Registration Nos. 2-70132
811-3117
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
POST-EFFECTIVE AMENDMENT No. 21 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
AMENDMENT No. 15 |X|
(Check appropriate box or boxes)
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THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
(Exact Name of Registrant as Specified in Charter)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
7 Hanover Square, New York, New York 10004
(Address of Principal Executive Offices)
Depositor's Telephone Number: (212) 598-8359
RICHARD T. POTTER, JR., Vice President and Counsel
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and address of agent for service)
--------------------
It is proposed that this filing will be effective (check appropriate box):
| | immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 1999 pursuant to paragraph (b) of Rule 485
| | 60 days after filing pursuant to paragraph (a)(1) of Rule 485
| | on (date) pursuant to paragraph (a)(2) of Rule 485
| | 75 days after filing pursuant to paragraph (a)(2) of Rule 485
| | on (date) pursuant to paragraph (a)(2) of Rule 485.
------------------------
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
The Registrant has registered an indefinite number of its securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The notice required by such rule for the Registrant's most fiscal
year was filed on March 26, 1999.
<PAGE>
The Value Guard
Individual Deferred Variable Annuity Contracts Prospectus
May 1, 1999
This prospectus describes two types of Individual Deferred Variable Annuity
Contracts, the Single Premium Payment Contract and the Flexible Premium Payment
Contract. It contains important information that you should know before
investing in the contracts. Please read this prospectus carefully, along with
the accompanying fund prospectuses, and keep them for future reference.
The contracts are issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC) through The Guardian/Value Line Separate Account (the Separate Account).
They are designed to provide tax deferred annuity benefits under retirement
programs. They will also pay a death benefit if the owner or annuitant dies
before annuity payments begin. The contracts are only offered to retirement
plans which qualify for federal tax benefits under Section 401 or 408 of the
Internal Revenue Code.
The Single Premium Payment Contract requires a minimum investment of $3,000,
while the Flexible Premium Payment Contract requires a minimum initial premium
payment of $500. Your premiums may be invested in up to four variable investment
options or three variable investment options and a fixed-rate option. Special
limits apply to transfers to and from the fixed-rate option. The variable
investment options invest in the mutual funds listed below. The prospectuses for
these funds accompany this prospectus.
o The Guardian Park Avenue Fund
o Value Line Fund
o Value Line Income Fund
o Value Line Leveraged Growth Investors
o Value Line Cash Fund
o Value Line U.S. Government Securities Fund
A Statement of Additional Information about the contracts and the Separate
Account is available free of charge by writing to GIAC at its Customer Service
Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002, or by calling
1-800-221-3253. Its contents are noted on the last page of this prospectus.
The Statement of Additional Information, which is also dated May 1, 1999, is
incorporated by reference into this prospectus.
These Securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission, nor has the Commission
or any state securities commission passed upon the accuracy or adequacy of this
prospectus.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
The contracts are not a deposit or obligation of or guaranteed or endorsed by,
any bank or depository institution, and the contracts are not federally insured
by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency, and involves investment risk, including possible loss of the
principal amount invested.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 2 of 32
<PAGE>
Contents
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus...1
Summary......................................................................5
What is a variable annuity contract and how does it work?..................5
The accumulation period....................................................5
The annuity period.........................................................6
Other contract features....................................................6
Expenses...................................................................6
Deciding to purchase a contract............................................7
The Guardian Insurance & Annuity Company, Inc...............................10
Buying a contract...........................................................10
The application form......................................................10
Payments..................................................................11
The accumulation period.....................................................11
The Separate Account......................................................12
Variable investment options...............................................12
Fixed-rate option.........................................................13
Transfers.................................................................15
Surrenders and partial withdrawals........................................16
Managing your annuity.....................................................17
The annuity period..........................................................18
When annuity payments begin...............................................18
How your annuity payments are calculated..................................18
Annuity payout options....................................................18
Other contract features.....................................................19
Death benefits............................................................19
Financial information.......................................................20
How we calculate unit values..............................................20
Summary financial information about the Separate Account..................20
Contract costs and expenses...............................................25
Federal tax matters.......................................................26
Taxation of qualified contracts...........................................27
Our income taxes..........................................................28
Possible tax law changes..................................................28
Your rights and responsibilities............................................29
Voting rights.............................................................29
Your right to cancel the contract.........................................29
Distribution of the contracts.............................................29
Special terms used in this prospectus.......................................30
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 3 of 32
<PAGE>
Other information...........................................................31
Year 2000 compliance......................................................31
Legal Proceedings.........................................................31
Where to get more information.............................................32
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
Summary
What is a variable annuity contract and how does it work?
A variable annuity contract allows you to accumulate tax-deferred savings which
are invested in options that you choose. This is the accumulation period of the
contract.
On an agreed date, you or someone else you have named as the annuitant will
start receiving regular payments from the amount you have saved and any
investment earnings. This is the annuity period.
The amount of the annuity payments will depend on earnings during the
accumulation period, and afterward if you select a variable annuity option.
That's why this product is called a variable annuity.
The accumulation period
During the accumulation period, these contracts allow you to allocate your net
premium payments and accumulation value to as many as four variable investment
options, or three variable investment options and a fixed-rate option.
When you allocate your premiums to the variable investment options, you bear the
risk of any investment losses. No assurance can be given that the value of the
contracts during the accumulation period, or the total amount of annuity
payments made under the contracts, will equal or exceed the net premium payments
allocated to the variable investment options. When you allocate your net premium
payments to the fixed-rate option, the contracts guarantee that they will earn a
minimum rate of interest and the investment risk is borne by GIAC.
GIAC has established The Guardian/Value Line Separate Account to hold the
variable investments in its annuity contracts. The Separate Account has six
investment divisions, corresponding to six variable investment options, each of
which invests in a mutual fund. (A seventh investment division corresponds to he
Value Line Special Situations Fund. This fund is only available if you bought
your contract before December 1, 1988.) Your net premiums are used to buy
accumulation units in the investment divisions you have chosen, or are allocated
to the fixed-rate option.
The total value of your contract's investment in the investment divisions and in
the fixed-rate option is known as the accumulation value. It's determined by
multiplying the number of variable accumulation units credited to your account
in each investment division by the current value of the division's units, and
adding your value in the fixed-rate option.
The value of units in a variable investment division reflects the investment
experience within the division. The value of units in the fixed-rate option
reflects interest accrued at a rate not less than the guaranteed minimum
specified in the contract. For a complete explanation, please see Financial
information: How we calculate unit values.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
The annuity period
Payments to the annuitant under these contracts must begin no later than his or
her 85th birthday. Distributions under the contract are taxable, and if you take
money out of the contract before age 59 1/2, you may also incur a 10% federal
tax penalty on your earnings.
You may select one or a combination of three annuity payout options under the
contract:
o Life annuity without a guaranteed period
o Life annuity with a 10-year guaranteed period
o Joint and survivor annuity
These payout options are described in more detail in the section titled The
annuity period.
Other contract features
Transfers among investment options
You can make transfers among the variable investment options at any time.
Transfers to and from the fixed-rate option are only permitted during the
accumulation period. Certain restrictions apply to transfers out of the
fixed-rate option. Transfers must also comply with the rules of any retirement
plan that apply. Please see The accumulation period: Transfers.
Death benefits
If you, or another person named as the annuitant, should die before annuity
payments begin, then we pay a death benefit to the beneficiary. Please see Other
contract features: Death benefits.
Surrenders and partial withdrawals
At any time during the accumulation period, you may withdraw some or all of the
amount you have saved in the contract. Taking out all you have saved is known as
a surrender; taking out part of your savings is a partial withdrawal. These
options are not available once annuity payments begin. Please see The
accumulation period: Surrenders and partial withdrawals.
Expenses
The following are expenses that you will incur as a contract owner:
o Operating expenses for mutual funds comprising the variable investment
options
Management fees and other expenses associated with the Funds ranged from
.66% to 1.02% in 1998. Actual charges will depend on the variable
investment options you select.
o Mortality and expense risk charges
1.0% annually of the net asset value of your variable investment options.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
o Administrative expenses
A $30 annual contract administration fee will be deducted from the
accumulation value of Single Premium Payment Contracts. The fee is $35 for
Flexible Premium Payment Contracts.
The following are expenses that you may incur as a contract owner:
o Contingent deferred sales charges
A charge of 1% to 5% against any amount that you withdraw that has been in
your contract for less than seven years. The actual amount will depend on
the number of years the amount has been invested.
o Premium taxes
A tax on premiums or annuity payments, applicable in some states and
municipalities only, that varies from 0.5% to 3.5% of premiums paid to the
contract.
Deciding to purchase a contract
You should consider purchasing a variable annuity contract if your objective is
to invest over a long period of time and to accumulate assets on a tax-deferred
basis, generally for retirement. You have the right to examine the contract and
return it for cancellation within 10 days of receiving it. This is known as the
free-look period. The period may be longer than 10 days in some states.
Please see Special terms used in this prospectus for definitions of key terms.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
This table will assist you in understanding the various costs and expenses of
the Separate Account and its underlying Funds. The accompanying Fund
prospectuses provide a more complete description of the various costs and
expenses.
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EXPENSE TABLE
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CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases: None
Transfer Fee: Currently, none (may charge $25 for each transfer)
Contingent Deferred Sales Charge:
(1) Single Premium Payment Contracts:(1)
In connection with Single Premium Payment Contracts, the following charges will
be assessed upon amounts withdrawn during the first seven Contract years
measured from the date of issue.
Number of Contract Years Contingent
Completed from Date of Deferred Sales Charge
the Premium Payment Percentage(1)
1 ............................................. 5%
2 ............................................. 5%
3 ............................................. 4%
4 ............................................. 3%
5 ............................................. 2%
6 ............................................. 1%
7+............................................. 0%
(2) Flexible Premium Payment Contracts:(2)
In connection with Flexible Premium Payment Contracts, this charge will be the
lesser of:
a) 5% of the total payments made during the 84 months immediately preceding
the date of withdrawal, or
b) 5% of the total amount being withdrawn.
Annual Contract Administration Fee:
Single Premium Payment Contract $30
Flexible Premium Payment Contract $35
Separate Account Level Annual Expenses:
(as a percentage of daily net asset value)
Mortality and Expense Risk
Charge 1.0%
Account Fees and Expenses 0%
- -------------------------------------------------------
Total Separate Account
Annual Expenses 1.0%
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Annual Expenses of the Funds:
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees Other Expenses Total Fund Operating Expenses
====================================================================
<S> <C> <C> <C>
The Guardian Park Avenue Fund .50% .28% .78%
Value Line Fund .66% .11% .77%
Value Line Income Fund .68% .19% .87%
Value Line Leveraged Growth Investors .75% .12% .87%
Value Line Cash Fund .40% .17% .57%
Value Line U.S. Government Securities Fund(3) .50% .16% .66%
Value Line Special Situations Fund(4) .75% .27% 1.02%
</TABLE>
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(1) After the first contract year, you may withdraw 10% of the amount of the
single premium payment in each contract year, without a deferred sales charge.
(2) After the first contract year, you may withdraw 10% of the total premiums
paid under the contract in the 72 months immediately preceding the date of your
withdrawal in each contract year, without a deferred sales charge. This charge
will not exceed 5% of the total premiums paid in the 72 months preceding the
date of your withdrawal.
(3) Value Line U.S. Government Securities Fund's fiscal year runs from September
1 through August 31.
(4) Value Line Special Situations Fund is only available to contractowners who
purchased a contract prior to December 1, 1988.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
Comparison of Contract Expenses Among Underlying Funds
For Single Premium (SP) and Flexible Premium (FP) Payment Contracts
<TABLE>
<CAPTION>
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If you surrender your contract at If you do not surrender or you
the end of the applicable time annuitize at the end of the
period: applicable time period:
You would pay the following You would pay the following expenses
expenses on a $1,000 investment, on a $1,000 investment, assuming a
assuming a 5% annual return on 5% annual return on assets:
assets:
Single Premium and Flexible Premium Single Premium and Flexible Premium
Contracts Contracts
==========================================================================
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- -----------------------------------------==========================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $69 SP $100 SP $123 SP $223 SP $19 SP $60 SP $103 SP $223 SP
$70 FP $110 FP $154 FP $225 FP $20 FP $60 FP $104 FP $225 FP
- -----------------------------------------==========================================================================
Value Line Fund $69 SP $100 SP $123 SP $222 SP $19 SP $60 SP $103 SP $222 SP
$69 FP $110 FP $153 FP $224 FP $19 FP $60 FP $103 FP $224 FP
- -----------------------------------------==========================================================================
Value Line Income Fund $70 SP $103 SP $128 SP $233 SP $20 SP $63 SP $108 SP $233 SP
$71 FP $113 FP $159 FP $235 FP $21 FP $63 FP $109 FP $235 FP
- -----------------------------------------==========================================================================
Value Line Leveraged Growth Investors $70 SP $103 SP $128 SP $233 SP $20 SP $63 SP $108 SP $233 SP
$71 FP $113 FP $159 FP $235 FP $21 FP $63 FP $109 FP $235 FP
- -----------------------------------------==========================================================================
Value Line Cash Fund $67 SP $93 SP $112 SP $200 SP $17 SP $53 SP $92 SP $200 SP
$67 FP $104 FP $143 FP $201 FP $17 FP $54 FP $93 FP $201 FP
- -----------------------------------------==========================================================================
Value Line U.S. Government Securities $68 SP $96 SP $117 SP $210 SP $18 SP $56 SP $97 SP $210 SP
Fund $68 FP $107 FP $147 FP $211 FP $18 FP $57 FP $97 FP $211 FP
- -----------------------------------------==========================================================================
Value Line Special Situations Fund * $72 SP $108 SP $136 SP $249 SP $22 SP $68 SP $116 SP $249 SP
$72 FP $118 FP $167 FP $251 FP $22 FP $68 FP $117 FP $251 FP
- -----------------------------------------==========================================================================
</TABLE>
* Value Line Special Situation Fund is available only for allocation to contract
owners who purchased a contract prior to December 1, 1988.
These expense comparisons assume that the expenses incurred during the periods
shown will be the same as those reported in the Expense Table above. The
comparison does not represent past or future expenses. Actual expenses may be
higher or lower than those shown. The effect of the annual contract fee was
calculated by: (1) dividing the total contract fees for the year ended December
31, 1998 by total average net assets for the year; (2) adding this percentage to
annual expenses; and (3) calculating the dollar amounts. In addition, premium
taxes ranging from .5% to 3.5% are currently imposed by certain states and
municipalities, and will reduce the amount of each premium payment available for
allocation under the contract. See Deductions and charges.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
The Guardian Insurance & Annuity Company, Inc.
The Guardian Insurance & Annuity Company, Inc. (GIAC) is a stock life insurance
company incorporated in the state of Delaware in 1970. GIAC, which issues the
contracts offered with this prospectus, is licensed to conduct an insurance
business in all 50 states of the United States and the District of Columbia. The
company had total assets of over $9.5 billion as of December 31, 1998. Its
financial statements appear in the Statement of Additional Information.
GIAC's executive office is located at 7 Hanover Square, New York, New York
10004. The mailing address of the GIAC Customer Service Office, which
administers these contracts, is P.O. Box 26210, Lehigh Valley, Pennsylvania
18002.
GIAC is wholly owned by The Guardian Life Insurance Company of America (Guardian
Life), a mutual life insurance company organized in the State of New York in
1860. As of December 31, 1998, Guardian Life had total assets in excess of $15.5
billion. Guardian Life does not issue the contracts offered under this
prospectus and does not guarantee the benefits they provide.
Buying a contract
There are two types of contracts. With a Flexible Premium Payment Contract, you
make regular payments throughout the accumulation period. With a Single Premium
Payment Contract, you make a single payment when you buy the contract. Both
types of contracts allow you to direct where your net premium payments are
invested. The contracts are only available for retirement plans which qualify
for special Federal income tax treatment, known as "qualified contracts." They
are not available for "non-qualified contracts."
The application form
If you would like to buy a contract, you must complete and sign the application
form. You or your agent then must send it, along with your initial premium
payment, by regular U.S. mail to the following address:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002
If you wish to send your application and payment by certified, registered or
express mail, please address it to:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
3900 Burgess Place
Bethlehem, Pennsylvania 18017
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
Our decision to accept or reject your application is based on administrative
rules such as whether you have completed the form completely and accurately. We
have the right to reject any application or initial premium payment for any
reason.
If we accept your application as received, we will credit your net premium
payment to your new contract within two business days. If your application is
not complete within five business days of our receiving it, we will return it to
you along with your payment.
Payments
We require a minimum initial premium payment of $3,000 for Single Premium
Payment Contracts, and $500 for Flexible Premium Payment Contracts. Thereafter,
the minimum additional flexible payment is $100. However, if you purchase a
Flexible Premium Payment Contract through an employer payroll deduction plan,
the minimum payment will be $50. The total amount paid in flexible premium
payments in any contract year after the first may not exceed, without our
written consent, the lesser of 10 times the total amount you paid in premium
payments in the first contract year, or $100,000.
The accumulation period
How we allocate your premium payments
After we receive your initial premium payment and issue a contract to you, we
will normally credit subsequent net premium payments to your contract on the
same day we receive them, provided we receive them prior to the close of our
regular business day.
If we receive your payment on a non-business day, or after our close, we will
normally credit it on the next business day. If required in your state or
municipality, premium taxes are deducted from your payment before we credit it
to your contract. We call the amount remaining after this deduction the net
premium payment.
We use your net premium payments to purchase accumulation units in the variable
investment options you have chosen or in the fixed-rate option, according to
your instructions in the application or as later changed. The prices of
accumulation units are set daily because they change along with the share values
of the Funds you invest in. The amount you pay for each unit will be the next
price calculated after we receive and accept your payment.
The value of accumulation units will vary as you earn interest in the fixed-rate
option or as the value of investments rises and falls in the variable investment
options.
You can change your investment option selections by notifying us in writing. We
will apply your new instructions to subsequent net premium payments after we
receive and accept them. Please remember that you cannot invest in more than
four variable investment options, or three variable investment options and the
fixed-rate option at any given time.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
The Separate Account
GIAC has established The Guardian/Value Line Separate Account to receive and
invest your premium payments in the variable investment options. The Separate
Account has six investment divisions, corresponding to the six Funds available
to you. (A seventh investment division corresponds to The Value Line Special
Situations Fund. This fund is only available if you bought your contract before
December 1, 1988.) The performance of each division is based on the Fund in
which it invests.
The Separate Account was established in 1980. It is registered as a unit
investment trust under the Investment Company Act of 1940 (the 1940 Act) and
meets the definition of a separate account under federal securities laws. State
insurance law provides that the assets of the Separate Account equal to its
reserves and other liabilities are not chargeable with GIAC's obligations except
those under annuity contracts issued through the Separate Account. Income, gains
and losses of the Separate Account are kept separate from other income, gains or
losses of the contract owner. Each investment division is administered and
accounted for as part of the general business of GIAC. Under Delaware law, the
income and capital gains or capital losses of each investment division are
credited to or charged against the assets held in that division according to the
terms of each contract, without regard to other income, capital gains or capital
losses of the other investment divisions or of GIAC. Contract obligations are
GIAC's responsibility. According to Delaware insurance law, the assets of the
Separate Account are not chargeable with liabilities arising out of any other
business GIAC may conduct. Please see Financial Information: Federal tax
matters.
We have the right to make changes to the Separate Account, to the investment
divisions within it, and to the fund shares they hold. These changes must be
made in a manner that is consistent with laws and regulations. When necessary,
we'll use this right to serve your best interests and to carry out the purposes
of the contract.
Variable investment options
You may choose to invest in a maximum of four of the six variable investment
options at any time. Each Fund is an open-end diversified management investment
company, registered with the Securities and Exchange Commission under the 1940
Act.
The Funds have different investment objectives which influence their risk and
return. The table below summarizes their main characteristics.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
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<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fund Investment objective(s) Typical investments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Guardian Park Avenue Fund Long-term growth of capital U.S. common stocks
- --------------------------------------------------------------------------------------------------------------------
Value Line Fund Long-term growth of capital; current U.S. common stocks and short-term bonds
income as a secondary objective
- --------------------------------------------------------------------------------------------------------------------
Value Line Income Fund Maximum income without undue risk of U.S. common stocks
principal; capital appreciation as a
secondary objective
- --------------------------------------------------------------------------------------------------------------------
Value Line Leveraged Growth Long-term growth of capital U.S. common stocks
Investors
- --------------------------------------------------------------------------------------------------------------------
Value Line Cash Fund Maximum income without undue risk of High-quality, short-term money market
principal instruments
- --------------------------------------------------------------------------------------------------------------------
Value Line U.S. Government Maximum income without undue risk of U.S. government securities
Securities Fund principal
- --------------------------------------------------------------------------------------------------------------------
Value Line Special Situations Long-term growth of capital U.S. common stocks
Fund*
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Value Line Special Situations Fund is only available for investment by
contracts purchased before December 1, 1988. Some of these Funds may not be
available in your state.
The investment manager and principal underwriter of The Guardian Park Avenue
Fund is Guardian Investor Services Corporation (GISC), a wholly owned subsidiary
of GIAC. The investment manager of the Value Line Fund, Value Line Income Fund,
Value Line Leveraged Growth Investors, Value Line Cash Fund, Value Line U.S.
Government Securities Fund and the Value Line Special Situations Fund is Value
Line, Inc. Their principal underwriter is Value Line Securities, Inc., an
affiliate of Value Line, Inc.
Some investment advisers (or their affiliates) may pay us compensation for
administration, distribution or other expenses. Currently, this adviser is Value
Line, Inc. The amount of compensation is usually based on assets of the relevant
variable investment options from contracts that we issue, and some advisers may
pay us more than others.
Before investing, please read the accompanying Fund prospectuses carefully. They
contain important information on the investment objectives, policies, risks,
charges and expenses of the Funds.
Fixed-rate option
The fixed-rate option is not registered under the Securities Act of 1933 or as
an investment company under the 1940 Act, and is therefore not subject to the
provisions or restrictions of these Acts. However, the following disclosure
about the fixed-rate option may be subject to certain generally applicable
provisions of
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 13 of 32
<PAGE>
the federal securities laws regarding the accuracy and completeness of
statements not in prospectuses. The fixed-rate option may not be available for
allocation in all states in which the contracts are available.
In the fixed-rate option, we guarantee that the net premium payments you invest
will earn daily interest at a minimum annual rate of 3.5%. You can allocate all
of your net premium payments to this option, or you may choose it as one of your
four investment selections. The value of your net premiums invested in the
fixed-rate option does not vary with the investment experience of any Fund. The
money that you put into your fixed-rate option becomes part of GIAC's general
assets.
At certain times we may choose to pay interest at a rate higher than 3.5%, but
we aren't obliged to do so. Higher interest rates are determined at our
discretion and we can change them prospectively without notice. We don't use a
specific formula to determine interest rates; rather we consider such factors as
general economic trends, current rates of return on our general account
investments, regulatory and tax requirements, and competitive factors. The rate
of interest we pay hasn't been limited by our Board of Directors.
Here are some of the important conditions that apply when we pay interest on
your investments in the fixed-rate option:
o The initial interest rate that we credit to your premiums or transfers
will be whatever rate is in effect on the date the amounts are allocated
to the fixed-rate option.
o This interest rate will continue until the next contract anniversary date.
o At that time, all payments and transfers allocated to the fixed-rate
option during the previous year, together with interest earned, will be
credited with the rate of interest in effect on the renewal date, known as
the renewal rate.
o The renewal rate will be guaranteed until the next contract anniversary
date.
If your state's insurance department permits, your contract may have what's
known as a bailout rate. If the renewal rate set on any contract anniversary
date is more than 3% below the interest rate for the previous year, or falls
below the minimum bailout rate outlined in your contract, you can withdraw all
or part of the money you have invested in the fixed-rate option for one year or
more from the contract without incurring a deferred sales charge.
Sidebar:
- --------------------------------------------------------------------------------
When you buy a contract, please note:
o You can choose up to four investment options at any one time.
o If you select the fixed-rate option, you are limited to an additional
three variable options.
o There are no initial sales charges on the premium payments that you
allocate to the variable investment options. However, there may be premium
tax charges.
o All of the dividends and capital gains distributions that are payable to
variable investment options are reinvested in shares of the applicable
Fund at the current net asset value.
o When the annuity period of the contract begins, we will apply your
accumulation value to a payment option in order to make annuity payments
to you.
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The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 14 of 32
<PAGE>
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o You can arrange to transfer your investments among the divisions by
notifying us in writing or by telephone. Currently, there is no fee for
this, but we reserve the right to charge a fee and to limit the number of
transactions.
o You can change beneficiaries as long as the annuitant is living.
- --------------------------------------------------------------------------------
Transfers
You can transfer money among variable investment options both before and after
the date annuity payments begin. You can also transfer to and from the
fixed-rate option, but only before the date annuity payments begin. Transfers
are subject to certain conditions, which are described below.
If you are considering a transfer, be sure to look into each option carefully
and make sure your decisions will help you to achieve your long-term investment
goals.
During the accumulation period and up to 30 days before the date annuity
payments are scheduled to begin, you can transfer all or part of your
accumulation value among the contract options. These transfers are subject to
the following rules:
o We permit transfers from the fixed-rate option to any variable investment
option only once each contract year, during the 30 days beginning on the
contract anniversary date. Amounts that have been on deposit in the
fixed-rate option longest will be transferred out first. The maximum
yearly transfer from the fixed-rate option is the greater of the
following:
- 33 1/3% of the amount in the fixed-rate option on the applicable
contract anniversary date or
- $2,500.
Each transfer involving the variable investment options will be based on the
accumulation unit value that is next calculated after we have received proper
transfer instructions from you.
We will implement a transfer upon receiving your written or telephone
instructions in good order. If your request reaches our customer service office
before 3:30 p.m. Eastern time on a business day, we will normally implement it
that same day.
At this time, we do not limit the number of transfers you may make. However, we
have the right to limit the frequency of transfers to not more than once every
30 days.
At this time, we do not charge for transfers; however, we do have the right to
impose a fee of up to $25 per transfer. We will deduct any transfer charges on a
pro-rata basis from the options you transfer from.
We require proper authorization to honor telephone transfer instructions. If you
would like this privilege, please complete a transfer authorization form, or
give us authorization on your application. Once we have your authorization on
file, you can carry out a telephone transfer by calling 1-800-533-0099 between
9:00 a.m. and 3:30 p.m. Eastern time on any business day when we are open.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 15 of 32
<PAGE>
During periods of drastic economic or market changes it may be difficult to
contact us to request a telephone transfer. At such times, please send your
transfer request by regular or express mail and we will process it using the
accumulation unit value first calculated after we receive the request. We have
the right to modify, suspend or discontinue telephone transfer privileges at any
time without prior notice.
Sidebar:
- --------------------------------------------------------------------------------
Note: When you call us, we will require identification of your contract as well
as your personal security code. We may accept transfer instructions from anyone
who can provide us with this information. Neither GIAC, GISC, nor the Funds will
be liable for any loss, damage, cost or expense resulting from a telephone
transfer we reasonably believe to be genuine. As a result, you assume the risk
of unauthorized or fraudulent telephone transfers. We may record telephone
conversations regarding transfers without disclosure to the caller.
- --------------------------------------------------------------------------------
After the date annuity payments begin, if you have a variable annuity option you
can transfer all or part of the value of your annuity among the variable
investment options only once each calendar year. We will adjust the number of
annuity units, which are used to determine your annuity payments, to reflect the
unit values of the new funds you have chosen. No fixed-rate option transfers are
permitted.
Surrenders and partial withdrawals
During the accumulation period and while the annuitant and all contract owners
are living, you can redeem your contract in whole. This is known as surrendering
the contract. If you redeem part of the contract, it's called a partial
withdrawal. We will not accept requests for surrenders or partial withdrawals
after the date annuity payments begin.
Your request for surrenders and partial withdrawals must be received in good
order. If you wish to surrender your contract, you must send us the contract or
we will not process the request. If you have lost the contract, we will require
an acceptable affidavit of loss. Surrendering your contract or making a partial
withdrawal in the first six years of your contract may trigger the contingent
deferred sales charge. See Contract costs and expenses.
To process a partial withdrawal, we will redeem enough accumulation units to
equal the dollar value of your request. When you surrender your contract, we
redeem all the units. For both transactions we use the unit value next
calculated after we receive a proper request from you. We will deduct any
applicable contract charges and deferred sales charges from the proceeds of a
surrender. In the case of a partial withdrawal, we will cash additional units to
cover these charges. If you have less than $500 left in your Single Premium
Payment Contract after a partial withdrawal, or $250 left in your Flexible
Premium Payment Contract, we will cancel the contract and pay you the balance of
the proceeds. This is called an involuntary surrender and it may be subject to
any applicable contract charges and a deferred sales charge. Please see
Financial information: Federal tax matters.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 16 of 32
<PAGE>
Surrenders and partial withdrawals are subject to tax, and may be subject to
penalty taxes and mandatory federal income tax withholding. After the first
contract year, you are allowed to make an annual withdrawal of the following
amounts from the contract without paying a deferred sales charge:
For Single Premium Payment Contracts
o 10% of the amount of your single premium payment.
For Flexible Premium Payment Contracts
o 10% of the total premiums paid during the 72 months immediately preceding
the date of your withdrawal.
Unless you are making a withdrawal directly from the fixed-rate option in
accordance with the bailout provisions, we will cash accumulation units in the
following order:
o all variable accumulation units attributable to the investment divisions;
this will be done on a pro-rata basis unless you instruct us differently,
then
o all fixed accumulation units attributable to the fixed-rate option.
We will send you your payment within seven days of receiving a request from you
in good order. Please see the margin note Payments later in this section. If you
have a question about surrenders or withdrawals, please call us toll free at
1-800-221-3253.
Managing your annuity
Sidebar:
- --------------------------------------------------------------------------------
Payments
For all transactions, we can delay payment if the contract is being contested.
We may postpone any calculation or payment from the variable investment options
if:
o the New York Stock Exchange is closed for trading or trading has been
suspended, or
o the Securities and Exchange Commission restricts trading or determines
that a state of emergency exists which may make payment or transfer
impracticable
Assigning contract interests
If the contract is part of a Keogh plan, or a corporate or individual plan under
section 408 of the Internal Revenue Code, the contract owner's interest in the
contract cannot be assigned, unless the contract owner is not the annuitant or
the annuitant's employer. Assigned contract interests may be treated as a
taxable distribution to the contract owner. See Federal tax matters for more
information.
Reports
At least twice each year, we send a report to each contract owner that contains
financial information about the Separate Account, according to applicable laws,
rules and regulations. Additionally, at least once each year, we send a
statement to each contract owner that reports the number of accumulation units
and their value under the contract.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 17 of 32
<PAGE>
The annuity period
When annuity payments begin
You choose the month and year in which we will begin paying annuity benefits.
The first payment is made on the first day of the month. The date you choose
can't be later than the annuitant's 85th birthday, unless we have agreed. Please
note that this date may be determined by the retirement plan under which your
annuity contract was issued.
How your annuity payments are calculated
Your annuity payments will be fixed, variable or a combination of both,
depending on whether you have chosen a fixed-rate or a variable rate payment
option. Your payments are determined by the following:
o the table in your contract reflecting the nearest age and the sex of the
annuitant
o the annuity payout option you choose
o the investment returns of the variable investment options you choose, if
you choose a variable payment option.
The number and amount of your annuity payments won't be affected by the
longevity of annuitants as a group. Nor will they be affected by an increase in
our expenses over the amount we have charged in your contract.
We will make annuity payments once a month, except as follows: Proceeds of less
o than $2,000 will be delivered in a single payment.
o We may change the schedule of installment payments to avoid payments of
less than $20.
The payout options currently offered are discussed below. You can choose to have
annuity payments made under any one of the payout options that are available.
You can make your choice at any time before your annuity payments begin. At any
time, we may discontinue any of these options or make additional options
available.
Annuity payout options
There are a variety of payout options for you to choose from that we've
described below. If you do not make a choice, we will automatically select
Option 2. You may change options if you wish, provided you do so before payments
begin.
Option 1 - Life Annuity Payments
We make a payment once a month during the annuitant's lifetime, ending with the
payment preceding the annuitant's death. This option allows for the maximum
monthly payment because there is neither a guaranteed minimum number of
payments nor a provision for a death benefit for beneficiaries. It is possible
that an annuitant could receive only one payment, if he or she dies before the
date of the second payment.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 18 of 32
<PAGE>
Option 2 - Life Annuity with 120 Monthly Payments Certain
We make a payment once a month during the annuitant's lifetime, but if the
annuitant dies before receiving 10 years worth of payments (120), the remaining
payments will be made to the beneficiary. The beneficiary can then choose to
take all or part of the remaining payments in a lump sum at their current dollar
value. If the beneficiary dies while receiving the payments, the balance will be
paid in one sum at its current dollar value to the beneficiary's estate.
Option 3 - Joint and Two-Thirds Survivor Annuity
We make a payment once a month during the joint lifetimes of the annuitant and a
designated second person, the joint annuitant. If one dies, payments will
continue during the survivor's lifetime, but the amount of the payment will then
be reduced to two-thirds of the number of units paid out each month when both
parties were alive. It is possible that the joint annuitants could receive only
one payment if they both die before the date of the second payment.
Other contract features
Death benefits
If the annuitant you have named dies before the date annuity payments begin, we
pay a death benefit. The death benefit is the accumulation value of the contract
at the end of the valuation period during which we receive proof of death.
However, if death occurs before the annuitant reaches age 75 and before the
retirement date, the death benefit cannot be less than the total of all the
premium payments previously made, less any partial withdrawals and charges
associated with those withdrawals.
We normally pay the death benefit within seven days of receiving proof of death
in good order. However, we have the right to defer the payment of other contract
benefits under certain circumstances. These are described under Surrenders and
partial withdrawals.
Generally, your beneficiaries will be taxed on the gain in your annuity
contract. Consult your tax adviser about the estate tax and income tax
consequences of your particular situation.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 19 of 32
<PAGE>
Financial information
How we calculate unit values
When you choose a variable investment option, you accumulate variable
accumulation units. With the fixed-rate option, you accumulate fixed
accumulation units. To calculate the number of accumulation units you buy with
each payment, we divide the amount you invest in each option by the value of
units in the option. We use the unit value next calculated after we have
received and accepted your payment. We calculate unit values at the close of
business of the New York Stock Exchange, usually at 4:00 p.m. Eastern time, each
day the Exchange is open for trading and GIAC is open for business.
To determine the value of your account, we multiply the number of accumulation
units in each option by the current unit value for the option.
We determine the value of a fixed accumulation unit by adding together its value
at the end of the preceding valuation period and any interest credited to the
unit since the end of that period.
We determine the value of a variable accumulation unit by multiplying its value
at the end of the preceding valuation period by the net investment factor for
the current valuation period.
The net investment factor is a measure of the investment experience of each
variable investment option. We determine the net investment factor for a given
valuation period as follows:
o At the end of the valuation period we add together the net asset value of
a Fund share and its portion of dividends and distributions made by the
Fund during the period
o We divide this total by the net asset value of the particular Fund share
calculated at the end of the preceding valuation period
o Finally, we add up the daily charges (mortality and expense risks,
administrative expenses, and any premium taxes ) and subtract them from
the above total.
Summary financial information about the Separate Account
The following condensed financial information is derived from the financial
statements of the Separate Account, which were audited by PricewaterhouseCoopers
LLP, independent accountants, for the years ended December 31, 1992 through
1998. The data should be read in conjunction with the financial statements,
related notes and other financial information from the Separate Account's 1998
Annual Report to contract owners which are incorporated by reference into the
Statement of Additional Information. A copy of the 1998 Annual Report to
contract owners and the Statement of Additional Information may be obtained by
calling or writing GIAC's Customer Service Office. The address and phone number
appear on the cover of this Prospectus.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 20 of 32
<PAGE>
Summary financial information about the Separate Account
Selected data for accumulation units of the Separate Account outstanding at the
end of each period.
Tax qualified
<TABLE>
<CAPTION>
Years ended December 31
- -----------------------------------------------------------------------------------------------
Variable accumulation unit value 1998 1997 1996 1995 1994
at beginning of period ($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $142.844 $106.976 $85.415 $64.239 $65.821
- -----------------------------------------------------------------------------------------------
Value Line Fund 65.096 54.067 44.565 34.066 36.013
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 61.697 52.560 45.222 36.178 38.201
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 32.938 25.181 23.713 18.570 18.562
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth 83.359 68.003 56.152 41.374 43.393
Investors
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 44.233 40.899 39.744 35.074 39.653
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 27.034 25.974 24.992 23.942 23.320
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Variable accumulation unit value 1993 1992 1991 1990 1989
at beginning of period ($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $55.266 $46.328 $34.615 $39.820 $32.519
- -----------------------------------------------------------------------------------------------
Value Line Fund 34.048 32.846 22.284 22.678 17.426
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 35.635 35.371 27.799 27.525 22.686
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 16.591 17.355 12.830 13.560 11.251
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 37.713 39.049 26.946 27.669 21.119
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 36.473 34.650 30.060 27.520 24.822
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 22.851 22.246 21.216 19.855 18.388
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Variable accumulation unit value 1998 1997 1996 1995 1994
at end of period ($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $171.570 $142.844 $106.976 $85.415 $64.239
- -----------------------------------------------------------------------------------------------
Value Line Fund 77.513 65.096 54.067 44.565 34.066
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 78.096 61.697 52.560 45.222 36.178
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 42.361 32.938 25.181 23.713 18.570
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 115.251 83.359 68.003 56.152 41.374
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 47.162 44.233 40.899 39.744 35.074
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 28.118 27.034 25.974 24.992 23.942
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 21 of 32
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31
- -----------------------------------------------------------------------------------------------
Variable accumulation unit value 1993 1992 1991 1990 1989
at end of period ($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $65.821 $55.266 $46.328 $34.615 $39.820
- -----------------------------------------------------------------------------------------------
Value Line Fund 36.013 34.048 32.846 22.284 22.678
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 38.201 35.635 35.371 27.799 27.525
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 18.562 16.591 17.355 12.830 13.560
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 43.393 37.713 39.049 26.946 27.669
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 39.653 36.473 34.650 30.060 27.520
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 23.320 22.851 22.246 21.216 19.855
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Number of variable accumulation 1998 1997 1996 1995 1994
units outstanding at end of period
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund 1,341,401 1,566,904 1,757,097 1,867,807 2,011,941
- -----------------------------------------------------------------------------------------------
Value Line Fund 125,010 163,659 180,701 187,752 217,631
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 89,281 120,191 142,807 144,584 169,481
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 12,053 15,127 18,898 21,089 45,690
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 57,867 66,275 73,435 83,438 90,681
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 206,843 240,263 321,926 398,208 466,099
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 621,582 575,886 773,013 835,912 980,422
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Number of variable accumulation 1993 1992 1991 1990 1989
units outstanding at end of period
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund 2,042,159 2,012,445 2,024,689 2,004,863 2,024,3270
- -----------------------------------------------------------------------------------------------
Value Line Fund 238,775 288,819 264,572 303,209 286,760
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 185,808 204,834 189,490 200,570 208,745
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 43,135 49,554 72,962 50,596 40,606
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 100,563 97,359 111,823 121,135 114,132
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 624,392 692,476 740,018 657,866 652,888
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 1,089,853 1,538,970 1,896,733 2,281,121 2,517,433
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 22 of 32
<PAGE>
<TABLE>
<CAPTION>
Non-tax qualified Years ended December 31
- -----------------------------------------------------------------------------------------------
Variable accumulation unit value 1998 1997 1996 1995 1994
at beginning of period($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $130.366 $97.631 $77.954 $58.628 $60.071
- -----------------------------------------------------------------------------------------------
Value Line Fund 56.056 46.559 38.376 29.335 31.012
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 58.109 49.503 42.592 34.074 35.980
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 32.779 25.060 23.599 18.480 18.472
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 83.242 67.908 56.074 41.316 43.332
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 44.234 40.901 39.745 35.075 39.655
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 27.034 25.974 24.992 23.942 23.320
- ---------------------------------- ----------- ------------ ----------- ------------ -----------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Variable accumulation unit value 1993 1992 1991 1990 1989
at beginning of period($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $50.438 $42.281 $31.591 $36.342 $29.679
- -----------------------------------------------------------------------------------------------
Value Line Fund 29.320 28.285 19.189 19.528 15.006
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 33.563 33.314 26.182 25.924 21.367
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 16.511 17.271 12.767 13.494 11.197
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 37.660 38.995 26.908 27.630 21.090
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 36.474 34.651 30.061 27.521 24.823
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 22.851 22.246 21.216 19.855 18.388
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Variable accumulation unit 1998 1997 1996 1995 1994
value at end of period($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $156.583 $130.366 $97.631 $77.954 $58.628
- -----------------------------------------------------------------------------------------------
Value Line Fund 66.749 56.056 46.559 38.376 29.335
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 73.554 58.109 49.503 42.592 34.074
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 42.156 32.779 25.060 23.599 18.480
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 115.096 83.242 67.908 56.074 41.316
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 47.164 44.234 40.901 39.745 35.075
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 28.118 27.034 25.974 24.992 23.942
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 23 of 32
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31
- -----------------------------------------------------------------------------------------------
Variable accumulation unit 1993 1992 1991 1990 1989
value at end of period($):
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund $60.071 $50.438 $42.281 $31.591 $36.342
- -----------------------------------------------------------------------------------------------
Value Line Fund 31.012 29.320 28.285 19.189 19.528
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 35.980 33.563 33.314 26.182 25.924
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 18.472 16.511 17.271 12.767 13.494
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 43.332 37.660 38.995 26.908 27.630
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 39.655 36.474 34.651 30.061 27.521
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 23.320 22.851 22.246 21.216 19.855
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Number of variable accumulation 1998 1997 1996 1995 1994
unitsout standing at end of period:
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund 364 510 365 365 1,094
- -----------------------------------------------------------------------------------------------
Value Line Fund - 1,097 1,654 1,861 2,469
- -----------------------------------------------------------------------------------------------
Value Line Income Fund - - 493 493 897
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund - 335 335 518 519
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 66 66 66 66 251
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund - - - 235 549
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 1,459 2,638 3,802 4,676 6,884
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Number of variable accumulation 1993 1992 1991 1990 1989
units outstanding at end of period:
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund 954 1,695 3,522 3,961 3,508
- -----------------------------------------------------------------------------------------------
Value Line Fund 2,471 3,216 4,013 4,010 4,016
- -----------------------------------------------------------------------------------------------
Value Line Income Fund 1,043 1,044 2,541 1,212 1,336
- -----------------------------------------------------------------------------------------------
Value Line Special Situations
Fund 519 519 988 991 994
- -----------------------------------------------------------------------------------------------
Value Line Leveraged Growth
Investors 251 252 962 2,003 1,904
- -----------------------------------------------------------------------------------------------
Value Line U.S. Government
Securities Fund 1,050 1,051 2,678 2,563 3,159
- -----------------------------------------------------------------------------------------------
Value Line Cash Fund 7,530 8,932 10,943 14,981 18,633
- -----------------------------------------------------------------------------------------------
</TABLE>
The non-tax qualified contracts have not been offered since 1981. The
information furnished above relates to the units attributable to such contracts
sold prior to that date.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 24 of 32
<PAGE>
Contract costs and expenses
The amount of a charge may not strictly correspond to the costs of providing the
services or benefits indicated by the name of the charge or related to a
particular contract. For example, the contingent deferred sales charge may not
fully cover all of the sales and distribution expenses actually incurred by
GIAC, and proceeds from other charges, including the mortality and expense risk
charge, may be used in part to cover these expenses.
No sales charges are deducted from your premium payments when you make them.
However, the following charges do apply:
Expenses of the Funds
The Funds you choose through your variable investment options have their own
management fees and general operating expenses. The deduction of these fees and
expenses is reflected in the per-share value of the Funds. They are fully
described in the Funds' prospectuses.
Mortality and expense risk charge
You will pay a daily charge based on an annual rate of 1.0% of the net assets of
your variable investment options to cover our mortality and expense risks.
(Approximately 0.65% covers mortality risks, while the remaining 0.35% covers
expense risks.) Mortality risks arise from our promise to pay death benefits and
make annuity payments to each annuitant for life. Expense risks arise from the
possibility that the amounts we deduct to cover sales and administrative
expenses may not be sufficient.
Administrative expenses
We deduct an annual fee of $30 for Single Premium Payment Contracts, and $35 for
Flexible Premium Payment Contracts, on each anniversary date of your contract
during the accumulation period. To pay this charge, we will cancel the number of
accumulation units that is equal in value to the fee. We cancel accumulation
units in the same proportion as the percentage of the contract's accumulation
value attributable to each variable investment option and the fixed-rate option.
If you surrender your contract before the contract anniversary date, we will
still deduct the contract fee for that year. This charge covers the cost of
administering the contracts, and is not expected to generate a profit.
In addition, the following charges may apply:
Contingent deferred sales charge
If you make a partial withdrawal from your account or surrender your contract,
you will pay a deferred sales charge on any amount that has been in your
contract for less than seven contract years. This charge compensates us for
expenses related to the sale of contracts. These include commissions to
registered representatives, as well as promotional expenses.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 25 of 32
<PAGE>
When we calculate the deferred sales charge, all amounts taken out are assumed
to come from the oldest premium. We do this to minimize the amount you owe. The
amount of the charge and the time period used to calculate it depend on the type
of contract you have. The deferred sales charge associated with single premium
payment contracts are listed in the table below.
- -------------------------
Contract Deferred
year sales charge
- -------------------------
1 5%
- -------------------------
2 5%
- -------------------------
3 4%
- -------------------------
4 3%
- -------------------------
5 2%
- -------------------------
6 1%
- -------------------------
7+ 0%
- -------------------------
The deferred sales charge associated with flexible premium payment contracts is
calculated as the lesser of:
o 5% of the premium payments you have made within six contract years ( 72
months) before the date of your request for the withdrawal or surrender;
or
o 5% of the amount withdrawn or surrendered.
Premium taxes
Some states and municipalities may charge premium taxes when premium payments
are made or when you begin to receive annuity payments. These taxes range from
about 0.5% to 3.5% of your premium payments. We may deduct the premium tax
either from your premium payment when made, or from the annuity payments on the
date annuity payments begin, depending on state laws.
In jurisdictions where the premium tax is incurred when a premium payment is
made, we deduct the amount from your premium payment at the time that it is
made. We reserve the right to pay the premium tax on your behalf and then deduct
the same amount from the value of your contract when you surrender it, or on
your death, or on the date annuity payments begin, whichever is first. We will
do this only if permitted by applicable law.
Transfer charge
Currently, we do not charge for transfers. However, we reserve the right to
charge up to $25 for each transfer. We will deduct this charge on a proportional
basis from the options from which amounts are transferred.
Federal tax matters
The following summary provides a general description of the Federal income tax
considerations associated with the contracts. It is not intended to be complete
or to cover all tax situations. This summary is not intended as tax advice. You
should consult a tax adviser for more complete information. This summary is
based on our understanding of the present Federal income tax laws.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 26 of 32
<PAGE>
We make no representation as to the likelihood of continuation of the present
Federal income tax laws or as to how they may be interpreted by the Internal
Revenue Service (IRS).
We believe that our contracts will qualify as annuity contracts for Federal
income tax purposes and the following summary assumes so. Further details are
available in the Statement of Additional Information, under the heading Tax
Status of the Contracts.
Note: Since September 25, 1981, the contracts described in this prospectus have
only been offered in connection with retirement plans which qualify for federal
income tax benefits under the Internal Revenue Code (qualified contracts).
When you invest in an annuity contract, you usually don't pay taxes on your
investment gains until you withdraw the money -- generally for retirement
purposes. In this way, annuity contracts have been recognized by the tax
authorities as a legitimate means of deferring tax on investment income.
We believe that if you are a natural person you won't be taxed on increases in
the accumulation value of a contract until a distribution occurs or until
annuity payments begin. For these purposes, the agreement to assign or pledge
any portion of a contact's accumulation value and, in the case of a qualified
contract (described below) any portion of an interest in the qualified plan
generally will be treated as a distribution.
When annuity payments begin, you will be taxed only on the investment gains you
have earned and not on the payments you made to purchase the contract.
Generally, withdrawals from your annuity should only be made once the annuitant
reaches age 59 1/2, dies or is disabled, otherwise a 10% tax penalty is applied
against any amounts included in income.
Taxation of qualified contracts
Your rights under a qualified contract may be subject to the terms of the
retirement plan itself, regardless of the terms of the qualified contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions with respect to the contract comply with
the law.
Individual Retirement Accounts (IRAs)
As defined in Sections 219 and 408 of the Internal Revenue Code, individuals are
allowed to make annual contributions to an IRA of up to the lesser of $2,000 or
100% of their adjusted gross income. All or a portion of these contributions may
be deductible, depending on the person's income. Distributions from certain
pension plans may be rolled over into an IRA on a tax-deferred basis without
regard to these limits.
Simplified Employee Pension (SEP) IRAs
Under Section 408 (k) of the Internal Revenue Code, employers are allowed to
provide IRA contributions on behalf of their employees. In addition to the
general rules governing IRAs, SEP IRAs are subject to certain requirements
regarding participation and the amounts of
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 27 of 32
<PAGE>
contributions. Employers using this contract in connection with SEP IRAs should
consult their tax adviser.
Corporate pension and profit-sharing plans
Under Section 401(a) of the Internal Revenue Code, corporate employers are
allowed to establish various types of retirement plans for employees, and
self-employed individuals are allowed to establish qualified plans for
themselves and their employees. Adverse tax consequences to the retirement plan,
the participant or both may result if the contract is transferred to any
individual as a means of providing benefit payments, unless the plan complies
with all applicable requirements before transferring the contract.
Other tax issues
You should note that the annuity contract includes a death benefit that in some
cases may exceed the greater of the purchase payments or the contract value. The
death benefit could be viewed as an incidental benefit, the amount of which is
limited in any 401(a) or 403(b) plan. Because the death benefit may exceed this
limitation, employers using the contract in connection with corporate pension
and profit-sharing plans, or tax-sheltered annuities, should consult their tax
adviser.
Qualified contracts other than Roth IRAs have minimum distribution rules that
govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement or consult a tax adviser for more
information about these distribution rules.
Our income taxes
At the present time, we make no charge for any Federal, state or local taxes
other than the charge for state and local premium taxes that we incur - that may
be attributable to the investment divisions of the Separate Account or to the
contracts. We do have the right in the future to make additional charges for any
such tax or other economic burden resulting from the application of the tax laws
that we determine is attributable to the investment divisions of the Separate
Account or the contracts.
Under current laws in several states, we may incur state and local taxes in
addition to premium taxes. These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.
Possible tax law changes
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the contracts could change by legislation
or otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the contracts.
We have the right to modify the contracts in response to legislative changes
that could otherwise diminish the favorable tax treatment annuity contract
owners currently receive. We make no guarantee regarding the tax status of any
contract and do not intend this summary as tax advice.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 28 of 32
<PAGE>
Sidebar:
- --------------------------------------------------------------------------------
As a result of a 1983 U.S. Supreme Court ruling, employer-related plans must use
rate tables that are gender-neutral to calculate annuity purchase rates. We have
revised our tables for employer-related plans and filed them in the states where
we do business. We will continue to use our gender-distinct tables in all other
contracts, unless it is prohibited by state law. In those cases our
gender-neutral tables will be used.
- --------------------------------------------------------------------------------
Your rights and responsibilities
Voting rights
We own the Fund's shares, but you may have voting rights in the various Funds.
To the extent that we are required by law, we will cast our votes according to
the instructions of those contract owners who have an interest in variable
investment options investing in Funds holding a shareholder vote, as of the
shareholder meeting record date. Those votes for which we receive no
instructions will be voted in the same proportion as those we have received
instructions for. We'll solicit instructions when the Funds hold shareholder
votes. We have the right to restrict contract owner voting instructions if the
laws change to allow us to do so.
The owner of the contract has voting rights until the date annuity payments
begin. After that date, rights switch to the annuitant. Voting rights diminish
with the reduction of your contract value. The fixed-rate option has no voting
rights.
Your right to cancel the contract
During the 10-day period after receiving your contract, the free-look period,
you have the right to examine your contract and return it for cancellation if
you change your mind about buying it. Longer periods may apply in some states.
Upon cancellation, we'll refund to you either:
o the total amount you paid for the contract; or
o the sum of the surrender value of the contract, plus the difference
between the premiums you paid (including any contract fees or other
charges) and the amounts allocated to the variable and fixed-rate
investment options under the contract.
Distribution of the contracts
The variable annuity contracts are sold by insurance agents who are licensed by
GIAC and who are either registered representatives of GISC or of broker-dealer
firms which have entered into sales agreements with GISC and GIAC. GISC and such
other broker-dealers are members of the National Association of Securities
Dealers, Inc. GIAC will generally pay commissions to these individuals or
entities for the sale of contracts. These commissions may vary, but in total are
not expected to exceed 4.5% of each contract premium payment. The principal
underwriter of the contracts is GISC, located at 7 Hanover Square, New York, New
York 10004.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 29 of 32
<PAGE>
Special terms used in this prospectus
Accumulation Period: The period between the issue date of the contract and the
retirement date.
Accumulation Unit: A measure used to determine the value of a contractowner's
interest under the contract before annuity payments begin. The contract has
variable accumulation units and fixed accumulation units.
Accumulation Value: The value of all the accumulation units in the variable
investment options and/or the fixed-rate option credited to a contract.
Annuitant: The person on whose life the annuity payments are based and on whose
death, prior to the retirement date, benefits under the contract are paid.
Annuity Payments: Periodic payments, either variable or fixed in nature, made by
GIAC to the contract owner at monthly intervals after the retirement date.
Annuity Unit: A measure used to determine the amount of any variable annuity
payment.
Business day: Each day the New York Stock Exchange is open for trading and GIAC
is open for business.
Beneficiary: The person named in the contract to receive the death benefit if
the contractowner or the annuitant dies.
Contract Anniversary Date: The annual anniversary measured from the issue date
of the contract.
Contract owner: You (or your); the person(s) or entity designated as the owner
in the contract.
Funds: The diversified open-end management investment companies, each
corresponding to a variable investment option. The Funds are listed on the front
cover of this prospectus.
Good Order: Notice from any party authorized to initiate a transaction under
this contract, received in a format satisfactory to GIAC at its customer service
office, that contains all information required by GIAC to process that
transaction.
Retirement Date: The date on which annuity payments under the contact begin.
Valuation Period: The time period from the determination of one accumulation
unit and annuity unit value to the next.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 30 of 32
<PAGE>
Variable Investment Options: The Funds underlying the contract are the variable
investment options - as distinguished from the fixed-rate option - available for
allocations of net premium payments and accumulation values.
Other information
Year 2000 compliance
Many computer systems are unable to distinguish between the years 1900 and 2000
when they are making date-related calculations, because of the way that date
information is stored in these machines. Like businesses around the world that
rely on computerized systems for their day-to-day functioning, we may be
adversely affected if our computer systems, or the computer systems of companies
that we do business with, cannot address this problem by January 1, 2000. We are
working to address this issue and expect that our computer systems will be able
to correctly interpret the year 2000 when that date arrives but we cannot
guarantee that our preparations will be successful.
In conjunction with our parent company, Guardian Life, we are directing
significant portions of our internal information technology efforts and
contracting, as needed, with outside consultants to help update our systems to
accommodate the year 2000. We have also initiated discussions with other
critical parties whose systems impact our own to determine the progress they are
making toward addressing year 2000 issues.
Everyone involved is making substantial efforts to address their systems and the
systems with which they interface but it is not possible to provide assurance
that operational problems will not occur. We believe that, with the modification
of existing computer systems, updates by vendors and conversion to new software
and hardware, we are well positioned to mitigate the year 2000 issue and that
contract owners will not experience negative effects with respect to their
contracts as a result of the year 2000 issue. However, the year 2000 issue, by
its very nature contains inherent uncertainties, including the uncertainty of
year 2000 readiness of third parties. As a result, we are unable to determine at
this time whether the consequences of year 2000 failures will have a material
adverse effect on our results of operations, liquidity or financial position.
We are also incorporating potential issues surrounding year 2000 into our
contingency planning process, in the event that, despite our substantial best
efforts and those of other critical parties, there may still remain unresolved
year 2000 problems.
Legal Proceedings
Neither the Separate Account nor GIAC is a party to any pending material legal
proceeding.
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 31 of 32
<PAGE>
Where to get more information
Our Statement of Additional Information (SAI) has more details about the
contracts described in this prospectus. If you would like a free copy, please
call us toll-free at 1-800-221-3253, or write to us at the following address:
Guardian Insurance & Annuity Corporation
Customer Service Office
Box 26210
Lehigh Valley, Pennsylvania 18002
The SAI contains the following information:
o Services to the Separate Account
o Annuity payments
o Tax status of the contracts
o Calculation of yield quotations for Value Line Cash Fund
o Performance comparisons
o Valuation of assets of the Separate Account
o Transferability restrictions
o Experts
o Financial statements
- --------------------------------------------------------------------------------
The Value Guard Individual Deferred Variable Annuity Contracts Prospectus
Page 32 of 32
<PAGE>
THE GUARDIAN /VALUE LINE SEPARATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
--------------
Statement of Additional Information dated May 1, 1999
--------------
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current prospectus for The Guardian/Value Line
Separate Account (marketed under the name "Value Guard") dated May 1, 1999.
A free Prospectus is available upon request by writing or calling:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002
1-800-221-3253
Read the Prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the Prospectus.
TABLE OF CONTENTS
Page
----
Services to the Separate Account............................. B-2
Annuity Payments............................................. B-2
Tax Status of the Contracts.................................. B-3
Calculation of Yield Quotations for Value Line Cash Fund .... B-3
Performance Comparisons...................................... B-3
Valuation of Assets of the Separate Account.................. B-3
Transferability Restrictions................................. B-4
Experts...................................................... B-4
Financial Statements......................................... B-4
B-1
<PAGE>
SERVICES TO THE SEPARATE ACCOUNT
The Guardian Insurance & Annuity Company, Inc. ("GIAC") maintains the
books and records of The Guardian/Value Line Separate Account (the "Separate
Account"). GIAC, a wholly owned subsidiary of The Guardian Life Insurance
Company of America, acts as custodian of the assets of the Separate Account.
GIAC bears all expenses incurred in the operations of the Separate Account,
except the mortality and expense risk charge and the annual contract
administration fee (as described in the Prospectus), which are borne by the
Contractowners.
The firm of PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New
York, New York 10036 currently serves as independent accountants for the
Separate Account and GIAC.
Guardian Investor Services Corporation(R) ("GISC"), a wholly owned
subsidiary of GIAC, serves as principal underwriter for the Separate Account
pursuant to a distribution and service agreement between GIAC and GISC. The
Contracts are offered continuously and are sold by GIAC insurance agents who are
registered representatives of GISC or of other broker-dealers which have selling
agreements with GISC and GIAC. In the years 1998, 1997 and 1996, GISC received
underwriting commissions from GIAC with respect to the sales of variable
products in the amount of $1,946,477, $1,979,926 and $1,851,468, respectively.
ANNUITY PAYMENTS
Determination of the First Monthly Annuity Payment: At the time Annuity
Payments begin, the value of the Contractowner's account is determined by
multiplying the appropriate Accumulation Unit Value on the valuation date ten
(10) days before the date the first Annuity Payment is due by the corresponding
number of Accumulation Units credited to the Contractowner's account as of the
date the first Annuity Payment is due, less any applicable premium taxes not
previously deducted.
The Contracts contain tables reflecting the dollar amount of the first
monthly payment which can be purchased with each $1,000 of value accumulated
under the Contract. The amount depends on the form of Annuity, the sex (except
in those states which require "unisex" rates) and the nearest age of the
Annuitant(s). The first Annuity Payment is determined by multiplying the benefit
per $1,000 of value shown in the Contract tables by the number of thousands of
dollars of value accumulated under the Contract.
Value of an Annuity Unit: The value of an Annuity Unit is determined
independently for each of the Variable Investment Options. For any valuation
period the value of an Annuity Unit is equal to the value for the immediately
preceding valuation period multiplied by the annuity change factor for the
current valuation period. The Annuity Unit value for a valuation period is the
value determined as of the end of such period. The annuity change factor is
equal to the net investment factor for the same valuation period adjusted to
neutralize the assumed 4% investment return used in determining the amounts of
annuity payable. The net investment factor is reduced by the amount of the
mortality and expense risk charge on an annual basis during the life of the
Contract. The dollar amount of any monthly payment due after the first monthly
payment under an annuity option will be determined by multiplying the number of
Annuity Units by the value of an Annuity Unit for the valuation period ending
ten (10) days prior to the valuation period in which the monthly payment is due.
Determination of the Second and Subsequent Monthly Annuity Payments: The
amount of the second and subsequent Annuity Payments is determined by
multiplying the number of Annuity Units by the appropriate Annuity Unit value as
of the valuation date 10 days prior to the day such payment is due. The number
of Annuity Units under a Contract is determined by dividing the first monthly
payment by the value of the appropriate Annuity Unit on the date of such
payment. This number of Annuity Units remains fixed during the Annuity Payment
period, provided no Variable Investment Options transfers are made.
B-2
<PAGE>
The assumed investment return of 4% under the Contract is the measuring
point for subsequent Annuity Payments. If the actual net investment rate (on an
annual basis) remains constant at 4%, the annuity payments will remain constant.
If the actual net investment rate exceeds 4%, the payment will increase at a
rate equal to the amount of such excess. Conversely, if the actual rate is less
than 4%, Annuity Payments will decrease.
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that variable annuities must satisfy
in order to receive the tax treatment normally accorded to annuity contracts.
Diversification Requirements. The Code requires that the investments of
each investment division of the separate account underlying the contracts be
"adequately diversified" in order for the contracts to be treated as annuity
contracts for Federal income tax purposes. It is intended that each investment
division, through the fund in which it invests, will satisfy these
diversification requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the variable account assets. There is little guidance in this area, and some
features of our contracts, such as the flexibility of an owner to allocate
premium payments and transfer amounts among the investment divisions of the
separate account, have not been explicitly addressed in published rulings. While
we believe that the contracts do not give owners investment control over
separate account assets, we reserve the right to modify the contracts as
necessary to prevent an owner from being treated as the owner of the separate
account assets supporting the contract.
Required Distributions. In order to be treated as annuity contract for
Federal income tax purposes, section 72(s) of the Internal Revenue Code requires
any non-qualified contract to contain certain provisions specifying how your
interest in the contract will be distributed in the event of the death of a
holder of the contract. Specifically, section 72(s) requires that (a) if any
holder dies on or after the annuity starting date, but prior to the time the
entire interest in the contract has been distributed, the entire interest in the
contract will be distributed at least as rapidly as under the method of
distribution being used as of the date of such holder's death; and (b) if any
holder dies prior to the annuity starting date, the entire interest in the
contract will be distributed within five years after the date of such holder's
death. These requirements will be considered satisfied as to any portion of a
holder's interest which is payable to or for the benefit of a designated
beneficiary and which is distributed over the life of such designated
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of the
holder's death. The designated beneficiary refers to a natural person designated
by the holder as a beneficiary and to whom ownership of the contract passes by
reason of death. However, if the designated beneficiary is the surviving spouse
of the deceased holder, the contract may be continued with the surviving spouse
as the new holder.
The non-qualified contracts contain provisions that are intended to comply
with these Code requirements, although no regulations interpreting these
requirements have yet been issued. We intend to review such provisions and
modify them if necessary to assure that they comply with the applicable
requirements when such requirements are clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
CALCULATION OF YIELD QUOTATIONS FOR VALUE LINE CASH FUND
The yield of the Investment Division of the Separate Account investing in
the Value Line Cash Fund ("Cash Fund") represents the net change, exclusive of
gains and losses realized by the Cash Fund and unrealized appreciation and
depreciation with respect to the portfolio securities of the Cash Fund, in the
value of a hypothetical pre-existing Contract that is credited with one
Accumulation Unit at the beginning of the period for which yield is determined
(the "base period"). The base period generally will be a seven-day period. The
current yield for a base period is calculated by dividing (i) the net change in
the value of the Contract for the base period (see "Accumulation Period" in the
Prospectus) by (ii) the value of the Contract at the beginning of the base
period and multiplying the result by 365/7.
Yield also may be calculated on an effective or compound basis, which
assumes continual reinvestment by the Investment Division throughout an entire
year of net income earned by the Investment Division at the same rate as net
income is earned in the base period. The effective or compound yield for a base
period is calculated by (A) dividing (i) the net change in the value of the
Contract for the base period by (ii) the value of the Contract as of the
beginning of the base period, (B) adding 1 to the result, (C) raising the sum to
a power equal to 365 divided by the number of days in the base period, and (D)
subtracting 1 from the result.
Deductions from purchase payments (for example, any applicable premium
taxes) and any applicable contingent deferred sales charge assessed at the time
of withdrawal or annuitization are not reflected in the computation of current
yield of the Investment Division. The determination of net change in Contract
value does reflect all deductions that are charged to a Contractowner, in
proportion to the length of the base period and the Investment Division's
average Contract size.
The yield of the Cash Fund Investment Division will vary depending on
prevailing interest rates, the operating expenses and the quality, maturity and
type of instruments held in the portfolio of the Cash Fund. Consequently, no
yield quotation should be considered as representative of what the yield of the
Investment Division may be for any specified period in the future. The
Investment Division's respective yields are not guaranteed.
The current and effective annualized yields for the Investment Division
investing in the Value Line Cash Fund for the seven-day period ending December
31, 1998 were 4.84% and 4.96%, respectively, calculated as described above.
PERFORMANCE COMPARISONS
Advertisements and sales literature for the Separate Account's Investment
Divisions and their underlying Funds may compare their performance rankings to
similar options available through the separate accounts of other insurance
companies as reflected in independent performance data furnished by sources such
as Lipper Analytical Services, Inc., Morningstar, and Variable Annuity Research
& Data Service.
VALUATION OF ASSETS OF THE SEPARATE ACCOUNT
The value of Fund shares held in each Separate Account Investment Division
at the time of each valuation is the redemption value of such shares at such
time. If the right to redeem shares of a Fund has been suspended, or payment of
redemption value has been postponed for the sole purpose of computing Annuity
Payments, the shares held in the Separate Account (and Annuity Units) may be
valued at fair value as determined in good faith by the Board of Directors of
GIAC.
B-3
<PAGE>
TRANSFERABILITY RESTRICTIONS
Where a Contract is owned in conjunction with a retirement plan qualified
under the Internal Revenue Code, or individual retirement account, and
notwithstanding any other provisions of the Contract, the Contractowner may not
change the ownership of the Contract nor may the Contract be sold, assigned or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person other than GIAC, unless the
Contractowner is the trustee of an employee trust qualified under the Internal
Revenue Code of 1986, the custodian of a custodial account treated as such, or
the employer under a qualified non-trusteed pension plan.
EXPERTS
The financial statements of the Separate Account incorporated in this
Statement of Additional Information and in the Registration Statement by
reference to the Annual Report to Contractowners for the year ended December 31,
1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants. The statutory basis balance
sheets of GIAC as of December 31, 1998 and 1997 and the related statutory basis
statements of operations, of changes in common stock and surplus and of cash
flow for the three years in the period ended December 31, 1998 appearing in this
Statement of Additional Information have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants. Such financial
statements have been included herein or incorporated herein by reference in
reliance upon such reports given upon the authority of said firm as experts in
accounting and auditing.
FINANCIAL STATEMENTS
The statutory basis financial statements of GIAC which are set forth
herein beginning on page B-5 should be considered only as bearing upon the
ability of GIAC to meet its obligations under the Contracts.
The financial statements of the Separate Account are incorporated herein
by reference to the Separate Account's 1998 Annual Report to Contractowners.
Such financial statements, the notes thereto and the report of independent
accountants thereon are incorporated herein by reference or are included
elsewhere in this Registration Statement. A free copy of the 1998 Annual Report
to Contractowners accompanies this Statement of Additional Information.
B-4
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE
& ANNUITY COMPANY, INC.
- --------------------------------------------------------------------------------
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Admitted Assets
Investments:
Fixed maturities, principally at amortized cost
(market: 1998 - $547,051,594; 1997 - $492,052,307) ...... $ 536,554,920 $ 484,747,832
Affiliated mutual funds, at market .......................... 29,096,730 30,551,186
Investment in subsidiary .................................... 16,915,998 12,073,143
Policy loans - variable life insurance ...................... 72,861,940 72,737,781
Cash and short-term investments ............................. 9,006,075 23,602,410
Investment in joint venture ................................. 347,338 345,492
Other Invested Assets ....................................... 96,910 95,710
Accrued investment income receivable ........................... 17,378,196 13,303,271
Due from parent and affiliates ................................. 15,296,679 7,573,304
Other assets ................................................... 10,565,481 12,461,722
Receivable from separate accounts .............................. 34,565,822 30,203,923
Variable annuity and EISP/CIP separate account assets .......... 8,338,242,774 6,810,882,719
Variable life separate account assets .......................... 502,222,315 414,699,239
-------------- --------------
Total admitted assets ................................... $9,583,151,178 $7,913,277,732
============== ==============
Liabilities
Policy liabilities and accruals:
Fixed deferred reserves ..................................... $ 344,614,116 $ 339,797,646
Fixed immediate reserves .................................... 10,576,555 7,397,461
Life reserves ............................................... 74,101,150 67,799,492
Minimum death benefit guarantees ............................ 1,447,553 1,117,645
Policy loan collateral fund reserve ......................... 71,009,047 70,734,812
Accrued expenses, taxes, & commissions ...................... 1,507,045 1,592,997
Due to parent and affiliates ................................ 25,040,196 20,408,087
Federal income taxes payable ................................ 16,932,639 10,939,640
Other liabilities ........................................... 16,127,345 20,540,325
Asset valuation reserve ..................................... 29,566,970 26,305,528
Variable annuity and EISP/CIP separate account liabilities .. 8,263,551,697 6,750,575,077
Variable life separate account liabilities .................. 501,289,827 413,364,790
-------------- --------------
Total liabilities ....................................... 9,355,764,140 7,730,573,500
Common stock and surplus
Common Stock, $100 par value, 20,000 shares authorized,
issued and outstanding .................................. 2,000,000 2,000,000
Additional paid-in surplus .................................. 137,398,292 137,398,292
Assigned and unassigned surplus ............................. 87,988,746 43,305,940
-------------- --------------
Total Common Stock and Surplus .......................... 227,387,038 182,704,232
-------------- --------------
Total liabilities, common stock and surplus ............. $9,583,151,178 $7,913,277,732
============== ==============
</TABLE>
See notes to statutory basis financial statements.
B-5
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations:
Variable annuity considerations ................... $ 1,266,800,186 $ 995,209,301 $ 731,792,764
Life insurance premiums and fixed
annuity considerations .......................... 69,728,716 68,222,360 44,874,269
Net investment income ............................. 54,235,472 47,993,754 42,366,902
Amortization of IMR ............................... 266,599 111,783 333,219
Net gain from operations of separate accounts ..... 2,619,113 5,780,327 8,860,462
Service fees ...................................... 94,170,552 76,350,291 58,774,486
Variable life -- cost of insurance ................ 16,844,679 11,205,120 4,844,028
Reserve adjustments on reinsurance ceded .......... 34,449,189 7,885,341 30,636,445
Commission and expense allowances ................. 29,942,869 16,268,128 14,508,840
Other income ...................................... 9,570,705 5,178,266 2,535,356
--------------- --------------- ---------------
1,578,628,080 1,234,204,671 939,526,771
--------------- --------------- ---------------
Benefits and expenses:
Benefits:
Death benefits ........................................ 6,461,543 5,340,675 6,785,456
Annuity benefits .................................. 1,041,372,277 687,719,014 426,072,773
Surrender benefits ................................ 25,260,734 17,620,583 17,459,706
Increase in reserves .............................. 14,594,471 18,291,585 82,891,516
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ..................... 291,988,248 359,468,681 323,093,897
Variable Life ..................................... 7,484,413 (630,102) (10,417,095)
Commissions ........................................... 50,875,519 43,352,989 39,233,431
General insurance expenses ............................ 79,386,352 59,476,685 42,523,892
Taxes, licenses and fees .............................. 6,289,814 3,743,414 3,723,858
Reinsurance terminations .............................. 40,482 182,535 (15,470,015)
--------------- --------------- ---------------
1,523,753,853 1,194,566,059 915,897,419
--------------- --------------- ---------------
Income before income taxes and realized
gains from investments ............................ 54,874,227 39,638,612 23,629,352
Federal income taxes .................................. 14,505,552 12,073,500 3,941,460
--------------- --------------- ---------------
Income from operations, net of federal income taxes,
and before net realized gains ..................... 40,368,675 27,565,112 19,687,892
Realized gains from investments, net of federal
income taxes, net of transfer to IMR .............. 92,355 472,127 7,540
--------------- --------------- ---------------
Net income ............................................ $ 40,461,030 $ 28,037,239 $ 19,695,432
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
B-6
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
Assigned and Total
Additional unassigned common
Common paid-in surplus stock and
stock surplus (Deficit) surplus
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 ...................... $ 2,000,000 $ 137,398,292 $ 2,479,635 $ 141,877,927
------------- ------------- ------------- -------------
Net income from operations ......................... 19,695,433 19,695,433
Tax on prior years separate account seed
investment unrealized gains .................... (104,732) (104,732)
Increase in unrealized appreciation of Company's
investment in joint venture .................... 241,456 241,456
Increase in unrealized appreciation of Company's
investment in subsidiary ....................... 142,201 142,201
Decrease in unrealized appreciation of Company's
investment in other assets ..................... (9,384) (9,384)
Increase in non-admitted assets .................... (80,815) (80,815)
Disallowed interest maintenance reserve ............ (128,107) (128,107)
Surplus changes resulting from reinsurance ......... (2,073,155) (2,073,155)
Net increase in asset valuation reserve ............ (5,779,916) (5,779,916)
------------- ------------- ------------- -------------
Balances at December 31, 1996 ...................... $ 2,000,000 $ 137,398,292 $ 14,382,616 $ 153,780,908
============= ============= ============= =============
Net income from operations ......................... 28,037,239 28,037,239
Increase in unrealized appreciation of Company's
investment in joint venture .................... 42,908 42,908
Increase in unrealized appreciation of Company's
investment in subsidiary ....................... 4,326,500 4,326,500
Increase in unrealized appreciation of Company's
investment in other assets ..................... 9,384 9,384
Increase in unrealized appreciation of Company's
investment in an affiliated mutual fund ........ 7,271,233 7,271,233
Decrease in non-admitted assets .................... 83,011 83,011
Disallowed interest maintenance reserve ............ (197,600) (197,600)
Surplus changes resulting from reinsurance ......... 534,908 534,908
Net increase in asset valuation reserve ............ (11,184,259) (11,184,259)
------------- ------------- ------------- -------------
Balances at December 31, 1997 ...................... $ 2,000,000 $ 137,398,292 $ 43,305,940 $ 182,704,232
============= ============= ============= =============
Net income from operations ......................... 40,461,030 40,461,030
Increase in unrealized appreciation of Company's
investment in joint venture .................... 1,846 1,846
Increase in unrealized appreciation of Company's
investment in subsidiary ....................... 4,542,855 4,542,855
Decrease in unrealized appreciation of Company's
investment in an affiliated mutual fund ........ (1,831,189) (1,831,189)
Increase in unrealized appreciation of Company's
seed investment in separate accounts ........... 3,690,295 3,690,295
Decrease in non-admitted assets .................... 57,886 57,886
Disallowed interest maintenance reserve ............ 1,090,623 1,090,623
Surplus changes resulting from reinsurance ......... (69,098) (69,098)
Net increase in asset valuation reserve ............ (3,261,442) (3,261,442)
------------- ------------- ------------- -------------
Balances at December 31, 1998 ...................... $ 2,000,000 $ 137,398,292 $ 87,988,746 $ 227,387,038
============= ============= ============= =============
</TABLE>
See notes to statutory basis financial statements.
B-7
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and
deposit funds ........................ $ 1,341,389,534 $ 1,065,244,583 $ 780,710,735
Investment income ....................... 51,241,553 46,412,248 42,413,736
Commissions and expense allowances on
reinsurance ceded .................... 57,916,363 22,679,622 37,315,301
Other income ............................ 102,437,913 67,084,996 47,357,962
Death benefits .......................... (7,112,859) (5,492,854) (6,900,438)
Surrender benefits ...................... (25,806,851) (17,780,564) (2,774,865)
Annuity benefits ........................ (1,040,119,415) (689,207,046) (424,511,908)
Commissions, other expenses
and taxes (excluding FIT) ............ (133,189,119) (101,213,566) (78,968,214)
Net transfers to separate accounts ...... (298,118,417) (356,017,200) (307,856,562)
Federal income taxes (excluding tax on
capital gains) ....................... (8,930,569) (5,094,779) 682,025
Increase in policy loans ................ (124,158) (4,594,714) (4,300,868)
Other operating expenses and sources .... (2,618,322) (140,580) 2,077,342
--------------- --------------- ---------------
Net cash provided by insurance activities ... 36,965,653 21,880,146 85,244,246
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from dispositions of
investment securities ................ 280,921,058 315,404,430 224,692,954
Purchases of investment securities ...... (332,368,788) (331,151,548) (309,590,319)
Federal income tax on capital gains ..... (114,258) (355,657) (505,496)
--------------- --------------- ---------------
Net cash used in investing activities ....... (51,561,988) (16,102,775) (85,402,861)
--------------- --------------- ---------------
Net increase (decrease) in cash ......... (14,596,335) 5,777,371 (158,615)
Cash and short-term investments,
beginning of year .................... 23,602,410 17,825,039 17,983,654
--------------- --------------- ---------------
Cash and short-term investments,
end of year .......................... $ 9,006,075 $ 23,602,410 $ 17,825,039
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
B-8
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO STATUTORY BASIS
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
The Guardian Insurance & Annuity Company, Inc. (GIAC or the Company) is a
wholly-owned subsidiary of The Guardian Life Insurance Company of America (The
Guardian). The Company, domiciled in the state of Delaware, is licensed to
conduct life and health insurance business in all fifty states and the District
of Columbia. The Company's primary business is the sale of variable deferred
annuity contracts and variable and term life insurance policies. For variable
products other than 401(k) products, contracts are sold by insurance agents who
are licensed by GIAC and are either Registered Representatives of Guardian
Investor Services Corporation (GISC) or of other broker dealer firms that have
entered into sales agreements with GIAC and GISC. The Company's general agency
distribution system is used for the sale of other products and policies.
GISC, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934 and is a registered investment
advisor under the Investment Adviser's Act of 1940. GISC is the distributor and
underwriter for GIAC's variable products, and the investment advisor to certain
mutual funds sponsored by GIAC, which are investment options for the variable
products.
Insurance Separate Accounts: The Company has established fourteen
insurance separate accounts primarily to support the variable annuity and life
insurance products it offers. The majority of the separate accounts are unit
investment trusts registered under the Investment Company Act of 1940. Proceeds
from the sale of variable products are invested through these separate accounts
in certain mutual funds specified by the contractholders. Of these separate
accounts the Company maintains two separate accounts whose sole purpose is to
fund certain employee benefit plans of The Guardian.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabilities of the Company. The assets of
the separate accounts will not be charged with any liabilities arising out of
any other business of the Company. However, the obligations of the separate
accounts, including the promise to make annuity and death benefit payments,
remain obligations of the Company. Assets and liabilities of the separate
accounts are stated primarily at the market value of the underlying investments
and corresponding contractholders obligations. The amounts provided by the
Company to establish separate account investment portfolios (seed money) are not
included in separate account liabilities.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation of financial statements: The financial statements
have been prepared on a statutory basis of accounting that is prescribed or
permitted by the Insurance Department of the State of Delaware which is a
comprehensive basis of accounting other than generally accepted accounting
principles (GAAP).
Financial statements prepared on a statutory basis vary from financial
statements prepared on a GAAP basis because: (1) the costs relating to acquiring
business, principally commissions and certain policy issue expenses, are charged
to income in the year incurred, whereas on a GAAP basis they would be recorded
as assets and amortized over the future periods to be benefited; (2) life
insurance and annuity reserves are based on statutory mortality and interest
requirements, without consideration of withdrawals, whereas on GAAP basis they
are based on anticipated Company experience for lapses, mortality and investment
yield; (3) life insurance enterprises are required to establish a formula-based
asset valuation reserve (AVR) by a direct charge to surplus to offset potential
investment losses; under GAAP, provisions for investments are established as
needed through a charge to income; (4) realized gains and losses resulting from
changes in interest rates on fixed income investments are deferred in the
interest maintenance reserve (IMR) and amortized into investment income over the
remaining life of the investment sold; for GAAP, such gains and losses are
recognized in income at the time of sale; (5) bonds are carried principally at
amortized cost for statutory reporting and at market value for GAAP; (6) annuity
and certain insurance premiums are recognized as premium income, whereas for
GAAP they are recognized as deposits; (7) deferred federal income taxes are not
provided for temporary differences between tax and book assets and liabilities
as they are under GAAP; (8) certain reinsurance transactions are accounted for
as reinsurance for statutory purposes and as financing transactions under GAAP,
and assets and liabilities are reported net of reinsurance for statutory
purposes and gross of reinsurance for GAAP.
B-9
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
Use of Estimates: The preparation of financial statements of insurance
enterprises requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements. As a provider of life insurance and annuity products, GIAC's
operating results in any given period depend on estimates of policy reserves
required to provide for future policyholder benefits. The development of policy
reserves for insurance and investment contracts requires management to make
estimates and assumptions regarding mortality, lapse, expense and investment
experience. Such estimates are primarily based on historical experience and, in
many cases, state insurance laws that require specific mortality, morbidity, and
investment assumptions to be used by the Company. Actual results could differ
from those estimates. Management monitors actual experience, and where
circumstances warrant, revises its assumptions and the related reserve
estimates.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures established by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments
carried at market are recorded directly to unassigned surplus. Realized gains
and losses on disposition of investments are determined by the specific
identification method. The Company has recorded in accordance with NAIC
requirements, the net gain from the operations of the separate accounts in the
operations of the general account instead of in surplus.
Bonds: Bonds are valued principally at amortized cost. Mortgage backed
bonds are carried at amortized cost using the interest method considering
anticipated prepayments at the date of purchase. Significant changes in future
anticipated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method with PSA standard prepayment rates.
Investment in subsidiary: GIAC's investment in GISC is carried at equity
in GIAC's underlying net assets. Undistributed earnings or losses are reflected
as unrealized capital gains and losses directly in unassigned surplus. Dividends
received from GISC are recorded as investment income and amounted to $14,000,000
in 1998, $10,000,000 in 1997 and $9,500,000 in 1996.
Short-Term Investments: Short-term investments are stated at amortized
cost and consist primarily of investments having maturities at the date of
purchase of six months or less. Market values for such investments approximate
carrying value.
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize surplus against market
fluctuations in the value of equities and credit related declines in the value
of bonds. Changes in the AVR are recorded directly to unassigned surplus. The
IMR captures net after-tax realized capital gains which result from changes in
the overall level of interest rates for fixed income investments and amortizes
these net capital gains into income over the remaining stated life of the
investments sold. The Company uses the group method of calculating the IMR,
consistent with prior years. Any net negative IMR amounts are treated as a
non-admitted asset.
Contract and Policy Reserves: Fixed deferred reserves represent the fund
balance left to accumulate at interest under fixed annuity contracts that were
offered directly by the Company, a fixed rate option that is offered to variable
annuity contractowners and a single premium deferred annuity that is offered by
the Company. The Company no longer offers the fixed annuity contracts.
The estimated fair value of contractholder account balances within the
fixed deferred reserves has been determined to be equivalent to carrying value
as the current offering and renewal rates are set in response to current market
conditions and are only guaranteed for one year.
The interest rate credited on fixed annuity contracts included in fixed
deferred reserves for 1998 was 5.75%. The interest rate credited on the fixed
rate option that is offered to certain variable annuity contractowners ranged
from 5.25% to 5.50% during 1998. For the fixed rate option currently issued, the
issue and renewal interest rates credited vary from month to month and ranged
from 5.00% to 5.40% in 1998. For single premium deferred annuities the rates
ranged from 5.00% to 6.00% in 1998. Fixed immediate reserves are a liability
within the general account for those annuitants that have elected a fixed
annuity payout option. The immediate contract reserve is computed using the 1971
IAM Table and the 1983 IAM Table and a 4% discount rate.
B-10
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values. The reserve is credited with interest at 4% per
annum for single premium variable life policyowners, 6.5% for annual pay
variable life and group universal life policyowners and 7% for other variable
life policyowners.
Non-admitted Assets: Certain assets designated as "non-admitted assets" in
accordance with rules and regulations of the Department of Insurance of the
State of Delaware are charged directly to unassigned surplus. At December 31,
1998 and 1997 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $24,493 and $82,380, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on variable life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also includes service fees from the separate accounts consisting
of mortality and expense charges, annual administration fees, charges for the
cost of term insurance related to variable life policies and penalties for early
withdrawals. Services fees were not charged on separate account assets of
$239,935,035 and $162,522,811 at December 31, 1998 and 1997, respectively, which
represent investments in The Guardian's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently taxable, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the
applicable federal income taxes. The taxable portion of unrealized appreciation
of the Company's separate account investments is included in operations for 1997
and 1996.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods to the 1998 presentation.
NOTE 3 -- FEDERAL INCOME TAXES
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1998, 1997 and 1996 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 19,205,980 $ 13,873,514 $ 8,270,274
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (669,996) (291,470) (1,478,476)
DAC Tax ........................................ 1,179,820 1,712,811 867,731
Dividend from subsidiary ....................... (4,900,000) (3,500,000) (3,325,000)
Other -- net ................................... (310,282) 278,645 (393,069)
------------ ------------ ------------
Federal income taxes .............................. $ 14,505,522 $ 12,073,500 $ 3,941,460
============ ============ ============
</TABLE>
The provision for federal income taxes includes deferred taxes in 1998,
1997 and 1996 of $140,153, $181,145 and $353,051, respectively, applicable to
the difference between the tax basis and the financial statement basis of
recording investment income relating to accrued market discount.
B-11
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
NOTE 4 -- INVESTMENTS
The major categories of net investment income are summarized as follows:
For the years ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Fixed maturities ................ $33,923,167 $31,806,228 $28,234,145
Affiliated money market funds ... 376,734 524,277 121,733
Subsidiary ...................... 14,000,000 10,000,000 9,500,000
Policy loans .................... 3,489,135 3,386,194 3,089,114
Short-term investments .......... 2,320,305 2,280,599 1,204,805
Joint venture dividend .......... 1,254,010 1,047,525 623,160
Other ........................... 58,069 59,779 55,301
----------- ----------- -----------
55,421,420 49,104,602 42,828,258
Less: Investment expenses ....... 1,185,948 1,110,848 461,356
----------- ----------- -----------
Net investment income ........... $54,235,472 $47,993,754 $42,366,902
=========== =========== ===========
Gross realized gains and losses, less applicable federal income taxes and
transfer to IMR, are summarized as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Realized gains from dispositions:
U.S. Government bonds ........................ $ 1,195,870 $ 722,440 $ 1,014,811
Corporate debt securities .................... 997,008 413,022 1,014,562
Common stocks ................................ -- 174 --
Seed investment redeemed ..................... -- -- --
Foreign exchange ............................. 13,301 2,791 11,599
Realized losses from dispositions:
U.S. Government bonds ........................ 65,414 744,168 181,025
Corporate debt securities .................... 39,431 399,618 617,325
Foreign exchange ............................. 10,413 5,773 --
Short term investments ....................... -- 1,218 191
----------- ----------- -----------
Net realized capital gains (losses) .......... 2,090,921 (12,350) 1,242,431
----------- ----------- -----------
Federal income tax expense (benefit):
Current ...................................... 889,995 (269,216) 829,609
Deferred ..................................... (248,651) (209,059) (394,759)
----------- ----------- -----------
Total federal income tax expense (benefit) ... 641,344 (478,275) 434,850
----------- ----------- -----------
Transfer to IMR ................................. 1,357,222 (6,202) 800,041
----------- ----------- -----------
Net realized gains (losses) ..................... $ 92,355 $ 472,127 $ 7,540
=========== =========== ===========
</TABLE>
The market values of bonds are based on quoted prices as available. For
certain private placement debt securities where quoted market prices are not
available, fair value is estimated by management using adjusted market prices
for like securities.
B-12
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
The cost and estimated market values of investments by major investment
category at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ............................. $ 28,358,300 $ 1,523,421 $ 16,958 $ 29,864,763
Obligations of states and political
subdivisions ............................. 60,246,691 1,424,844 3,176 61,668,359
Debt securities issued by foreign
governments .............................. 7,997,622 91,952 27,557 8,062,017
Corporate debt securities ................... 439,952,307 10,035,537 2,531,389 447,456,455
Common stock of subsidiary .................. 9,698,292 7,217,706 -- 16,915,998
Affiliated mutual funds ..................... 23,656,682 5,440,048 -- 29,096,730
------------ ------------ ------------ ------------
$569,909,894 $ 25,733,508 $ 2,579,080 $593,064,322
============ ============ ============ ============
<CAPTION>
December 31, 1997
---------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ............................. $ 65,358,213 $ 1,550,649 $ 16,198 $ 66,892,664
Obligations of states and political
subdivisions ............................. 71,909,687 795,387 41,850 72,663,224
Debt securities issued by foreign
governments .............................. 7,062,711 -- 115,745 6,946,966
Corporate debt securities ................... 340,417,221 6,143,061 1,010,829 345,549,453
Common stock of subsidiary .................. 9,398,292 2,674,851 -- 12,073,143
Affiliated mutual funds ..................... 23,279,949 7,271,237 -- 30,551,186
------------ ------------ ------------ ------------
$517,426,073 $ 18,435,185 $ 1,184,622 $534,676,636
============ ============ ============ ============
</TABLE>
B-13
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
The amortized cost and estimated market value of debt securities at
December 31, 1998 and 1997, by contractual maturity, is shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less ................................ $ 45,493,721 $ 45,752,348
Due after one year through five years .................. 249,871,238 253,196,904
Due after five years through ten years ................. 102,513,130 107,752,117
Due after ten years .................................... 67,626,976 68,332,574
------------ ------------
465,505,065 475,033,943
Sinking fund bonds
(including collateralized mortgage obligations) .. 71,049,855 72,017,651
------------ ------------
$536,554,920 $547,051,594
============ ============
<CAPTION>
As of December 31, 1998
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less ................................ $ 59,694,316 $ 59,737,770
Due after one year through five years .................. 234,805,896 236,867,373
Due after five years through ten years ................. 103,002,869 106,604,446
Due after ten years .................................... 21,552,124 22,383,887
------------ ------------
419,055,205 425,593,476
Sinking fund bonds
(including collateralized mortgage obligations) .. 65,692,627 66,458,831
------------ ------------
$484,747,832 $492,052,307
============ ============
</TABLE>
B-14
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
NOTE 5 -- REINSURANCE CEDED
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with affiliated companies and outside parties to
provide for reinsurance of selected variable annuity contracts and group life
and individual life policies. Under the terms of the modified coinsurance
agreements, reserves related to the reinsurance business and corresponding
assets are held by the Company. Accordingly, policy reserves include
$125,849,752 and $76,669,184 at December 31, 1998 and 1997, respectively,
applicable to policies reinsured under modified coinsurance agreements. The
reinsurance contracts do not relieve the Company of its primary obligation for
policyowner benefits. Failure of reinsurers to honor their obligations could
result in losses to the Company.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits ...................... $(65,505,954) $(43,873,731) $(83,250,212)
Net investment income ...................... -- -- (61,779)
Commission and expense allowances .......... 34,449,189 7,885,341 14,508,839
Reserve adjustments ........................ 29,942,869 16,268,128 30,636,445
Other income ............................... 2,447,454 1,875,163 (25,000)
------------ ------------ ------------
Revenues ................................. 1,333,558 (17,845,099) (38,191,707)
Policyholder benefits ...................... (7,606,157) (10,975,075) (26,873,945)
Increase in aggregate reserves ............. (35,020) 22,859,719 (5,658,260)
Reinsurance terminations ................... -- (27,421,066) (15,470,015)
General expenses and other taxes ........... (337,215) (40,452) (81,667)
------------ ------------ ------------
Deductions ............................... (7,978,392) (15,576,874) (48,083,887)
------------ ------------ ------------
Net income (loss) from reinsurance ceded ... $ 9,311,950 $ (2,268,225) $ 9,892,180
============ ============ ============
</TABLE>
B-15
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
NOTE 6 -- REINSURANCE ASSUMED
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits ....................... $ 1,336,343 $ (389,221) $ 41,133,358
Net investment income ....................... 45,349 45,288 94,657
Other income ................................ -- (62,752) 375,404
------------ ------------ ------------
Revenues .................................. 1,381,692 (406,685) 41,603,419
Policyholder benefits ....................... 3,022,842 3,967,619 8,076,053
Increase in aggregate reserves .............. (1,387,716) (31,677,857) 31,556,908
Reinsurance expenses ........................ -- 27,603,602 (452,476)
Other expenses .............................. 382,249 1,885,300 551,319
------------ ------------ ------------
Deductions ................................ 2,017,375 1,778,664 39,731,804
------------ ------------ ------------
Net (loss) income from reinsurance assumed .. $ (635,683) $ (2,185,349) $ 1,871,615
============ ============ ============
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
Registered representatives of the Guardian Investor Services Corporation
produce a major portion of the Company's business. During 1998, 1997 and 1996,
premium and annuity considerations produced by GISC amounted to $554,895,420,
$564,519,265 and $528,353,595, respectively. The related commissions paid to
GISC amounted to $1,946,477, $1,979,926 and $1,851,468 for 1998, 1997 and 1996,
respectively.
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$83,611,701 in 1998, $60,009,449 in 1997 and $41,129,644 in 1996, and, in the
opinion of management, were considered appropriate for the services rendered.
The company had an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware insurance law as an insurance
company separate account. GIAC had contributed capital to GREA since it was
established to provide for funds and to preserve liquidity. Effective December
19, 1997, GREA was liquidated and, as a result, $6,746,290 was returned to GIAC
in the form of capital and there was a realized gain recorded of $969,045
included in the net gain from operations of separate accounts.
A significant portion of the Company's separate account assets is invested
in affiliated mutual funds. Each of these funds has an investment advisory
agreement with GISC, except for The Baillie Gifford International Fund, The
Baillie Gifford Emerging Markets Fund, The Guardian Baillie Gifford
International Fund and The Guardian Baillie Gifford Emerging Markets Fund. The
investments as of December 31, 1998 and 1997 are as follows:
B-16
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
The Guardian Park Avenue Fund ....................... $ 511,588,454 $ 371,662,107
The Guardian Stock Fund ............................. 3,664,861,157 3,222,051,866
The Guardian Small Cap Stock Fund ................... 109,166,077 60,104,422
The Guardian Park Avenue Small Cap Fund ............. 13,183,737 --
The Guardian Bond Fund .............................. 381,492,004 355,417,535
The Baillie Gifford International Fund .............. 526,434,528 442,651,457
The Baillie Gifford Emerging Markets Fund ........... 34,599,571 65,038,546
The Guardian Baillie Gifford International Fund ..... 9,066,433 3,378,730
The Guardian Baillie Gifford Emerging Markets Fund .. 817,757 --
The Guardian Asset Allocation Fund .................. 39,803,636 14,910,420
The Guardian Investment Quality Bond Fund ........... 9,350,331 1,546,854
The Guardian Cash Management Fund ................... 57,953,144 22,250,501
The Guardian Cash Fund .............................. 419,482,654 368,122,449
-------------- --------------
$5,777,799,483 $4,927,134,887
============== ==============
</TABLE>
The Company, in agreement with Baillie Gifford Overseas Ltd., has a joint
venture company -- Guardian Baillie Gifford Ltd. (GBG) -- that is organized as a
corporation in Scotland. GBG is registered in both the United Kingdom and the
United States to act as an investment advisor for the Baillie Gifford
International Fund (BGIF), the Baillie Gifford Emerging Markets Fund (BGEMF),
The Guardian Baillie Gifford International Fund (GBGIF) and The Guardian Baillie
Gifford Emerging Markets Fund (GBGEMF). The Funds are offered in the U.S. as
investment options under certain variable annuity contracts and variable life
policies.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1998 and 1997 this
amounted to $3,025,669 and $2,888,149, respectively. The Company also maintains
an investment in an affiliated small cap stock mutual fund, The Guardian Small
Cap Stock Fund. At December 31, 1998 and 1997 this amounted to $26,071,061 and
$27,663,037, respectively.
NOTE 8 -- SEPARATE ACCOUNTS
The following represents a reconciliation of net transfers from GIAC to
the separate accounts. Transfers are reported in the Summary of Operations of
the Separate Account Annual Statement:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Transfers to separate accounts ........................ $ 1,358,239,902 $ 1,054,380,697 $ 767,741,428
Transfers from separate accounts ...................... (1,168,640,854) (782,891,638) (518,683,141)
--------------- --------------- ---------------
Net transfers to separate accounts .................. 189,599,048 271,489,059 249,058,287
--------------- --------------- ---------------
Reconciling Adjustments:
Mortality & expense guarantees -- variable annuity .... 85,937,882 70,027,514 53,219,656
Mortality & expense guarantees -- variable life ....... 2,387,487 2,021,656 1,687,711
Administrative fees -- variable annuity ............... 4,703,565 4,095,230 3,867,120
Cost of insurance -- variable life .................... 16,844,679 11,205,120 4,844,028
--------------- --------------- ---------------
Total adjustments ................................... 109,873,613 87,349,520 63,618,515
--------------- --------------- ---------------
Transfers as reported in the Statement of
Operations of GIAC .................................. $ 299,472,661 $ 358,838,579 $ 312,676,802
=============== =============== ===============
</TABLE>
B-17
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
NOTE 9 -- ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
For the Year Ending 1998 For the Year Ending 1997
------------------------ ------------------------
Amount % Amount %
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ....... $ 52,174,391 10.91% $ 46,276,766 10.19%
------------ ------ ------------ ------
total with adjustment or at
market value ..................... 52,174,391 10.91 46,276,766 10.19
at book value without adjustment
(minimal or no charge or
adjustment) ...................... 312,963,860 65.44 313,725,462 69.05
Not subject to discretionary
withdrawal ......................... 113,088,817 23.65 94,338,339 20.76
------------ ------ ------------ ------
Total (gross) ........................ 478,227,068 100.00 454,340,567 100.00
Reinsurance ceded .................... -- -- -- --
------------ ------ ------------ ------
Total ................................ $478,227,068 100.00% $454,340,567 100.00%
============ ====== ============ ======
</TABLE>
This does not include $8,132,854,608 and $6,647,606,347 of non-guaranteed
annuity reserves held in separate accounts, and $2,618,241 and $3,572,284 at
December 31, 1998 and 1997, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
NOTE 10 -- STATUTORY FINANCIAL INFORMATION
The following reconciles the statutory net income of the Company as
reported to the regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory net income ........................... $ 40,461,030 $ 28,037,239 $ 19,695,432
Adjustments to restate to the basis of GAAP:
Net income of subsidiaries ................... 4,542,855 4,326,500 142,201
Change in deferred policy acquisition costs .. 43,181,782 41,883,919 42,525,493
Deferred premiums ............................ (1,497,411) (5,542,795) 3,238,115
Re-estimation of future policy benefits ...... (9,649,126) (3,353,249) 26,953,558
Reinsurance .................................. 4,088,420 12,372,471 (36,353,822)
Deferred federal income tax expense .......... (11,950,565) (16,212,244) (13,074,280)
Elimination of interest maintenance reserve .. (266,599) (111,783) (333,219)
Other, net ................................... 427,287 201,840 (2,444,872)
------------ ------------ ------------
Consolidated GAAP net income ................... $ 69,337,673 $ 61,601,898 $ 40,348,606
============ ============ ============
</TABLE>
B-18
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Statutory capital and surplus .................... $ 227,387,038 $ 182,704,232 $ 153,780,908
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs ............. 313,617,745 267,369,685 221,475,216
Elimination of asset valuation reserve ........ 29,566,970 26,305,528 15,121,269
Re-estimation of future policy benefits ....... 46,905,628 41,283,947 31,167,840
Establishment of deferred federal income tax .. (98,820,880) (84,703,745) (65,164,526)
Unrealized gains on investments ............... 11,711,227 7,852,564 2,313,203
Other liabilities ............................. (48,126,550) (33,486,652) (32,389,767)
Deferred premiums ............................. (7,848,934) (7,024,891) (1,482,096)
Other, net .................................... (5,026,655) (3,468,519) (2,215,098)
------------- ------------- -------------
Consolidated GAAP stockholder's equity ...... $ 469,365,589 $ 396,832,149 $ 322,606,949
============= ============= =============
</TABLE>
B-19
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying statutory basis balance sheets of The Guardian
Insurance & Annuity Company, Inc. as of December 31, 1998 and 1997, and the
related statutory basis statements of operations, of changes in common stock and
surplus and of cash flows for the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by insurance regulatory
authorities (statutory basis of accounting), which is a comprehensive basis of
accounting other than generally accepted accounting principles. Accordingly, the
financial statements are not intended to represent a presentation in accordance
with generally accepted accounting principles. The effects on the financial
statements of the variances between such practices and generally accepted
accounting principles are material and are described in Note 2.
In our opinion, the financial statements referred to above (1) do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of The Guardian Insurance & Annuity Company, Inc. at December
31, 1998 and 1997, or the results of its operations or its cash flows for the
three years ended in the period ended December 31, 1998, because of the effects
of the variances between the statutory basis of accounting and generally
accepted accounting principles, and (2) present fairly, in all material
respects, its financial position and the results of its operations and its cash
flows, in conformity with accounting practices prescribed or permitted by
insurance regulatory authorities.
PricewaterhouseCoopers LLP
February 25, 1999
B-20
<PAGE>
The Guardian/Value Line Separate Account
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The following financial statements have been incorporated by reference or
are included in Part B:
(1) The Guardian/Value Line Separate Account (incorporated by reference
into Part B):
Statement of Assets and Liabilities as of December 31, 1998
Statement of Operations for the Year Ended December 31, 1998
Statements of Changes in Net Assets for the two Years Ended
December 31, 1998 and 1997
Notes to Financial Statements
Report of PricewaterhouseCoopers LLP, Independent Accountants
(2) The Guardian Insurance & Annuity Company, Inc. (included in Part B):
Statutory Basis Balance Sheets as of December 31, 1998 and 1997
Statutory Basis Statements of Operations for the Three Years Ended
December 31, 1998, 1997 and 1996
Statutory Basis Statements of Changes in Common Stock and Surplus
for the Three Years Ended December 31, 1998, 1997 and 1996
Statutory Basis Statements of Cash Flow for the Three Years Ended
December 31, 1998, 1997 and 1996
Notes to Statutory Basis Financial Statements
Report of PricewaterhouseCoopers LLP, Independent Accountants
(b) Exhibits
Number Description
- ------ -----------
1 Resolution of the Board of Directors of The Guardian Insurance &
Annuity Company, Inc. establishing Registrant(2)
2 Not Applicable
3 Underwriting and Distribution Contracts:
(a) Distribution and Service Agreement between The Guardian
Insurance & Annuity Company, Inc. and Guardian Investor
Services Corporation(2)
(b) Form of Broker-Dealer Supervisory and Service Agreement(2)
4 Specimen of Variable Annuity Contract(2)
C-1
<PAGE>
5 Form of Application for Variable Annuity Contract(2)
6 (a) Certificate of Incorporation of The Guardian Insurance & Annuity
Company, Inc.(2)
(b) By-laws of The Guardian Insurance & Annuity Company, Inc.(2)
7 Automatic Indemnity Reinsurance Agreement between The Guardian
Insurance & Annuity Company, Inc. and The Guardian Life Insurance
Company of America(2)
8 Amended and Restated Agreement for Services and Reimbursement
Therefore between The Guardian Life Insurance Company of America and
The Guardian Insurance & Annuity Company, Inc.(2)
9 Opinion and Consent of Counsel(2)
10 Consent of PricewaterhouseCoopers LLP
11 Not Applicable
12 Agreement with Respect to Providing the Initial Capital for
Registrant(1)
13 Powers of Attorney executed by a majority of the Board of Directors
and certain principal officers of The Guardian Insurance & Annuity
Company, Inc.(2)
- ----------
1. Incorporated by reference to the Registration Statement on Form N-4 (Reg.
No. 2), as previously filed.
(2) Incorporated by reference to the Registration Statement on Form N-4 (Reg.
No. 2-70132), as previously filed on April 30, 1998.
C-2
<PAGE>
Item 25. Directors and Officers of the Depositor
The following is a list of directors and officers of The Guardian
Insurance & Annuity Company, Inc. ("GIAC"), the depositor of the Registrant. The
principal business address of each director and officer is 201 Park Avenue
South, New York, New York 10003.
Name Positions with GIAC
---- -------------------
Joseph D. Sargent President, Chief Executive Officer
& Director
John M. Smith Executive Vice President & Director
Edward K. Kane Executive Vice President & Director
Frank J. Jones Executive Vice President, Chief Investment
Officer & Director
Philip H. Dutter Director
Arthur V. Ferrara Director
Leo R. Futia Director
Peter L. Hutchings Director
William C. Warren Director
Thomas G. Sorell Vice President
Howard G. Most Vice President
Robert J. Crimmins Vice President
Charles G. Fisher Vice President & Actuary
Ryan W. Johnson Vice President, Equity Sales
Eileen McDonnell Vice President, Group Pensions
Frank L. Pepe Vice President & Controller
Richard T. Potter, Jr. Vice President and Counsel
Donald P. Sullivan, Jr. Vice President
Joseph A. Caruso Vice President & Secretary
Earl C. Harry Treasurer
Ann T. Kearney Second Vice President
Alexander M. Grant, Jr. Second Vice President
Paul Iannelli Second Vice President
Peggy L. Coppola Second Vice President
C-3
<PAGE>
Item 26. Persons Controlled by or under Common Control with Registrant
The following list sets forth the persons directly controlled by The
Guardian Life Insurance Company of America ("Guardian Life") as of February 28,
1999:
<TABLE>
<CAPTION>
State of Percent of
Incorporation Voting Securities
Name of Entity or Organization Owned
------------ ------------- --------------
<S> <C> <C>
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Asset Management Delaware 100%
Corporation
Park Avenue Life Insurance Delaware 100%
Company
Guardian Reinsurance Services, Inc. Connecticut 100%
Private Healthcare Systems, Inc. Delaware 48%
Managed Dental Care, Inc. California 100%
The Guardian Baillie Gifford Massachusetts 22%
International Fund
The Guardian Investment Quality Massachusetts 34%
Bond Fund
Baillie Gifford International Fund Maryland 24%
Baillie Gifford Emerging Markets Fund Maryland 33%
The Guardian Tax-Exempt Bond Fund Massachusetts 89%
The Guardian Asset Allocation Fund Massachusetts 11%
The Guardian Park Avenue Massachusetts 19%
Small Cap Fund
The Guardian Baillie Gifford Massachusetts 76%
Emerging Markets Fund
The Guardian High Yield Bond Fund Massachusetts 91%
The Guardian Small Cap Stock Fund Maryland 33%
</TABLE>
The following list sets forth the persons directly controlled by
affiliates of Guardian Life, and thereby indirectly controlled by Guardian Life,
as of February 28, 1999:
<TABLE>
<CAPTION>
Approximate
Percentage of Voting
Place of Securities Owned
Incorporation by Guardian Life
Name of Entity or Organization Affiliates
------------ ------------- -----------------
<S> <C> <C>
Guardian Investor Services New York 100%
Corporation
Guardian Baillie Gifford Limited Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
GAIC Funds, Inc. Maryland 100%
Park Aveune Securities LLC Delaware 100%
The Guardian Park Avenue Fund Massachusetts 16%
</TABLE>
C-4
<PAGE>
Item 27. Number of Contractowners
Type of Contract Number as of April 1, 1999:
Non-Qualified.................. 204
Qualified...................... 4,341
Total 4,545
Item 28. Indemnification
Reference is made to Article VIII of GIAC's By-Laws, as supplemented by
Section 3.2 of the Certificate of Incorporation of GIAC, filed as Exhibits 6(b)
and 6(a), respectively, to this Registration Statement and incorporated herein
by reference.
Item 29. Principal Underwriters
(a) Guardian Investor Services Corporation ("GISC") is the principal
underwriter of the Registrant's variable annuity contracts and it is also the
principal underwriter of shares of The Guardian Bond Fund, Inc.; The Guardian
Stock Fund, Inc.; The Guardian Cash Fund, Inc.; The Park Avenue Portfolio, a
series trust consisting of the following ten series: The Guardian Cash
Management Fund, The Guardian Park Avenue Fund, The Guardian Park Avenue Small
Cap Fund, The Guardian Park Avenue Tax-Efficient Fund, The Guardian Investment
Quality Bond Fund, The Guardian High Yield Bond Fund, The Guardian Tax-Exempt
Fund, The Guardian Asset Allocation Fund, The Guardian Baillie Gifford
International Fund and The Guardian Baillie Gifford Emerging Markets Fund, and
GIAC Funds, Inc. (formerly, GBG Funds, Inc.), a series fund consisting of
Baillie Gifford International Fund, Baillie Gifford Emerging Markets Fund and
The Guardian Small Cap Stock Fund. All of the aforementioned funds and the
series trust are registered with the SEC as open-end management investment
companies under the Investment Company Act of 1940, as amended ("1940 Act"). In
addition, GISC is the distributor of variable annuity and variable life
insurance contracts currently offered by GIAC through its separate accounts, The
Guardian/Value Line Separate Account, The Guardian Separate Account A, The
Guardian Separate Account B, The Guardian Separate Account C, The Guardian
Separate Account D, The Guardian Separate Account E and The Guardian Separate
Account K, which are all registered as unit investment trusts under the 1940
Act.
(b) The following is a list of directors and officers of GISC. The
principal business address of each person is 201 Park Avenue South, New York,
New York 10003.
Name Position(s) with GISC
---- ---------------------
John M. Smith President & Director
Arthur V. Ferrara Director
Leo R. Futia Director
Peter L. Hutchings Director
Philip H. Dutter Director
Joseph D. Sargent Director
William C. Warren Director
Frank J. Jones Director
C-5
<PAGE>
Name Position(s) with GISC
---- ---------------------
Ryan W. Johnson Senior Vice President & National Sales
Director
Frank L. Pepe Vice President & Controller
Richard T. Potter, Jr. Vice President and Counsel
Donald P. Sullivan, Jr. Vice President
Alexander M. Grant, Jr. Second Vice President
Ann T. Kearney Second Vice President
Peggy L. Coppola Second Vice President
Earl C. Harry Treasurer
Joseph A. Caruso Vice President & Secretary
Item 30. Location of Accounts and Records
Most of the Registrant's accounts, books and other documents required to
be maintained by Section 31(a) of the 1940 Act and the rules promulgated
thereunder are maintained by GIAC, the depositor, at its Customer Service
Office, 3900 Burgess Place, Bethlehem, Pennsylvania 18017. Documents
constituting the Registrant's corporate records are also maintained by GIAC but
are located at its Executive Office, 7 Hanover Square, New York, New York 10004.
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant hereby undertakes to include, as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information.
(b) The Depositor, GIAC, hereby undertakes and represents that the fees
and charges deducted under the contract, in the aggregate are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by GIAC.
C-6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, The Guardian/Value Line Separate Account certifies that
it meets all of the requirements for effectiveness of this Post-Effective
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 30th
day of April, 1999.
The Guardian/Value Line Separate Account
(Registrant)
By: THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
(Depositor)
By: /s/ John M. Smith
--------------------------------------
John M. Smith
Executive Vice President
C-7
<PAGE>
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following directors and principal officers of The
Guardian Insurance & Annuity Company, Inc. in the capacities and on the date
indicated.
/s/JOSEPH D. SARGENT* President, Chief Executive
- ------------------------------- Officer and Director
Joseph D. Sargent
(Principal Executive Officer)
/s/FRANK J. JONES* Executive Vice President, Chief
- ------------------------------- Investment Officer and Director
Frank J. Jones
(Principal Financial Officer)
/s/FRANK L. PEPE* Vice President and Controller
- -------------------------------
Frank L. Pepe
(Principal Accounting Officer)
s/JOHN M. SMITH Executive Vice President
- --------------------------------- and Director
John M. Smith
/s/ARTHUR D. FERRARA* Director
- -------------------------------
Arthur D. Ferrara
/s/WILLIAM C. WARREN* Director
- -------------------------------
William C. Warren
/s/EDWARD K. KANE* Executive Vice President
- ------------------------------- and Director
Edward K. Kane
/s/LEO R. FUTIA* Director
- -------------------------------
Leo R. Futia
/s/PHILIP H. DUTTER* Director
- -------------------------------
Philip H. Dutter
/s/ PETER L. HUTCHINGS*
- ------------------------------- Director
Peter L. Hutchings
By s/ JOHN M. SMITH Date: April 30, 1999
------------------------------
John M. Smith
Executive Vice President
*Pursuant to a Power of Attorney
C-8
<PAGE>
The Guardian/Value Line Separate Account
Exhibit Index
Number Description
------ -----------
10(a) Consent of PricewaterhouseCoopers LLP
C-9
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
amendment No. 21 to the registration statement on Form N-4 (the "Registration
Statement") of our report dated February 25, 1999, relating to the financial
statements appearing in the December 31, 1998 Annual Report to Contractowners of
The Guardian/Value Line Separate Account, which are also incorporated by
reference into the Registration Statement. We also consent to the use in the
Statement of Additional Information of our report dated February 25, 1999,
relating to the statutory basis financial statements of The Guardian Insurance &
Annuity Company, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus. We also consent to the references to us under the heading "Summary
Financial Information about the Separate Account" in the Prospectus and under
the heading "Experts" in the Statement of Additional Information. However, it
should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such "Summary Financial Information about the Separate Account."
PricewaterhouseCoopers LLP
New York, NY
April 26, 1999
