowner and the insured, the death benefit under your
Park Avenue SVUL policy will generally be included in the value of your gross
estate for federal estate tax purposes. If the beneficiary of the policy is
someone who is two or more generations younger than the policyowner, the
generation-skipping transfer (GST) tax may be imposed.
ESTATE AND GENERATION SKIPPING TRANSFER TAXES
If you are both the policyowner and the surviving insured, the death benefit
under your Park Avenue SVUL policy will generally be included in the value of
your gross estate for federal estate tax purposes. If you are not the insured,
the value of the policy will be included in your gross estate.
Also, if the beneficiary of the policy is someone who is two or more generations
younger than the policyowner, the generation-skipping transfer (GST) tax may be
imposed.
The individual situation of a policyowner or beneficiary will determine how the
ownership of a policy or the receipt of policy proceeds will affect their tax
situation. Because the rules are complex, a legal or tax adviser should be
consulted for specific information.
Other tax consequences
Park Avenue SVUL policies can be used in various ways, including:
o as non-qualified deferred compensation or salary continuance plans
o in split-dollar insurance plans, and
o as part of executive bonus plans, retiree medical benefits plans, or other
similar plans.
The tax consequences of these plans will vary depending on individual
arrangements and circumstances. We recommend that anyone considering buying a
Park Avenue SVUL policy with the expectation of favorable tax consequences
should consult with a qualified tax adviser before investing.
In addition, new rules have recently been passed by Congress relating to life
insurance owned by businesses. Any business should consult with a qualified tax
adviser before buying a policy, and before making any changes or transactions
under the policy.
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64 P R O S P E C T U S T A X C O N S I D E R A T I O N S
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Possible tax law changes
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Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the policy could change by legislation or
otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the policy could change by legislation or
otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
GIAC'S TAXES
Based on current life insurance tax regulations, GIAC does not pay tax on
investment income or capital gains from the assets held in the Separate Account.
The operations of the Separate Account are reported on our federal income tax
return, which is then consolidated with that of our parent company, Guardian
Life.
We may pay taxes at the state and local level, as well as premium taxes, but at
present these are not substantial. If they increase, we reserve the right to
recover these costs by charging the Separate Account or the policy.
INCOME TAX WITHHOLDING
We are generally required to withhold money for income taxes when you make a
transaction on which you will have to pay tax. You can request in writing that
we not withhold any amount for income tax purposes. If we do not, or if we fail
to withhold enough to cover the taxes that are due, you could be penalized. You
would also be responsible for any unpaid taxes when you file your regular income
tax return. We may similarly withhold generation skipping transfer taxes unless
you tell us in writing that these taxes are not required.
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T A X C O N S I D E R A T I O N S P R O S P E C T U S 65
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RIGHTS AND RESPONSIBILITIES
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Assigning policy rights
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You may assign the rights under your Park Avenue SVUL policy to another person
or business, subject to certain restrictions discussed in the accompanying text.
ASSIGNING THE RIGHTS TO YOUR POLICY
You may assign the rights under your Park Avenue SVUL policy to another person
or business. This is often done, for example, to secure a loan. We will only be
bound by such an agreement when we have received a copy of the assignment
papers, signed by you, as well as the business or person to whom you are
assigning your rights, and your policy's beneficiaries, if applicable.
Assignments are subject to all payments made or actions we have taken on or
before the date we receive the assignment papers. We are not responsible for
determining whether the transfer of your policy's rights is legally valid.
The entity or person to whom you assign your rights may exercise all rights
granted under the policy except the right to:
o change the policyowner or beneficiary
o change a payment option, and
o direct where your net premiums will be invested or make transfers among
the fixed-rate and variable investment options.
VOTING RIGHTS
As explained in The variable investment options, we are the owner of the fund
shares held in the Separate Account. As a result, we have the right to vote at
any meeting of the funds' shareholders.
Where we are required to by law, we will vote fund shares based on the
instructions we receive from Park Avenue SVUL policyowners. If we do not receive
instructions from some policyowners, we will vote fund shares attributable to
their policies, and any shares we own in our own right, in the same proportion
as the shares attributable to the policyowners from whom we do receive
instructions. This proportion could include policyowners and contract owners
from other separate accounts.
If changes in the law or its interpretation allow us to make voting decisions in
our own right, or to restrict the voting of policyowners, we reserve the right
to do so. We will ask you for your voting instructions if, on the record date
set by the fund's directors, part of your policy account value is invested in
the variable investment option of the Separate Account that corresponds to the
mutual fund holding a shareholders' meeting.
The number of votes that you have will be based on the number of shares that you
hold. We will calculate the number of shares, or fraction of a share, that you
hold on the record date by dividing the dollar value of your investment in the
division of the Separate Account corresponding to the mutual fund, by the net
asset value of the variable investment option's shares on that date.
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If, after careful examination, we reasonably disapprove of a proposed change to
a mutual fund's investment adviser, its advisory contract, or its investment
objectives or policies, we may disregard policyowners' voting instructions, if
the law allows us to do so. If the change affects the investment adviser or
investment policy, we will only exercise this right if we determine in good
faith that the proposed change is contrary to state law or is inappropriate in
view of the fund's investment objective and purpose. If we exercise this right,
we will provide a detailed explanation of our actions in the next semi-annual
report to policyowners.
Certain activities related to the operation of the Separate Account may require
the approval of policyowners. See Rights reserved by GIAC. If a vote is
required, you will be given one vote for every $100 of your policy that is held
in the variable investment options. For any investments that we hold on our own
behalf, we will vote in the same proportion as our policyowners.
You do not have the right to vote on the operations of the fixed-rate option.
Incontestability
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Generally, we cannot challenge your policy once it is in force for two years.
LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY
Incontestability
Generally, we cannot challenge your policy or any face amount increase once it
is in force during a given insured's lifetime for two years. This policy will
terminate upon our successful contest with respect to either insured and we will
refund premium payments made towards your policy. If you change your policy's
death benefit from Option 1 or Option 3 to Option 2, we cannot challenge the
amount of the increase in death benefit that results from this change once it
has been in effect during a given insured's lifetime for two years from the date
the change took effect. If the face amount has been increased, such increase
will be incontestable after it has been in force during a given insured's
lifetime for two years from the date the increase takes effect. If we are
successful in our challenge, your death benefit will revert to what would have
been payable had such change or increase not taken effect.
Misstatement of age or sex
If we find that the information in the application regarding the age or sex of
an insured is wrong, we will adjust the death benefit to that which would have
been purchased by the most recent deduction for cost of insurance under the
policy and any rider costs using the correct age or sex.
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Suicide exclusion
If the insured commits suicide within two years of the policy's issue date, we
will cancel the policy and no death benefit proceeds will be paid, regardless of
whether he or she is considered sane at the time. The amount that we must pay in
death benefits will be limited to the greater of
o the net cash surrender value as of the date of death, or
o the policy premiums paid, minus
o any policy debt, minus
o any partial withdrawals.
If an insured commits suicide, while sane or insane within two years from the
effective date of any increase in the face amount, our liability will be limited
to the cost of insurance for such increase.
If an insured commits suicide within two years of an increase in your policy's
death benefit due to a change from Option 1 or Option 3 to Option 2, the death
benefit will be limited to the original death benefit under Option 1 or Option
3, whichever is applicable, plus the additional cost of insurance charges paid
for the increased death benefit.
RIGHTS RESERVED BY GIAC
We reserve the right to make changes or take actions that we feel are in the
best interests of the policyowners and their beneficiaries, or are appropriate
for the policy. We will follow applicable laws and regulations in exercising our
rights, and will seek the approval of policyowners or regulators when necessary.
Some of the changes or actions we may take include:
o operating the Separate Account in any form permitted by law
o taking any action that will allow the Separate Account either to comply
with or be exempt from sections of the 1940 Act
o de-registering the Separate Account under the 1940 Act
o transferring the assets from one division of the Separate Account into
other divisions, or to one or more separate accounts, or to our general
account, and adding, combining, or removing investment divisions in the
Separate Account
o substituting the shares of one mutual fund held through the Separate
Account for shares of a different class in the same mutual fund, shares of
a different mutual fund, or any other investment allowed by law
o adding to, suspending or eliminating your ability to direct how your net
premiums are invested, or to transfer your investments among the variable
investment options or the fixed-rate option
o changing the way we make deductions or collect charges, consistent with
the limits outlined in the policy
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68 P R O S P E C T U S R I G H T S A N D R E S P O N S I B I L I T I E S
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o changing the policy as required to ensure that it continues to qualify as
life insurance under the Internal Revenue Code, or to preserve favorable
tax treatment for your benefits under the policy, or
o making any changes necessary to the policy so that it conforms with any
action we are permitted to take.
We will inform you if we make a change that affects the basic nature of the
investments in any of the variable investment options. If this occurs, you will
have 60 days from the postmark on our notice to transfer your investments out of
this option and into one of the other investment options, without charge. See
Transfers between the investment options.
YOUR RIGHT TO CANCEL YOUR POLICY
You may cancel your policy by returning it with a written cancellation notice to
either our customer service office or the agent from whom you bought the policy.
You must do this within the later of:
o 10 days of receiving your policy, or
o 45 days of signing your completed policy application.
Longer periods may apply in some states. If a cancellation notice is sent by
mail, it will be effective on the date of the postmark. Once we receive your
notice, we will refund all of the premiums you have made towards your policy,
and it will be considered void from the beginning. We may delay refunding any
payments you made by check until your check has cleared.
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OTHER INFORMATION
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DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS
We have an agreement with Guardian Investor Services Corporation (GISC) for GISC
to act as the principal underwriter of the SVUL policies, as well as the other
variable life insurance policies and variable annuity contracts that we offer.
GISC is a broker-dealer registered under the Securities and Exchange Act of
1934, and a member of the National Association of Securities Dealers. GISC is a
New York corporation.
Agents and commissions
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 agreements with GIAC and GISC to
sell Park Avenue SVUL policies, which may include our affiliate Park Avenue
Securities LLC. Our agents receive a maximum sales commission of:
o 55% of the policy premium paid for the first policy year or the first year
of a policy segment up to one target premium, and 3% of any policy
premiums in excess of one target premium, then
o 4% of the policy premiums paid for policy years two through ten or years
two through ten of any policy segment up to one target premium, and 3% of
any policy premiums in excess of one target premium, then
o 0.15% per annum of the policy account value (excluding loans) paid monthly
after policy year 10.
In certain group and sponsored arrangements, commissions are levelized to 20% of
premiums paid up to one target premium in each of the first five policy years.
We may also compensate our agents in the form of commission overrides, expense
allowances, bonuses, wholesaler fees and training allowances. In addition,
agents may qualify for non-cash compensation such as expense-paid trips or
educational seminars.
If you return your policy under the right to cancel provisions, the agent may
have to return some or all of any commissions we have paid.
Administrative services
Through an agreement with our parent company, Guardian Life, to carry out the
administration of Park Avenue SVUL policies, we are billed quarterly for the
time that their staff spends on GIAC business, and for the use of their
centralized services and sales force.
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Other agreements
We have entered into several other agreements, including:
o an agreement with Value Line, Inc. under which we are compensated for
marketing the Value Line Centurion Fund and the Value Line Strategic Asset
Management Trust to our policyowners, and
o agreements with MFS, AIM, Davis, Fidelity and Janus under which we are
compensated for certain administrative costs and expenses connected to the
offering and sale of their funds to our policyholders. The amount we
receive is based on a percentage of assets under management.
SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS
Where state insurance laws allow us to, we may sell Park Avenue SVUL policies
under a group or sponsored arrangement.
A group arrangement is one in which a group of individuals is covered under a
single policy. This might be arranged, for example, by an employer, a trade
union, or a professional association.
A sponsored arrangement is one in which we are allowed to offer members of a
group, such as employees of a company or members of an association, insurance
policies on an individual basis.
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Communications we'll send you
Shortly after your policy anniversary each year, we will send you an updated
statement showing the following information:
o the amount of your current death benefit
o the instructions we have on file regarding where to invest your net
premiums, and how much you have invested in each of the allocation options
o your policy account value, cash surrender value and net cash surrender
value
o the amount you have paid in policy premiums and the charges that we have
deducted, since the last anniversary of your policy
o a summary of any transfers or partial withdrawals, loans or loan
repayments that you have made since your last annual statement
o the total of any outstanding policy debt that you owe us, and
o the interest rate for allocations to the fixed-rate option.
Twice a year we will also send you reports containing the financial statements
of the mutual funds and the Separate Account through which you invest in these
funds. Of these reports, the annual reports will contain audited financial
statements.
We will confirm in writing receipt of your policy premiums and any transfers or
other transactions. We will also write you to request a premium or loan
repayment to keep your policy from lapsing.
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O T H E R I N F O R M A T I O N P R O S P E C T U S 71
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We may reduce or eliminate certain deductions and charges outlined in this
prospectus for policies bought under group or sponsored arrangements including
policies issued in connection with certain business insurance arrangements. We
may, for instance, sell 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 their immediate family members. We may
reduce or waive policy charges and deductions in accordance with the rules in
effect as of the date an application for a policy is approved. In addition, GIAC
may permit groups and persons purchasing under a sponsored arrangement to apply
for simplified issue and multi-life underwriting. To qualify for a reduction in
the policy's charges or deductions certain criteria must be met. These may
include:
o the size of the group
o the expected number of participants
o the expected amount of premium payments.
o the expected number of policies to be issued
o the amount of coverage
The amount of any reduction in charges or deductions and the criteria to qualify
for a reduction will reflect our reduced cost of selling and/or maintaining the
policies in group or sponsored arrangements.
From time to time we may change the amount of any reduction in charges or
deductions, or the criteria that a group must meet to qualify for these
reductions. Any change will be made on a non-discriminatory basis.
LEGAL CONSIDERATIONS FOR EMPLOYERS
The Park Avenue SVUL policy estimates different risks for men and women in
establishing a policy's premiums, benefits and deductions, except in states
where gender-neutral standards must be used. In 1983, the United States Supreme
Court held that optional annuity benefits offered 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. Anyone interested in buying Park
Avenue SVUL policies in connection with insurance or benefits programs should
consult with their legal advisers to determine if the policy is appropriate for
this purpose.
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72 P R O S P E C T U S O T H E R I N F O R M A T I O N
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ADVERTISING PRACTICES
In our advertisements and sales materials for Park Avenue SVUL policies we may
include:
o articles or reports on variable life insurance in general, or Park Avenue
SVUL specifically, and any other information published in business or
general information publications.
o relevant indices or rankings of investment securities or similar groups of
funds
o comparisons of the variable investment options with the mutual funds
offered through the separate accounts of other insurance companies, or
those with similar investment objectives and policies, and
o comparisons with other investments, including those guaranteed by various
governments.
We may use the past performance of the variable investment options and funds to
promote the policies. This data is not indicative of the performance of the
funds or the policies in the future or the investment experience of individual
policyowners.
We may feature individual funds and their managers, and describe the asset
levels and sales volumes of GIAC, GISC and others in the investment industry. We
may also refer to past, current, or prospective economic trends and investment
performance, and any other information that may be of interest.
We are a member of the Insurance Marketplace Standards Association ("IMSA") and
may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards for sales and service of individually sold life insurance and
annuities.
LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings that would threaten our
financial position or that of the Separate Account.
LEGAL MATTERS
The legal validity of the Park Avenue SVUL policy, as described in this
prospectus, has been confirmed by Richard T. Potter, Jr., Vice President and
Counsel of GIAC.
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O T H E R I N F O R M A T I O N P R O S P E C T U S 73
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REGISTRATION STATEMENT
We have omitted some information from this prospectus, which is contained in our
registration with the Securities and Exchange Commission (SEC), relating to the
Separate Account and the Park Avenue SVUL policy. You can obtain this
information by contacting the SEC's main office in Washington, DC, and paying
the required fee.
FINANCIAL STATEMENTS
The GIAC financial statements contained in this prospectus should only be used
to determine our ability to meet our obligations under the Park Avenue SVUL
policies, and not as an indication of the investment experience of the Separate
Account.
FINANCIAL AND ACTUARIAL EXPERTS
The consolidated financial statements of GIAC as of December 31, 1999 included
in the prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP is
located at 1177 Avenue of the Americas, New York, New York 10036.
The actuarial matters contained 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
Securities and Exchange Commission.
-----------------------
74 P R O S P E C T U S O T H E R I N F O R M A T I O N
-----------------------
<PAGE>
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 7 Hanover Square, New York,
New York 10004. The "Guardian Fund Complex" referred to in the biographical
information is comprised of (1) The Guardian Variable Contract Funds, Inc. (a
series fund that issues its shares in four series), (2) The Guardian Bond Fund,
(3) The Guardian Cash Fund, (4) The Park Avenue Portfolio (a series trust that
issues its shares in nine 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 Vice President and Corporate
and Secretary Secretary, The Guardian Life
Insurance Company of America 3/96 -
present; Second Vice President and
Corporate Secretary 1/95 - 2/96;
Vice President and Secretary,
Guardian Investor Services
Corporation, Secretary, Guardian
Asset Management Corporation,
Guardian Baillie Gifford Limited,
Park Avenue Securities LLC 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,
Guardian Asset Management
Corporation and Park Avenue
Securities LLC.
--------------------------------------------------------------------------------
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, Guardian Asset
Management Corporation, Gabelli
Capital Asset Fund, Park Avenue
Securities LLC and various mutual
funds within the Guardian Fund
Complex.
--------------------------------------------------------------------------------
Charles G. Fisher Vice President Second Vice President and Actuary,
and Actuary The Guardian Life Insurance Company
of America.
--------------------------------------------------------------------------------
Leo R. Futia Director Retired. Former Chairman of the
Board and Chief Executive Officer,
The Guardian Life Insurance Company
of America; Director 5/70 - present.
Director (Trustee) of Guardian
Investor Services Corporation, Park
Avenue Securities LLC and 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, Park
Avenue Securities LLC and Guardian
Asset Management Corporation.
--------------------------------------------------------------------------------
Frank J. Jones Executive Executive Vice President and Chief
Vice President, Investment Officer, The Guardian
Chief Investment Life Insurance Company of America,
Officer, and Director, Guardian Investor Services
Director Corporation, Guardian Baillie
Gifford Limited, Park Avenue
Securities LLC, Director and
President Guardian Asset Management
Corporation. Executive Vice
President, GIAC Funds, Inc.. Officer
of various mutual funds within the
Guardian Fund Complex.
--------------------------------------------------------------------------------
-----------------------
O T H E R I N F O R M A T I O N P R O S P E C T U S 75
-----------------------
<PAGE>
Name Title Business History
--------------------------------------------------------------------------------
Edward K. Kane Executive Executive Vice President, The
Vice President Guardian Life Insurance Company of
and Director America 1/97 - present; Senior Vice
President and General Counsel prior
thereto. Director, Guardian Asset
Management Corporation.
--------------------------------------------------------------------------------
Bruce C. Long Director and Senior Vice President, The Guardian
Executive Life Insurance Company of America
Vice President 9/99 - present; President, New
Equity Products England Annuities 2/94-6/99;
Director and President, Guardian
Investor Services Corporation;
Director, Guardian Baillie Gifford
Limited.
--------------------------------------------------------------------------------
Frank L. Pepe Vice President Vice President and Controller,
and Controller Equity Products, The Guardian Life
Insurance Company of America 1/96 -
present; Second Vice President and
Controller, Equity Products prior
thereto. Vice President and
Controller of Guardian Investor
Services Corporation. 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 Counsel,
and Counsel The Guardian Life Insurance Company
of America 1/96 - present; Second
Vice President and Equity Counsel
prior thereto. Vice President and
Counsel of Guardian Investor
Services Corporation. Counsel of
Guardian Asset Management
Corporation, Park Avenue Securities
LLC, and various mutual funds within
the Guardian Fund Complex.
--------------------------------------------------------------------------------
Joseph D. Sargent President, President, Chief Executive Officer
Chief Executive and Director The Guardian Life
Officer and Insurance Company of America 1/96 -
Director present; President prior thereto;
Director 1/93 - present. Chairman of
the Board of Guardian Investor
Services Corporation and Guardian
Asset Management Corporation and
various mutual funds within the
Guardian Fund Complex. Director of
Guardian Baillie Gifford Limited and
Park Avenue Securities LLC.
--------------------------------------------------------------------------------
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, Park Avenue
Securities LLC, and Director of
Guardian Investor Services
Corporation.
--------------------------------------------------------------------------------
No officer or director of GIAC
receives any compensation from the
Separate 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 Separate
Account.
-----------------------
76 P R O S P E C T U S O T H E R I N F O R M A T I O N
-----------------------
<PAGE>
--------------------------------------------------------------------------------
SPECIAL TERMS USED IN THIS PROSPECTUS
--------------------------------------------------------------------------------
Some of the special terms used in this prospectus are defined below.
Additional sum insured
This is additional insurance coverage that provides a level death benefit to the
policy anniversary nearest the insured's 100th birthday.
Age
The insured's age on the birthday closest to the date the policy takes effect.
Attained age
Each insured's Age plus the number of policy years completed since the policy
date.
Basic policy
The policy, including the basic sum insured, additional sum insured,
endorsements and applications, but excluding any additional benefit riders.
Basic sum insured
The amount of coverage provided by the Basic policy, excluding any additional
sum insured. The minimum basic sum insured is currently $250,000.
Business day
Each day that GIAC processes transactions, currently including each day 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 p.m. New York time. If any
transaction or event occurs or is scheduled to occur on a day that is not a
business day, or if a transaction request is received after GIAC's close of
business, such transaction or event will be deemed to occur as of the next
following business day unless otherwise specified.
Face amount
The sum of the basic sum insured plus the additional sum insured and the amount
of any policy segments in force at the time of determination.
Initial face amount
The face amount in force on the policy's issue date. The minimum initial face
amount is currently $250,000.
Internal Revenue Code
The Internal Revenue Code of 1986, as amended, and its related rules and
regulations.
Issue date
The date your policy is issued at GIAC's customer service Office.
-----------------------
S P E C I A L T E R M S P R O S P E C T U S 77
-----------------------
<PAGE>
Loan account
An account to which values from the variable investment options and the
fixed-rate option are transferred when a policy loan is taken. The Loan Account
is equal to the loan.
Loan amount
The sum of any amounts borrowed plus any capitalized loan interest less any loan
repayment.
Loan interest account
An account that represents the interest earnings credited by GIAC on the Loan
Account.
Minimum annual premium
An amount used to determine whether your policy meets the No Lapse Guarantee
Premium Test, and in setting your policy's initial premium. It is shown in your
policy.
Monthly processing date
The day of each policy month on which the monthly deduction is deducted from the
policy account value and certain policy benefits and values are calculated. The
monthly processing date is the same date of each calender month as the policy
date, or the last day of a calender month if that is earlier. If such calendar
day is not a business day, the monthly processing date will be the next
following business day.
Net accumulated premiums
At issue, net accumulated premiums equals the value of the initial premium
payment. Thereafter, net accumulated premiums will increase, as a result of
premium payments made, and decrease, as a result of partial withdrawals. After a
premium payment, net accumulated premiums will be equal to the value of net
accumulated premiums before the premium payment plus the amount of the premium
paid. After a partial withdrawal, net accumulated premiums is equal to the
greater of (i) the value of net accumulated premiums before the withdrawal,
decreased by the amount of the partial withdrawal, or (ii) zero.
Net amount at risk
The difference between the amount that you would be paid under a policy segment
under the policy's death benefit and the policy account value allocated to that
segment.
Net Premium
The amount of premium that remains after we deduct premium charges from the
premiums you pay.
-----------------------
78 P R O S P E C T U S S P E C I A L T E R M S
-----------------------
<PAGE>
No Lapse Guarantee
For the first three years of your policy the No Lapse Guarantee ensures that it
will not lapse, even if the net cash surrender value of your policy is not
enough to pay the policy's monthly deduction in a given month, so long as the No
Lapse Guarantee Premium Test is met.
No Lapse Guarantee Premium Test
This test is used to determine whether your policy qualifies for the No Lapse
Guarantee. It states that, as of the most recent monthly processing date, you
must have paid at least as much into your policy (minus any withdrawals or
policy debt) as the minimum annual premiums up to this date, as outlined in your
policy. To calculate your minimum annual premium for the current policy year,
multiply your minimum annual premium by a ratio equal to the number of completed
policy months since the last policy anniversary plus 1 over 12.
Policy anniversary
The same date each year as the policy date.
Policy date
The date your policy comes into effect. This date is used to measure policy
months, policy years, policy anniversaries, and monthly processing dates.
Policy debt
The unpaid policy loan amount plus the accumulated and unpaid interest on those
loans.
Surviving insured
The insured remaining alive after the first death that occurs while this policy
is in force.
Target premium
A measure of premium used to determine your policy's premium charges and agent
commissions. Your policy's basic sum insured and any policy segments you buy
each have their own target premium. The target premium associated with the basic
sum insured is based on both insureds' ages, underwriting classes and sex
(unless gender-neutral rates are required by law). The target premium associated
with any policy segment is based on the insureds' attained ages and the
underwriting classes for each policy segment.
The target premium for any rider, except the guaranteed coverage rider, is based
on the monthly deduction for that rider during the first policy year.
Younger insured
The younger of the two insureds on the policy date.
-----------------------
S P E C I A L T E R M S P R O S P E C T U S 79
-----------------------
<PAGE>
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-----------------------
80 P R O S P E C T U S S P E C I A L T E R M S
-----------------------
<PAGE>
--------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
--------------------------------------------------------------------------------
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
---------------------
1999 1998
--------- ---------
(In millions)
<S> <C> <C>
Assets:
Bonds, available for sale at fair
value (cost $572.7 million; $538.6 million, respectively) .. $ 554.8 $ 549.0
Affiliated mutual funds ....................................... 78.0 42.9
Joint ventures ................................................ 0.5 0.4
Policy loans .................................................. 80.1 72.9
Short-term investments ........................................ 7.1 --
--------- ---------
Total invested assets ......................................... 720.5 665.2
--------- ---------
Cash and cash equivalents ..................................... 63.6 18.5
Deferred acquisition costs .................................... 357.5 313.6
Deferred software costs ....................................... 11.6 --
Uncollected and unpaid premiums ............................... 3.4 2.1
Amounts receivable from reinsurers ............................ 46.5 42.5
Investment income due and accrued ............................. 9.9 9.4
Other assets .................................................. 5.1 3.3
Accounts receivable ........................................... 37.5 22.2
Separate account assets ....................................... 11,063.8 8,841.7
--------- ---------
Total Assets .................................................. $12,319.4 $ 9,918.5
========= =========
Liabilities:
Future policy benefits and other policyholder liabilities ..... $ 547.9 $ 480.0
Due to parent and mutual fund affiliates ...................... 69.6 32.2
Current federal income taxes .................................. 18.2 25.8
Deferred federal income taxes ................................. 102.8 98.8
Accrued expenses and other liabilities ........................ 110.0 47.5
Separate account liabilities .................................. 10,970.4 8,764.8
--------- ---------
Total Liabilities ............................................. 11,818.9 9,449.1
--------- ---------
Stockholder's equity:
Common stock, 1999 - $100 par value, 25,000 shares authorized,
issued and outstanding; 1998 - $100 par value, 20,000 shares
authorized, issued and oustanding .......................... 2.5 2.0
Additional paid-in capital .................................... 136.9 137.4
Retained earnings ............................................. 347.9 310.6
Accumulated other comprehensive income ........................ 13.2 19.4
--------- ---------
Stockholder's equity .......................................... 500.5 469.4
--------- ---------
Total Liabilities & Stockholder's Equity ...................... $12,319.4 $ 9,918.5
========= =========
</TABLE>
See notes to consolidated financial statements.
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 81
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In millions)
<S> <C> <C> <C>
Revenues:
Premiums ........................................ $ 12.0 $ 9.1 $ 3.7
Net investment income ........................... 45.4 41.4 38.7
Realized capital (losses) gains on investments .. (1.7) 2.1 0.9
Income from brokerage operations ................ 67.1 39.7 31.1
Administrative service fees ..................... 217.1 173.6 130.5
Other income .................................... 17.5 24.0 20.3
------ ------ ------
Total revenues .................................. 357.4 289.9 225.2
------ ------ ------
Benefits and other deductions:
Policyholder benefits ........................... 21.2 23.7 20.3
Amortization of deferred policy acquisition costs 67.1 55.3 36.6
Amortization of deferred software costs ......... 1.8 -- --
Other operating costs and expenses .............. 165.6 105.1 73.3
------ ------ ------
Total benefits and other deductions ............. 255.7 184.1 130.2
------ ------ ------
Income before income taxes ...................... 101.7 105.8 95.0
Federal income taxes:
Current expense ................................. 12.1 24.4 17.2
Deferred expense ................................ 12.3 12.0 16.2
------ ------ ------
Total federal income taxes ...................... 24.4 36.4 33.4
------ ------ ------
Net income ...................................... 77.3 69.4 61.6
Other comprehensive income, net of income tax:
Change in unrealized investment (losses) gains .. (6.2) 3.2 12.6
------ ------ ------
Comprehensive income ............................ $ 71.1 $ 72.6 $ 74.2
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
-----------------------
82 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In millions)
<S> <C> <C> <C>
Common stock at par value, beginning of year .... $ 2.0 $ 2.0 $ 2.0
Increase in par value ........................... 0.5 -- --
------ ------ ------
Common stock at par value, end of year .......... 2.5 2.0 2.0
------ ------ ------
Capital in excess of par value, beginning of year 137.4 137.4 137.4
(Decrease) in capital ........................... (0.5) -- --
------ ------ ------
Capital in excess of par value, end of year ..... 136.9 137.4 137.4
------ ------ ------
Retained earnings, beginning of year ............ 310.6 241.2 179.6
Net income ...................................... 77.3 69.4 61.6
Dividends to parent ............................. (40.0) -- --
------ ------ ------
Retained earnings, end of year .................. 347.9 310.6 241.2
------ ------ ------
Accumulated comprehensive income,
net of deferred taxes, beginning of year ..... 19.4 16.2 3.6
Change in unrealized investment (losses) gains,
net of deferred taxes ........................ (6.2) 3.2 12.6
------ ------ ------
Accumulated comprehensive income,
net of deferred taxes, end of year ........... 13.2 19.4 16.2
------ ------ ------
Total stockholder's equity, end of year ......... $500.5 $469.4 $396.8
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 83
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In millions)
<S> <C> <C> <C>
Operating activities
Net income ........................................... $ 77.3 $ 69.4 $ 61.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in
Deferred policy acquisition costs ................. (43.9) (46.2) (45.9)
Deferred software costs ........................... (11.6) -- --
Uncollected premiums .............................. (1.3) 2.4 0.5
Amounts receivable from reinsurers ................ (4.0) (13.4) 24.9
Investment income due and accrued ................. (0.5) (0.5) (0.3)
Other assets ...................................... (1.8) 0.1 0.6
Accounts receivable ............................... (15.3) 8.6 (10.4)
Separate accounts, net ............................ (16.5) (14.8) (5.1)
Future policy benefits and policyholder liabilities 20.9 21.9 (17.0)
Payable to parent ................................. 10.7 5.7 8.9
Federal income taxes:
Current ......................................... (7.6) 9.1 6.9
Deferred ........................................ 4.0 14.1 19.2
Accrued expenses and other liabilities ............ 62.5 (1.5) (14.0)
Realized losses(gains) on investments ............. 1.7 (2.1) (0.9)
Other, net ........................................ (0.7) 1.0 (3.8)
------ ------ ------
Net cash provided by operating activities ....... 73.9 53.8 25.2
------ ------ ------
Investment activities
Proceeds from investments sold
Bonds ............................................. 142.2 280.9 315.4
Other items, net .................................. -- -- (1.3)
Investments purchased
Bonds ............................................. (180.1) (331.7) (310.5)
Affiliated mutual funds ........................... (24.6) (3.3) (20.5)
------ ------ ------
Net cash used by investing activities ........... (62.5) (54.1) (16.9)
------ ------ ------
Financing activities
Additions to policyholder contract deposits .......... 107.7 54.8 61.7
Withdrawals from policyholder contract deposits ...... (60.7) (64.4) (61.8)
Dividend to parent ................................... (13.3) -- --
------ ------ ------
Net cash provided (used) by financing activities 33.7 (9.6) (0.1)
------ ------ ------
(Decrease) Increase in cash ............................. 45.1 (9.9) 8.2
Cash and cash equivalents, at beginning of year ......... 18.5 28.4 20.2
------ ------ ------
Cash and cash equivalents, at end of year ............... $ 63.6 $ 18.5 $ 28.4
====== ====== ======
Supplemental disclosure:
Federal income taxes paid ............................ $ 19.7 $ 15.4 $ 10.2
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
-----------------------
84 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
-----------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Guardian Insurance & Annuity Company, Inc. (GIAC or the Company) is a
wholly owned subsidiary of The Guardian Life Insurance Company of America (The
Guardian). The Company, domiciled in the state of Delaware, is licensed to
conduct life and health insurance business in all fifty states and the District
of Columbia. The Company's primary business is the sale of variable deferred
annuity contracts and variable and term life insurance policies. For variable
products, other than 401(k) products, contracts are sold by insurance agents who
are licensed by GIAC and are either Registered Representatives of Park Avenue
Securities, LLP (PAS) or of broker dealer firms that have entered into sales
agreements with GIAC. The Company's general agency distribution system is used
for the sale of other products and policies.
PAS, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934. PAS was established as a
broker dealer during 1999 and has assumed the registered representatives
formally affiliated with Guardian Investor Services Corporation (GISC).
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 is the investment advisor to
certain mutual funds sponsored by GIAC which are investment options for the
variable products.
The Company has established fourteen insurance separate accounts primarily
to support the variable annuity, universal variable life and variable 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 benefits plans of The Guardian.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Company's consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States (GAAP). All significant intercompany balances and transactions
have been eliminated.
Accounting Changes: In March 1998, the American Institute of Certified
Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which requires capitalization of external and certain internal
costs incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP 98-1
prospectively effective January 1, 1999. The adoption of SOP 98-1 resulted in
$14.9 million of software costs being capitalized. Capitalized internal use
software is amortized on a straight-line basis over the estimated useful life of
the software.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES:
Bonds and common stocks are classified as available for sale and carried
at estimated fair value, with unrealized appreciation or depreciation recorded
net of applicable deferred taxes are included in a separate component of equity,
"Accumulated other comprehensive income". The investment portfolio is reviewed
for investments that may have experienced a decline in value considered to be
other than temporary.
Joint ventures are carried on the equity basis of accounting.
Policy loans 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 surrender of the contract.
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 85
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Securities purchase under agreements to resell and securities sold under
agreements to repurchase are treated as financing arrangements and are carried
at the amounts at which the securities will be subsequently resold or
reacquired, including accrued interest, as specified in the respective
agreements. The Company's policy is to take possession of securities purchased
under agreements to resell. The market value of securities to be repurchased or
resold is monitored, and additional collateral is requested, where appropriate,
to protect against credit exposure.
Securities repurchase and resale agreements and securities borrowed and
loaned transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
Realized investment gains, net are computed using the specific
identification method. Costs of bonds and stocks are adjusted for impairments
considered other than temporary. Allowances for losses on mortgage loans and
real estate are netted against asset categories to which they apply and
provisions for losses on investments are included in "Realized investment gains,
net." Decreases in lower of depreciated cost or fair value less selling costs of
investment real estate held for sale are recorded in "Realized investment gains,
net."
Short-term investments are stated at amortized cost and consist primarily
of investments with maturities as of purchase date of six months or less. Market
values for such investments approximate carrying value.
Cash and cash equivalents include cash on hand and highly liquid debt
instruments purchased with an original maturity of three months or less.
Deferred Policy Acquisition Costs are costs of acquiring new business,
principally commissions, underwriting, agency and policy issue expenses, all of
which vary with and are primarily related to the production of new business, are
deferred. Deferred policy acquisition costs are subject to recoverability
testing at the time of policy issue and loss recognition testing at the end of
each accounting period.
For investment-type products, deferred policy acquisition costs are
amortized over the shorter of the expected average life of the contracts or
thirty years, as a constant percentage of estimated gross profits arising
principally from investment results, mortality and expense margins and surrender
charges based on actual results and anticipated future experience, updated at
the end of each accounting period. The effect on the amortization of deferred
policy acquisition costs of revisions to estimated gross profits is reflected in
earnings in the period such estimated gross profits are revised.
For life insurance products, deferred policy acquisition costs are
amortized in proportion to anticipated premiums. Assumptions as to anticipated
premiums are estimated at the date of policy issue and are consistently applied
during the life of the contracts. Deviations from estimated experience are
reflected in earnings in the period such deviations occur. For these contracts,
the amortization periods generally are for the estimated life of the policy.
Separate account assets and liabilities are reported at market value, and
represent policyholder funds maintained in accounts having specific investment
objectives. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company.
Investment risks associated with market value changes are generally borne by the
customers, except to the extent of minimum guarantees made by the Company with
respect to certain amounts. The investment results of separate accounts are
reflected in separate account liabilities. The amounts provided by the Company
to establish separate account investment portfolios (seed money) are included in
separate account assets.
Insurance Revenue and Expense Recognition consists of premiums and
benefits. Premiums for term life and certain annuity insurance products are
recognized as revenue when due and collected. The reserve for future policy
benefits has been provided on a net-level premium method based upon estimated
investment yields, mortality, and other assumptions which were appropriate at
the time the policies were issued. Benefits and expenses are associated with
earned premiums so as to result in recognition of profits over the life of the
contract. This association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition costs.
Revenues for variable life and for individual and group variable annuity
products consist of net investment income and cost of insurance, policy
administration and surrender charges that have been earned and assessed against
policyholder account balances during the period. Policy benefits and claims that
are charged to expense include benefits and
-----------------------
86 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
claims incurred in the period in excess of related policy account balances,
maintenance costs and interest credited to policyholder account balances. The
policyholder account values represent an accumulation of gross premium payments
plus credited interest less expense and mortality charges and withdrawals.
Income Taxes for the Guardian and its life insurance and non-life
insurance subsidiaries file a consolidated federal income tax return. Current
federal taxes are charged or credited to operations based on amounts estimated
to be payable or recoverable as a result of taxable operations for the current
year. Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax basis of
assets and liabilities using enacted income tax rates and laws.
Reclassifications of certain amounts in prior years have been adjusted to
conform to current year presentation.
NOTE 3 -- INVESTMENT SECURITIES
Market values of bonds and common stocks are based on quoted prices as
available. For certain private placement debt securities where quoted market
prices are not available, management estimates fair market value by using
adjusted market prices for like securities.
The cost and estimated market values of investments by major investment
category as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
(In millions)
----------------------------------------------------------------
Gross Gross Estimated
Cost Unrealized Unrealized Market
Basis Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations of U.S.
government corporations and agencies ................ $ 24.5 $ 0.2 $ 0.7 $ 24.0
Obligations of states and political subdivisions ...... 30.7 0.1 0.5 30.3
Debt securities issued by foreign governments ......... 3.8 -- 0.1 3.7
Corporate debt securities ............................. 513.7 0.5 17.4 496.8
----------- ----------- ----------- -----------
Subtotal ............................................ 572.7 0.8 18.7 554.8
Affiliated mutual funds ............................... 61.0 17.2 0.2 78.0
----------- ----------- ----------- -----------
$ 633.7 $ 18.0 $ 18.9 $ 632.8
=========== =========== =========== ===========
<CAPTION>
(In millions)
-------------------------------------------------------------------
Gross Gross Estimated
Cost Unrealized Unrealized Market
Basis Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations of U.S.
government corporations and agencies ................ $ 28.4 $ 1.5 $ -- $ 29.9
Obligations of states and political subdivisions ...... 60.2 1.4 -- 61.6
Debt securities issued by foreign governments ......... 8.0 0.1 -- 8.1
Corporate debt securities ............................. 442.0 10.0 2.6 449.4
----------- ----------- ----------- -----------
Subtotal ............................................ 538.6 13.0 2.6 549.0
Affiliated mutual funds ............................... 36.9 6.6 0.6 42.9
----------- ----------- ----------- -----------
$ 575.5 $ 19.6 $ 3.2 $ 591.9
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated market value of bonds as of December 31,
1999 and 1998 by contractual maturity is shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations.
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 87
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
<TABLE>
<CAPTION>
As of December 31, 1999
(In millions)
------------------------------------
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less ........................................................ $ 61.4 $ 61.2
Due after one year through five years .......................................... 296.4 290.0
Due after five years through ten years ......................................... 100.1 95.5
Due after ten years ............................................................ 51.7 46.7
Sinking fund bonds (including collateralized mortgage obligations) ............. 63.1 61.4
----------- -----------
$ 572.7 $ 554.8
=========== ===========
<CAPTION>
As of December 31, 1998
(In millions)
------------------------------------
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less ........................................................ $ 47.5 $ 47.7
Due after one year through five years .......................................... 250.0 253.2
Due after five years through ten years ......................................... 102.5 107.8
Due after ten years ............................................................ 67.6 68.3
Sinking fund bonds (including collateralized mortgage obligations) ............. 71.0 72.0
----------- -----------
$ 538.6 $ 549.0
=========== ===========
</TABLE>
The major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities ...................................................... $ 37.2 $ 33.9 $ 31.8
Affiliated mutual funds ............................................... 1.6 1.5 1.1
Policy loans .......................................................... 3.7 3.5 3.4
Short-term investment ................................................. 2.9 2.3 2.4
Joint venture dividend ................................................ 1.3 1.3 1.1
----------- ----------- -----------
46.7 42.5 39.8
Less: Investment expenses ............................................. 1.3 1.1 1.1
----------- ----------- -----------
Net investment income ................................................. $ 45.4 $ 41.4 $ 38.7
=========== =========== ===========
</TABLE>
Realized gains and losses are based upon specific identification of the
investments. The components of gross realized gains and losses for the year
ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Realized gains from dispositions:
Bonds ............................................................... $ 0.6 $ 2.2 $ 1.1
Separate account seed ............................................... 0.9 -- 0.9
Realized losses from dispositions:
Bonds ............................................................... (3.1) (0.1) (1.1)
Affiliated mutual funds ............................................. (0.1) -- --
----------- ----------- -----------
Realized gains ........................................................ $ (1.7) $ 2.1 $ 0.9
=========== =========== ===========
</TABLE>
-----------------------
88 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The net unrealized holding gains and losses, included in the consolidated
balance sheets as a component of comprehensive income and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year .............................................. $ 19.4 $ 16.2 $ 3.6
Changes in unrealized investment gains (losses),
net of deferred taxes, attributable to:
Bonds ............................................................... (20.4) 2.6 4.6
Affiliated mutual funds ............................................. 9.1 (1.8) 7.3
Separate account seed ............................................... 5.1 2.4 1.7
Other ............................................................... -- -- (1.0)
----------- ----------- -----------
Balance, end of year .................................................... $ 13.2 $ 19.4 $ 16.2
=========== =========== ===========
</TABLE>
Currently, comprehensive income for the Company consists of net income and
the change in unrealized gains and losses on securities. As of December 31,
1999, 1998 and 1997, the change in unrealized gains and losses before tax was
$(12.9), $7.4 and $15.6 and after tax was $(6.2), $3.2 and $12.6, respectively.
Reclassification adjustments for the period, which include gains on
investment securities that were realized and included in net income of the
current period that also had been included in other comprehensive income as
unrealized holding gains in the period in which they arose, are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized holding (losses) gains ....................................... $ (14.5) $ 5.7 $ 15.6
Less: Reclassification adjustments ...................................... 1.6 1.7 --
----------- ----------- -----------
Change in unrealized holding (losses) gains ............................. $ (12.9) $ 7.4 $ 15.6
=========== =========== ===========
</TABLE>
Special Deposit assets of $3.7 million and $4.1 million at December 31,
1999 and 1998, respectively, were on deposit with governmental authorities or
trustees as required by certain insurance laws.
NOTE 4 -- DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs as of and
for the years ended December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
As of December 31,
(In millions)
------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Balance, beginning of year .................................................... $ 313.6 $ 267.4
Capitalization of deferrable expenses ......................................... 93.8 77.0
Amortization of recoverable DAC balances ...................................... (67.1) (55.3)
Interest on DAC ............................................................... 21.7 24.2
Retrospectively applied adjustments ........................................... (4.5) 0.3
----------- -----------
Balance, end of year .......................................................... $ 357.5 $ 313.6
=========== ===========
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 89
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 5 -- POLICYHOLDERS' ACCOUNT BALANCES
The balances of policyholders' account balances as of and for the years
ended December 31, 1999 and 1998 are summarized as follows:
As of December 31,
(In millions)
------------------------------------
1999 1998
----------- -----------
Individual annuities .................... $ 7,617.9 $ 6,492.8
Group annuities ......................... 3,105.7 2,104.3
Variable life ........................... 713.7 569.6
Interest-sensitive life contracts ....... 4.2 4.5
----------- -----------
Policyholders' account balances ......... $ 11,441.5 $ 9,171.2
=========== ===========
Policyholders' account balances for investment-type contracts represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses and mortality charges.
NOTE 6 -- FEDERAL INCOME TAXES
The federal income tax expense in the consolidated statements of earnings
is summarized as follows:
For the years ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
Federal income tax expense:
Current ..................... $ 12.1 $ 24.4 $ 17.2
Deferred .................... 12.3 12.0 16.2
----------- ----------- -----------
Total ......................... $ 24.4 $ 36.4 $ 33.4
=========== =========== ===========
The federal income taxes attributable to consolidated operations in
certain circumstances can be different from the amounts determined by
multiplying the earnings from operations before federal income taxes by the
expected federal income tax rate of 35%. The sources of the difference and the
tax effects of each source are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Expected taxes on pre-tax income ....................................... $ 35.6 $ 37.5 $ 33.3
Permanent adjustments:
Dividends received deduction on separate accounts .................... (13.1) -- --
Reserve on overpayment of 1998 taxes in 1999 ........................... 1.3 -- --
True-up of tax basis reserves .......................................... 1.3 -- --
State and local taxes .................................................. -- (0.5) 0.1
Foreign tax credit ..................................................... (0.3) (0.3) --
Other .................................................................. (0.4) (0.3) --
----------- ----------- -----------
Total tax expense ...................................................... $ 24.4 $ 36.4 $ 33.4
=========== =========== ===========
</TABLE>
-----------------------
90 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The tax effect of temporary differences which give rise to deferred
federal income tax assets and liabilities as of December 31, 1999 and 1998, are
as follows:
As of December 31,
(In millions)
------------------------------------
1999 1998
----------- -----------
Deferred tax assets:
Other liabilities ........................ $ 19.5 $ 15.7
DAC Proxy ................................ 13.7 11.1
Amounts receivable from reinsurer ........ 0.3 0.9
Other .................................... 3.9 1.4
----------- -----------
Total deferred tax assets ................ 37.4 29.1
Deferred tax liabilities:
Deferred acquisition costs ............... $ 125.1 $ 109.8
Capitalized software costs ............... 4.1 --
Reserves ................................. 7.7 6.0
Investments .............................. 3.3 10.3
Other .................................... -- 1.8
----------- -----------
Total deferred tax liabilities ........... 140.2 127.9
----------- -----------
Net deferred tax liability ............... $ 102.8 $ 98.8
=========== ===========
Management has concluded that the deferred income tax assets are more likely
than not to be realized. Therefore, Management has concluded that the deferred
income tax assets are more likely than not to be realized. Therefore, no
valuation allowance has been provided.
NOTE 7 -- REINSURANCE
The Company has entered into cession and assumption agreements on a
coinsurance, modified coinsurance and yearly renewable term basis with
affiliated and non-affiliated companies. Ceding reinsurance is used by the
Company to limit its risk from large exposures and to permit recovery of a
portion of direct losses, although ceded reinsurance does not relieve the
originating insurer of liability.
The Company has assumed and ceded coinsurance and modified coinsurance
agreements with affiliated companies. Under these agreements, included in the
consolidated statements of income are $0.9 million, $0.9 million and $1.0
million of assumed premiums at December 31, 1999, 1998 and 1997, and $83.1
million, $65.2 million and $43.6 million of ceded premiums at December 31, 1999,
1998 and 1997, respectively.
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 of premiums at December 31, 1997.
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values for fixed maturities and equity securities, other
than private placement securities, are based on quoted market prices or
estimates from independent pricing services. Fair values for private placement
securities are estimated using a discounted cash flow model which considers the
current market spreads between the U.S. Treasury yield curve and corporate bond
yield curve, adjusted for the type of issue, its current credit quality and its
remaining average life. The fair value of certain non-performing private
placement securities is based on amounts estimated by management.
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 91
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 9 -- RELATED PARTY TRANSACTIONS
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
$141.0 million in 1999, $100.8 million in 1998 and $72.2 million in 1997, 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 to provide for
funds and to preserve liquidity. Effective December 19, 1997 GREA was liquidated
and, as a result, $6.7 million was returned to GIAC in the form of capital and
there was a realized gain recorded of $1.0 million.
A significant portion of the Company's separate account assets is invested
in affiliated mutual funds. Each of these funds has an investment advisory
agreement with the Company, except for The Baillie Gifford International Fund,
The Baillie Gifford Emerging Markets Fund, The Guardian Baillie Gifford
International Fund and The Guardian Baillie Gifford Emerging Markets Fund.
The separate account assets invested in affiliated mutual funds as of
December 31, 1999 and 1998 are as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
The Guardian Stock Fund ................................... $ 4,153.9 $ 3,664.9
The Guardian VC 500 Index Fund ............................ 1.8 --
The Guardian VC Allocation Fund ........................... 0.8 --
The Guardian High Yield Bond Fund ......................... 0.2 --
The Guardian Bond Fund .................................... 320.0 381.5
The Guardian Cash Fund .................................... 484.1 419.5
The Baillie Gifford International Fund .................... 662.3 526.4
The Baillie Gifford Emerging Markets Fund ................. 64.6 34.6
The Guardian Small Cap Stock Fund ......................... 130.6 109.2
The Guardian Park Avenue Fund ............................. 621.3 511.6
The Guardian Park Avenue Small Cap Fund ................... 22.8 13.2
The Guardian Asset Allocation Fund ........................ 46.0 39.8
The Guardian Baillie Gifford International Fund ........... 15.5 9.1
The Guardian Baillie Gifford Emerging Markets Fund ........ 6.8 0.8
The Guardian Investment Quality Bond Fund ................. 12.7 9.3
The Guardian High Yield Bond Fund ......................... 0.8 --
The Guardian Cash Management Fund ......................... 126.4 57.9
----------- -----------
$ 6,670.6 $ 5,777.8
=========== ===========
</TABLE>
The Company, in agreement with Baillie Gifford Overseas Ltd., has a joint
venture company -- Guardian Baillie Gifford Ltd. (GBG) -- that is organized as a
corporation in Scotland. GBG is registered in both the United Kingdom and the
United States to act as an investment advisor for the Baillie Gifford
International Fund (BGIF), the Baillie Gifford Emerging Markets Fund (BGEMF),
The Guardian Baillie Gifford International Fund (GBGIF) and The Guardian Baillie
Gifford Emerging Markets Fund (GBGEMF). The Funds are offered in the U.S. as
investment options under certain variable annuity contracts and variable life
policies.
-----------------------
92 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The Company maintains investments in affiliated mutual funds. These
investments as of December 31, 1999 and 1998 are as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
The Guardian Park Avenue Fund ................................. $ 0.1 $ 0.1
The Guardian Park Avenue Small Cap Fund ....................... 2.5 1.8
The Guardian Small Cap Stock Fund ............................. 35.2 26.1
The Guardian Asset Allocation Fund ............................ 2.8 2.5
The Guardian Baillie Gifford International Fund ............... 2.9 2.1
The Guardian Baillie Gifford Emerging Markets Fund ............ 1.5 0.9
The Guardian Investment Quality Bond Fund ..................... 1.6 1.6
The Guardian High Yield Bond Fund ............................. 1.6 1.6
The Guardian Cash Management Fund ............................. 29.8 6.2
----------- -----------
$ 78.0 $ 42.9
=========== ===========
</TABLE>
NOTE 10 -- STATUTORY EQUITY AND INCOME
Applicable insurance department regulations require that the Company
prepare statutory financial statements in accordance with statutory accounting
practices prescribed or permitted by the New York Department of Insurance.
Statutory accounting practices primarily differ from GAAP by charging policy
acquisition costs to expense as incurred, establishing future policy benefits
reserves using different actuarial and interest assumptions, not providing for
deferred taxes, and valuing securities on a different basis.
The following reconciles the consolidated GAAP net income of the Company
to statutory net income as reported to the regulatory authorities:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Consolidated GAAP net income ............................................. $ 77.3 $ 69.4 $ 61.6
Adjustments to restate to statutory basis:
Statutory net income of subsidiaries ................................... 3.3 (4.5) (4.3)
Change in deferred policy acquisition costs ............................ (45.2) (43.2) (41.9)
Change in deferred software costs ...................................... (8.8) -- --
Deferred premiums ...................................................... 0.3 1.5 5.6
Re-estimation of future policy benefits ................................ 13.1 9.7 3.3
Reinsurance ............................................................ (3.8) (4.1) (12.4)
Deferred federal income tax expense .................................... 11.2 11.9 16.2
Amortization of interest maintenance reserve ........................... 0.4 0.3 0.1
Transfer to interest maintenance reserve ............................... 2.4 (1.4) --
Other, net ............................................................. 2.8 0.9 (0.2)
----------- ----------- -----------
Statutory net income ..................................................... $ 53.0 $ 40.5 $ 28.0
=========== =========== ===========
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 93
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The following reconciles the consolidated GAAP stockholder's equity of the
Company to statutory capital and surplus as reported to the regulatory
authorities:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Consolidated GAAP stockholder's equity ................................... $ 500.5 $ 469.4 $ 396.8
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs ...................................... (357.5) (313.6) (267.4)
Deferred software costs ................................................ (11.6) -- --
Elimination of asset valuation reserve ................................. (42.7) (29.6) (26.3)
Re-estimation of future policy benefits ................................ (53.4) (46.9) (41.3)
Establishment of deferred income tax liability ......................... 102.8 98.8 84.7
Unrealized gains on investments ........................................ 19.8 (11.7) (7.9)
Other liabilities ...................................................... 66.7 48.1 33.5
Deferred premiums ...................................................... 8.2 7.8 7.0
Other, net ............................................................. 5.4 5.1 3.6
----------- ----------- -----------
Statutory capital and surplus ............................................ $ 238.2 $ 227.4 $ 182.7
=========== =========== ===========
</TABLE>
-----------------------
94 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
-----------------------
<PAGE>
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income, of changes in equity
and of cash flows present fairly, in all material respects, the financial
position of The Guardian Insurance & Annuity Company, Inc. and its subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for costs of computer software developed or
obtained for internal use in 1999.
/s/ PricewaterhouseCoopers LLP
February 14, 2000
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 95
-----------------------
<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
$500,000 for a male insured Age 40, preferred plus underwriting class, and a
female insured Age 40, preferred plus underwriting class, utilizing the
guideline premium test. 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, then for a policy with an
Option 2 death benefit, and, finally, for a policy with an Option 3 death
benefit. These illustrations may assist in the comparison of death benefits, net
cash surrender values and policy account values for Park Avenue SVUL policies
with those under other survivorship 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 SVUL 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) the monthly deduction is deducted from the policy
account value on each monthly processing date. The net cash surrender values
shown in the tables reflect the fact that a surrender charge is deducted upon
surrender or lapse during a period of time that will not exceed 9 policy years.
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 0.84% of the average daily net assets of
such funds. The average is based upon actual expenses, after applicable expense
reimbursements and fee waivers, incurred during 1999 for all funds except
Guardian VC 500 Index and Janus Aspen Series, which have been restated to
reflect a reduction in the management fees, and the Fidelity portfolios which
utilize estimates for the first year.
In the absence of expense reimbursements and fee waivers, operating
expenses of the affected funds, and the average investment advisory fees and
expenses used in the following illustrations would have been higher. For an
explanation of the expenses see the accompanying fund prospectuses.
Taking account of the charges, the average investment advisory fee and the
operating expenses of the mutual funds, the gross annual rates of return of 0%,
6% and 12% correspond to net investment experience at -0.84%, 5.16% and 11.16%,
respectively. 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.
-----------------------
96 P R O S P E C T U S A P P E N D I C E S
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
The fourth 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
insureds' ages, sexes, underwriting classes, face amount requested, and life
insurance test selected, but a premium-based illustration must reflect GIAC's
current minimum face amount requirement for Park Avenue SVUL -- which is
$250,000.
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 SVUL
may quote historical performance data of one or more of the underlying funds,
and may include cash surrender values and death benefit figures computed using
the same methodology as that used in the following illustrations, but with
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 SVUL on August 1, 2000. 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, and the charges
deducted from premiums, monthly deductions and any transaction deductions
associated with the policy in question.
-----------------------
A P P E N D I C E S P R O S P E C T U S 97
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
Male Issue Age 40, Preferred Plus Underwriting Risk
Female Issue Age 40, Preferred Plus Underwriting Risk
$500,000 Face Amount
Death Benefit Option 1
Target Premium = $3,429.00
These values reflect CURRENT cost of insurance and other charges
Using the Guideline Premium Test as defined under Section 7702
of the Internal Revenue Code.
<TABLE>
<CAPTION>
Age Assuming Current Assuming Current Assuming Current
Beginning Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
of Premiums ----------------------------- ----------------------------- ----------------------------
End Year Accumulated Net Net Net
of --------- at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Ins Ins Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 1 2 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> <C>
1 40 40 3,429 3,600 2,246 0 500,000 2,406 0 500,000 2,566 0 500,000
2 41 41 3,429 7,381 4,458 1,715 500,000 4,919 2,176 500,000 5,401 2,658 500,000
3 42 42 3,429 11,350 6,637 4,237 500,000 7,545 5,145 500,000 8,531 6,131 500,000
4 43 43 3,429 15,518 8,782 6,724 500,000 10,287 8,230 500,000 11,987 9,930 500,000
5 44 44 3,429 19,895 10,893 9,179 500,000 13,150 11,436 500,000 15,802 14,088 500,000
6 45 45 3,429 24,490 12,970 11,599 500,000 16,139 14,768 500,000 20,015 18,643 500,000
7 46 46 3,429 29,315 15,014 13,985 500,000 19,260 18,231 500,000 24,665 23,636 500,000
8 47 47 3,429 34,381 17,023 16,509 500,000 22,516 22,002 500,000 29,797 29,283 500,000
9 48 48 3,429 39,701 18,998 18,827 500,000 25,915 25,744 500,000 35,464 35,292 500,000
10 49 49 3,429 45,286 20,939 20,939 500,000 29,462 29,462 500,000 41,719 41,719 500,000
15 54 54 3,429 77,693 32,984 32,984 500,000 52,888 52,888 500,000 87,955 87,955 500,000
20 59 59 3,429 119,052 45,859 45,859 500,000 84,513 84,513 500,000 168,013 168,013 500,000
25 64 64 3,429 171,839 57,458 57,458 500,000 123,994 123,994 500,000 302,296 302,296 500,000
30 69 69 3,429 239,210 67,021 67,021 500,000 173,103 173,103 500,000 527,972 527,972 607,212
</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.
-----------------------
98 P R O S P E C T U S A P P E N D I C E S
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
Male Issue Age 40, Preferred Plus Underwriting Risk
Female Issue Age 40, Preferred Plus Underwriting Risk
$500,000 Face Amount
Death Benefit Option 1
Target Premium = $3,429.00
These values reflect GUARANTEED cost of insurance and other charges
Using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Age Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
Beginning Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
of Premiums ----------------------------- ----------------------------- ----------------------------
End Year Accumulated Net Net Net
of --------- at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Ins Ins Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 1 2 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> <C>
1 40 40 3,429 3,600 2,239 0 500,000 2,399 0 500,000 2,559 0 500,000
2 41 41 3,429 7,381 4,432 1,689 500,000 4,892 2,148 500,000 5,371 2,628 500,000
3 42 42 3,429 11,350 6,583 4,182 500,000 7,485 5,084 500,000 8,463 6,063 500,000
4 43 43 3,429 15,518 8,689 6,632 500,000 10,180 8,123 500,000 11,864 9,806 500,000
5 44 44 3,429 19,895 10,750 9,036 500,000 12,981 11,266 500,000 15,602 13,887 500,000
6 45 45 3,429 24,490 12,766 11,395 500,000 15,890 14,519 500,000 19,710 18,338 500,000
7 46 46 3,429 29,315 14,735 13,706 500,000 18,910 17,881 500,000 24,225 23,196 500,000
8 47 47 3,429 34,381 16,655 16,141 500,000 22,043 21,529 500,000 29,185 28,671 500,000
9 48 48 3,429 39,701 18,525 18,354 500,000 25,292 25,121 500,000 34,634 34,463 500,000
10 49 49 3,429 45,286 20,342 20,342 500,000 28,658 28,658 500,000 40,619 40,619 500,000
15 54 54 3,429 77,693 31,343 31,343 500,000 50,486 50,486 500,000 84,256 84,256 500,000
20 59 59 3,429 119,052 41,817 41,817 500,000 78,393 78,393 500,000 157,726 157,726 500,000
25 64 64 3,429 171,839 48,054 48,054 500,000 109,768 109,768 500,000 277,452 277,452 500,000
30 69 69 3,429 239,210 45,232 45,232 500,000 141,486 141,486 500,000 475,501 475,501 547,037
</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 P P E N D I C E S P R O S P E C T U S 99
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
Male Issue Age 40, Preferred Plus Underwriting Risk
Female Issue Age 40, Preferred Plus Underwriting Risk
$500,000 Face Amount
Death Benefit Option 2
Target Premium = $3,429.00
These values reflect CURRENT cost of insurance and other charges
Using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Age Assuming Current Assuming Current Assuming Current
Beginning Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
of Premiums ----------------------------- ----------------------------- ----------------------------
End Year Accumulated Net Net Net
of --------- at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Ins Ins Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 1 2 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> <C>
1 40 40 3,429 3,600 2,246 0 502,321 2,406 0 502,469 2,566 0 502,618
2 41 41 3,429 7,381 4,458 1,715 504,536 4,919 2,176 504,974 5,401 2,658 505,429
3 42 42 3,429 11,350 6,637 4,237 506,718 7,545 5,145 507,590 8,531 6,131 508,533
4 43 43 3,429 15,518 8,782 6,724 508,865 10,287 8,230 510,322 11,987 9,930 511,961
5 44 44 3,429 19,895 10,893 9,178 510,979 13,150 11,435 513,175 15,802 14,088 515,744
6 45 45 3,429 24,490 12,970 11,598 513,059 16,138 14,767 516,153 20,014 18,642 519,921
7 46 46 3,429 29,315 15,013 13,984 515,105 19,258 18,229 519,261 24,663 23,634 524,532
8 47 47 3,429 34,381 17,021 16,507 517,116 22,514 21,999 522,505 29,794 29,279 529,621
9 48 48 3,429 39,701 18,995 18,824 519,093 25,911 25,740 525,891 35,458 35,286 535,239
10 49 49 3,429 45,286 20,934 20,934 521,035 29,455 29,455 529,422 41,709 41,709 541,439
15 54 54 3,429 77,693 32,963 32,963 533,011 52,851 52,851 552,662 87,890 87,890 587,162
20 59 59 3,429 119,052 45,788 45,788 545,856 84,368 84,368 584,063 167,699 167,699 666,292
25 64 64 3,429 171,839 57,262 57,262 557,356 123,519 123,519 623,074 301,045 301,045 798,503
30 69 69 3,429 239,210 66,480 66,480 566,620 171,543 171,543 670,942 523,077 523,077 1,018,660
</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.
------------------------
100 P R O S P E C T U S A P P E N D I C E S
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
Male Issue Age 40, Preferred Plus Underwriting Risk
Female Issue Age 40, Preferred Plus Underwriting Risk
$500,000 Face Amount
Death Benefit Option 2
Target Premium = $3,429.00
These values reflect GUARANTEED cost of insurance and other charges
Using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Age Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
Beginning Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
of Premiums ----------------------------- ----------------------------- ----------------------------
End Year Accumulated Net Net Net
of --------- at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Ins Ins Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 1 2 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> <C>
1 40 40 3,429 3,600 2,239 0 502,315 2,399 0 502,463 2,559 0 502,611
2 41 41 3,429 7,381 4,432 1,689 504,512 4,892 2,148 504,948 5,371 2,628 505,401
3 42 42 3,429 11,350 6,582 4,182 506,665 7,484 5,084 507,532 8,463 6,063 508,468
4 43 43 3,429 15,518 8,688 6,631 508,775 10,179 8,122 510,218 11,863 9,805 511,841
5 44 44 3,429 19,895 10,749 9,035 510,839 12,979 11,265 513,009 15,600 13,885 515,549
6 45 45 3,429 24,490 12,764 11,392 512,858 15,887 14,515 515,908 19,706 18,334 519,623
7 46 46 3,429 29,315 14,731 13,702 514,829 18,905 17,876 518,916 24,218 23,189 524,099
8 47 47 3,429 34,381 16,649 16,134 516,751 22,034 21,520 522,036 29,173 28,658 529,016
9 48 48 3,429 39,701 18,515 18,344 518,622 25,278 25,106 525,270 34,614 34,442 534,415
10 49 49 3,429 45,286 20,327 20,327 520,438 28,636 28,636 528,619 40,587 40,587 540,341
15 54 54 3,429 77,693 31,268 31,268 531,341 50,356 50,356 550,207 84,027 84,027 583,368
20 59 59 3,429 119,052 41,528 41,528 541,653 77,803 77,803 577,593 156,460 156,460 655,235
25 64 64 3,429 171,839 47,147 47,147 547,374 107,544 107,544 607,319 271,562 271,562 769,463
30 69 69 3,429 239,210 42,787 42,787 543,228 133,884 133,884 633,778 450,079 450,079 946,699
</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 P P E N D I C E S P R O S P E C T U S 101
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
Male Issue Age 40, Preferred Plus Underwriting Risk
Female Issue Age 40, Preferred Plus Underwriting Risk
$500,000 Face Amount
Death Benefit Option 3
Target Premium = $3,429.00
These values reflect CURRENT cost of insurance and other charges
Using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Age Assuming Current Assuming Current Assuming Current
Beginning Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
of Premiums ----------------------------- ----------------------------- ----------------------------
End Year Accumulated Net Net Net
of --------- at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Ins Ins Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 1 2 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> <C>
1 40 40 3,429 3,600 2,246 0 503,429 2,406 0 503,429 2,566 0 503,429
2 41 41 3,429 7,381 4,458 1,715 506,858 4,919 2,176 506,858 5,401 2,658 506,858
3 42 42 3,429 11,350 6,637 4,236 510,287 7,545 5,145 510,287 8,531 6,131 510,287
4 43 43 3,429 15,518 8,782 6,724 513,716 10,287 8,229 513,716 11,987 9,929 513,716
5 44 44 3,429 19,895 10,892 9,178 517,145 13,150 11,435 517,145 15,802 14,087 517,145
6 45 45 3,429 24,490 12,969 11,598 520,574 16,138 14,766 520,574 20,013 18,642 520,574
7 46 46 3,429 29,315 15,012 13,983 524,003 19,258 18,229 524,003 24,662 23,634 524,003
8 47 47 3,429 34,381 17,020 16,506 527,432 22,513 21,999 527,432 29,794 29,279 527,432
9 48 48 3,429 39,701 18,994 18,822 530,861 25,910 25,739 530,861 35,458 35,286 530,861
10 49 49 3,429 45,286 20,932 20,932 534,290 29,454 29,454 534,290 41,709 41,709 534,290
15 54 54 3,429 77,693 32,950 32,950 551,435 52,848 52,848 551,435 87,906 87,906 551,435
20 59 59 3,429 119,052 45,751 45,751 568,580 84,375 84,375 568,580 167,829 167,829 568,580
25 64 64 3,429 171,839 57,166 57,166 585,725 123,601 123,601 585,725 301,740 301,740 585,725
30 69 69 3,429 239,210 66,207 66,207 602,870 171,987 171,987 602,870 526,500 526,500 605,521
</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.
------------------------
102 P R O S P E C T U S A P P E N D I C E S
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
Male Issue Age 40, Preferred Plus Underwriting Risk
Female Issue Age 40, Preferred Plus Underwriting Risk
$500,000 Face Amount
Death Benefit Option 3
Target Premium = $3,429.00
These values reflect GUARANTEED cost of insurance and other charges
Using the Guideline Premium Test as defined under
Section 7702 of the Internal Revenue Code.
<TABLE>
<CAPTION>
Age Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
Beginning Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
of Premiums ----------------------------- ----------------------------- ----------------------------
End Year Accumulated Net Net Net
of --------- at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Ins Ins Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 1 2 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> <C>
1 40 40 3,429 3,600 2,239 0 503,429 2,399 0 503,429 2,559 0 503,429
2 41 41 3,429 7,381 4,432 1,689 506,858 4,892 2,148 506,858 5,371 2,628 506,858
3 42 42 3,429 11,350 6,582 4,182 510,287 7,484 5,084 510,287 8,463 6,063 510,287
4 43 43 3,429 15,518 8,688 6,630 513,716 10,179 8,121 513,716 11,862 9,805 513,716
5 44 44 3,429 19,895 10,748 9,034 517,145 12,979 11,264 517,145 15,599 13,885 517,145
6 45 45 3,429 24,490 12,762 11,391 520,574 15,886 14,514 520,574 19,705 18,334 520,574
7 46 46 3,429 29,315 14,729 13,700 524,003 18,903 17,874 524,003 24,217 23,188 524,003
8 47 47 3,429 34,381 16,645 16,131 527,432 22,032 21,517 527,432 29,172 28,658 527,432
9 48 48 3,429 39,701 18,509 18,338 530,861 25,274 25,102 530,861 34,614 34,442 530,861
10 49 49 3,429 45,286 20,318 20,318 534,290 28,631 28,631 534,290 40,588 40,588 534,290
15 54 54 3,429 77,693 31,221 31,221 551,435 50,339 50,339 551,435 84,078 84,078 551,435
20 59 59 3,429 119,052 41,349 41,349 568,580 77,808 77,808 568,580 156,974 156,974 568,580
25 64 64 3,429 171,839 46,532 46,532 585,725 107,797 107,797 585,725 274,789 274,789 585,725
30 69 69 3,429 239,210 40,554 40,554 602,870 135,249 135,249 602,870 466,975 466,975 602,870
</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 P P E N D I C E S P R O S P E C T U S 103
------------------------
<PAGE>
--------------------------------------------------------------------------------
APPENDIX B
USES OF LIFE INSURANCE
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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.
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104 P R O S P E C T U S A P P E N D I C E S
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<PAGE>
The Guardian Insurance & Annuity Company, Inc.
Appendix B
USES OF LIFE INSURANCE
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 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.
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 Life.
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A P P E N D I C E S P R O S P E C T U S 105
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<PAGE>
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APPENDIX C
ADDITIONAL BENEFITS BY RIDER
--------------------------------------------------------------------------------
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.
Survivorship Adjustable Annual Renewable Term (SAART)
rider -- this rider, available only at issue, provides
term insurance coverage to the insured's age 80.
Coverage under this rider has no cash value associated
with it. If you have purchased an additional sum insured
you cannot have an AART rider. If AART overage is
greater than basic sum insured coverage, you cannot
purchase a guaranteed coverage rider.
Guaranteed Coverage rider ("GCR") -- this rider,
available with death benefit option 1 and at issue only,
guarantees that the policy will remain in force even if
the net cash surrender value is less than the current
monthly deduction, provided the GCR requirement, as
described in the rider, is met. It is not available if
coverage under the additional sum insured or SAART rider
is greater than the basic sum insured at issue.
Select Security rider -- this rider, used in split
dollar cases, is an endorsement that prevents the policy
owner from making certain policy changes without the
consent of the policy owner's employer. There is no
charge for this rider.
Exchange of Insureds rider -- this rider gives the
policy owner the right to exchange the policy for a new
one on the life of a substitute insured. The exercise of
this rider will be treated as a taxable exchange for
federal income tax purposes.
Policy Split Option -- this rider, which is only
available if the insureds are spouses, and if neither
insured is in the uninsurable risk class, allows the
policyowner to split the policy into two single
traditional whole life policies, each having the same
policy date as the original policy. Certain conditions
must be satisfied before the policy split option can be
exercised. These conditions include the following:
o The basic policy and this rider must be in force,
with all due monthly deductions paid to the
exchange date.
o Both of the insureds under this policy must be
living on the exchange date.
o The owner of each new policy must have an
insurable interest in the insured's life.
o The owner of each new policy and the insured must
sign the application for the new policy.
o Any assignee must agree in writing to the
exchange.
o You must provide satisfactory evidence of
insurability if the face amount of a new policy
received in exchange for your SVUL policy exceeds
50% of the face amount (plus any survivorship
adjustable annual renewable term insurance) of
your SVUL policy.
GIAC may from time to time discontinue the availability
of one or more of these riders, or make other riders
available. GIAC agents can provide information about the
current availability of particular riders.
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106 P R O S P E C T U S A P P E N D I C E S
------------------------
<PAGE>
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APPENDIX D
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REPRESENTATIVE MONTHLY ADMINISTRATIVE EXPENSE CHARGES PER $1,000 OF
BASIC SUM INSURED
Males Females Unisex
------------------- -------------------- -----------------------
Preferred Preferred Preferred
Plus Plus Plus
and and and
Age Preferred Standard Preferred Standard Preferred Standard
---- --------- -------- --------- -------- --------- --------
25 0.07 0.09 0.06 0.07 0.07 0.09
30 0.08 0.10 0.07 0.09 0.08 0.10
35 0.10 0.12 0.08 0.10 0.09 0.12
40 0.12 0.15 0.09 0.12 0.11 0.14
45 0.13 0.18 0.10 0.14 0.13 0.17
50 0.19 0.24 0.15 0.19 0.18 0.23
55 0.24 0.31 0.19 0.25 0.23 0.30
60 0.30 0.38 0.24 0.30 0.29 0.36
65 0.35 0.44 0.28 0.35 0.34 0.43
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A P P E N D I C E S P R O S P E C T U S 107
------------------------
<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
PricewaterhouseCoopers 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 N.
(2) Not Applicable.*
(3)(a),
(b), (c),
(d) and
(e) Distribution Agreements.*
(4) Not Applicable.
(5) Specimen of the Flexible Premium Adjustable Survivorship
Variable Whole Life Insurance Policy.*
(6)(a) Certificate of Incorporation of The Guardian Insurance &
Annuity Company, Inc.*
(6)(a)(i) Certificate of Amendment of 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 Survivorship
Adjustable Variable Whole Life Policy.*
(11) 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 PricewaterhouseCoopers 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.*
-----------------
* Incorporated by reference to the Registration Statement filed on Form S-6
filed by the Registrant on April 21, 2000 (Registration No. 333-35350).
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, The
Guardian Separate Account N, 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 14th day of July, 2000.
THE GUARDIAN SEPARATE ACCOUNT N
(Name of Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
By: /s/ Richard T. Potter, Jr
-------------------------------------
Richard T. Potter, Jr
Vice President and Counsel
Attest: /s/ Sheri L. Kocen
---------------------------------
SHERI L. KOCEN
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/ Bruce C. Long Director
-----------------------------------
Bruce C. Long
/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/ Richard T. Potter, Jr. Date: July 14, 2000
---------------------------------
Richard T. Potter, Jr.
Vice President and Counsel
Pursuant to Power of Attorney
II-4
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT N
EXHIBIT INDEX
Exhibit
Number Description Page*
1. A(6)(a)(i) Certificate of Amendment of Certificate of Incorporation
of the Guardian Insurance & Annuity Company, Inc.
3. (a) Opinion of Richard T. Potter, Jr.
3. (b) Consent of Richard T. Potter, Jr.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
7. Consent of PriceWaterhouseCoopers LLP
