Post-Effective Amendment No. 26
As filed with the Securities and Exchange Commission on April 28, 1997
Registration Nos. 2-74906
811-3323
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT No. 26 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT No. 16 |X|
(Check appropriate box or boxes)
--------------------
THE GUARDIAN SEPARATE ACCOUNT A
(Exact Name of Registrant as Specified in Charter)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
201 Park Avenue South, New York, New York 10003
(Address of Principal Executive Offices)
Depositor's Telephone Number: (212) 598-8259
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, 1997 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|_| on (date) pursuant to paragraph (a)(1) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485
|_| on (date)pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
------------------------
The Registrant has registered an indefinite number of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such rule for the Registrant's most fiscal year
was filed on February 26, 1997.
================================================================================
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT A
Registration Statement on Form N-4
<TABLE>
<CAPTION>
Form N-4 Item No. Location
Part A
<S> <C> <C>
Item 1. Cover Page.................................... Cover
Item 2. Definitions................................... Glossary of Special Terms Used in This
Prospectus
Item 3. Synopsis...................................... Summary of the Contracts; Expense Table
Item 4. Condensed Financial Information............... Condensed Financial Information
Item 5. General Description of Registrant,
Depositor and Portfolio Companies......... Descriptions of GIAC and the Separate
Account; Descriptions of the Variable
Investment Options; Description of the
Fixed-Rate Option; Voting Rights
Item 6. Deductions.................................... Charges and Deductions; Distribution of
the Contracts
Item 7. General Description of Variable Annuity
Contracts.................................. Descriptions of the Contracts
Item 8. Annuity Period................................ Annuity Period
Item 9. Death Benefit................................. Pre-Retirement Death Benefit;
Accumulation Period; Annuity Period
Item 10. Purchases and Contract Value.................. Descriptions of the Contracts
Item 11. Redemptions................................... Surrenders and Partial Withdrawals; Right
to Cancel the Contract
Item 12. Taxes......................................... Federal Tax Matters
Item 13. Legal Proceedings............................. Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information..................... Additional Information
Part B
Item 15. Cover Page.................................... Cover Page
Item 16. Table of Contents............................. Table of Contents
Item 17. General Information and History............... Not Applicable
Item 18. Services...................................... Services to Separate Account
Item 19. Purchase of Securities Being Offered.......... Valuation of Assets of the Separate
Account; Transferability Restrictions
Item 20. Underwriters.................................. Services to Separate Account
Item 21. Calculation of Performance Data............... Calculation of Yield Quotations for The
Guardian Cash Fund
Item 22. Annuity Payments.............................. Annuity Payments
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
May 1, 1997
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS
Offered by
The Guardian Insurance & Annuity Company, Inc.
The Individual Deferred Variable Annuity Contracts ("Individual
Contracts") and Group Deferred Variable Annuity Contract (the "Group Contract")
(collectively, the "Contracts") described in this Prospectus are offered and
issued by The Guardian Insurance & Annuity Company, Inc. ("GIAC") and are
designed to provide annuity benefits under retirement programs entitled to
Federal income tax benefits for individual purchasers and for group pension or
profit sharing plans and under deferred compensation plans and other retirement
plans which do not qualify for Federal tax benefits under the Internal Revenue
Code of 1986, as amended (the "Code").
Net Premium Payments for the Contracts may be allocated in up to six of
the Contract's allocation options under which Contract values accumulate on
either a variable or fixed basis. These options consist of the eight mutual fund
investment divisions of The Guardian Separate Account A (the "Separate Account")
and the Fixed-Rate Option (available only to purchasers of a Single Premium
Payment Contract). Contractowner allocations to the divisions of the Separate
Account will be invested in the shares of the following underlying mutual funds:
The Guardian Stock Fund, The Guardian Bond Fund, The Guardian Cash Fund, Baillie
Gifford International Fund, Baillie Gifford Emerging Markets Fund, Value Line
Strategic Asset Management Trust, Value Line Centurion Fund and Gabelli Capital
Asset Fund (collectively referred to as the "Funds"). Contract values allocated
to any of the Investment Divisions (referred to as the "Variable Investment
Options") will vary to reflect the investment performance of such divisions. Net
Premium Payments allocated to the Fixed-Rate Option will accumulate on a fixed
basis, with principal and minimum interest guaranteed by GIAC.
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS FOR
EACH OF THE FOLLOWING VARIABLE INVESTMENT OPTIONS: THE GUARDIAN STOCK FUND, THE
GUARDIAN BOND FUND, THE GUARDIAN CASH FUND, BAILLIE GIFFORD INTERNATIONAL FUND,
BAILLIE GIFFORD EMERGING MARKETS FUND, VALUE LINE STRATEGIC ASSET MANAGEMENT
TRUST, VALUE LINE CENTURION FUND AND GABELLI CAPITAL ASSET FUND.
Please Read This Prospectus And Keep It For Future Reference.
<PAGE>
(continued from previous page)
Two types of Individual Contracts are described in this Prospectus: (1) a
Single Premium Payment Contract (minimum purchase of $3,000) and (2) a Flexible
Premium Payment Contract (minimum initial purchase of $500). The Individual
Contracts may be issued under certain retirement plans which qualify for Federal
tax benefits under Sections 401, 403 or 408 of the Code. Following the date
pre-selected by the Contractowner for the payments to begin, these payments may
commence under one of the annuity options provided in the Contracts. The
Individual Contracts provide for a minimum pre-retirement death benefit.
The Group Contract is designed for use with several types of tax-qualified
plans and other plans receiving favorable Federal tax treatment, including
retirement plans established by corporate employers under Section 401 of the
Code and certain deferred compensation plans under Section 457 of the Code and
may be purchased for a minimum of $5,000. The Group Contract also provides for
annuities to begin at selected future dates on a basis as elected by the
Contractowner in accordance with a plan or trust.
This Prospectus sets forth the information that a prospective investor
should know before investing. A Statement of Additional Information concerning
the Contracts and the Separate Account is available for free by writing to GIAC
at its Customer Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania
18002 or by calling 1-800-221-3253. The Statement of Additional Information,
which is also dated May 1, 1997, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The table of contents for
the Statement of Additional Information is included at the end of this
Prospectus.
The Contracts are not available in all states.
2
<PAGE>
CONTENTS OF PROSPECTUS
Page
----
Glossary of Special Terms Used in This Prospectus.................. 4
Summary of the Contracts........................................... 5
Expense Table...................................................... 6
Condensed Financial Information.................................... 8
Descriptions of GIAC and the Separate Account...................... 10
Descriptions of the Variable Investment Options.................... 11
Description of the Fixed-Rate Option............................... 13
Descriptions of the Contracts...................................... 13
Individual Contracts......................................... 14
Group Contract............................................... 14
Method of Purchase........................................... 14
Charges and Deductions....................................... 15
Pre-Retirement Death Benefit................................. 16
Accumulation Period.......................................... 17
Annuity Period............................................... 17
Transfers of Contract Values................................. 19
Surrenders and Partial Withdrawals........................... 20
Other Important Contract Information......................... 21
Federal Tax Matters................................................ 21
General Information.......................................... 21
Non-Qualified Contracts...................................... 22
Qualified Contracts ......................................... 24
Other Tax Considerations..................................... 26
Voting Rights...................................................... 27
Distribution of the Contracts...................................... 27
Right to Cancel the Contract....................................... 28
Legal Proceedings.................................................. 28
Additional Information............................................. 28
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE
ACCOMPANYING PROSPECTUSES FOR THE VARIABLE INVESTMENT OPTIONS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL.
3
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation Period: The period between the initial purchase date of the
Contract and the Retirement Date.
Accumulation Unit: A unit of measure used to determine the value of a
Contractowner's interest under the Contract before the Retirement Date. The
Contract has two types of Accumulation Units: Variable Accumulation Units and
Fixed Accumulation Units.
Accumulation Value: The value of the Variable Accumulation Units plus any
Fixed Accumulation Units under the Contract.
Annuitant: The person upon whose life annuity payments are based (normally
the recipient of annuity payments) and upon whose death, prior to the Retirement
Date, benefits under the Contract are paid.
Annuity: A series of periodic payments made for the lifetime of the
Annuitant with or without payments certain for a fixed period or for the joint
lifetimes of the Annuitant and another person and thereafter during the lifetime
of the survivor.
Annuity Payments: Periodic payments made by GIAC to the Contractowner at
regular intervals after the Retirement Date.
Annuity Unit: A unit of measure used to determine the amount of the
variable Annuity Payments.
Beneficiary: The person to whom benefits may be paid upon the
Contractowner's or the Annuitant's death. In the event a beneficiary is not
designated, the Contractowner or the estate of the Contractowner is the
beneficiary.
Contract Anniversary Date: The annual anniversary measured from the issue
date of the Contract.
Contractowner: The person or entity designated as the owner in the
Contract.
Fixed-Rate Option: A deposit option to which owners of Single Premium
Payment Contracts may allocate Net Premium Payments for investment in the
general account of GIAC and under which GIAC guarantees that the amount
deposited will not decline in value and that interest will be added at a rate
declared periodically in advance.
Funds: The eight diversified open-end management investment companies or
series thereof underlying the Contracts. Contractowners may allocate Net Premium
Payments and Accumulation Values to the Funds through the corresponding
Investment Divisions of the Separate Account. The Funds currently available
under the Contracts are: The Guardian Stock Fund, The Guardian Bond Fund, The
Guardian Cash Fund, Baillie Gifford International Fund, Baillie Gifford Emerging
Markets Fund, Value Line Strategic Asset Management Trust, Value Line Centurion
Fund and Gabelli Capital Asset Fund.
Investment Division: A division of the Separate Account, the assets of
which consist solely of shares of one of the Funds underlying the Contract.
Net Premium Payments: A purchase payment or premium paid by the
Contractowner to GIAC in accordance with the Contract, less any applicable
premium taxes. Net Premium Payments are credited to Investment Divisions of the
Separate Account or the Fixed-Rate Option.
Participant: An eligible employee who participates in a group pension,
profit sharing or other retirement plan which qualifies for Federal tax benefits
under the Code.
Retirement Date: The date on which Annuity Payments under the Contract
commence.
Surrender Value: The amount payable to the Contractowner or other payee
upon termination of the Contract, other than by the Annuitant's or
Contractowner's death.
Valuation Period: The period of time from one determination of
Accumulation Unit and Annuity Unit values to the next subsequent determination
of these values.
Variable Annuity: An annuity providing for payments varying in amount to
reflect the investment experience of the applicable Variable Investment Options
selected by the Contractowner.
Variable Investment Options: The Funds constitute the Variable Investment
Options (as distinguished from the Fixed-Rate Option) available under the
Contract for allocations of Net Premium Payments and Accumulation Values.
4
<PAGE>
SUMMARY OF THE CONTRACTS
The Contracts described in this Prospectus are designed to provide annuity
benefits in accordance with the Annuity Payout Option selected and the
retirement plan, if any, under which a Contract has been issued. The Contracts
provide several underlying allocation options through which the Contractowner
may pursue his or her investment objectives. If the Contractowner selects the
Annuity Payout Option that provides for monthly payments during the lifetime of
the Annuitant, GIAC promises to make Annuity Payments continuously for the life
of the Annuitant under the Contract even if such Annuitant outlives the life
expectancy used in computing the Annuity. While GIAC is obligated to make such
Annuity Payments regardless of the longevity of the Annuitant, the amount of
variable annuity payments is not guaranteed. (See "Annuity Payout Options," page
18.) With respect to amounts attributable to the Variable Investment Options, no
assurance can be given that the value of the Contracts during the Accumulation
Period, or the aggregate amount of Annuity Payments made under the Contracts,
will equal or exceed the Net Premium Payments made to such Variable Investment
Options.
GIAC provides for variable accumulations and benefits under the Contracts
by crediting Net Premium Payments to one or more of the Investment Divisions of
the Separate Account as selected by the Contractowner. The Investment Divisions
of the Separate Account correspond to the Funds offered under the Contracts. A
Contractowner may select up to six of the Variable Investment Options or, if
available to the Contractowner, the Fixed-Rate Option and five Variable
Investment Options. (See "Descriptions of the Variable Investment Options," page
11.) To the extent Net Premium Payments from a Single Premium Payment Contract
are credited to the Fixed-Rate Option, GIAC provides for fixed accumulations and
benefits. (See "Description of the Fixed-Rate Option," page 13.) The value of
the Contract prior to the Retirement Date and the amount accumulated to provide
Annuity Payments will depend upon the investment performance of the Variable
Investment Options selected by the Contractowner during the Accumulation Period,
except for amounts allocated to the Fixed-Rate Option. These latter amounts will
accrue interest at a rate not less than the minimum interest rate specified in
the Contract. (See "Accumulation Period," page 17 and "Annuity Period," page
17.) The investment risk under the Contract is borne by the Contractowner except
to the extent that Net Premium Payments are allocated to the Fixed-Rate Option
where the investment risk is borne by GIAC.
Transfers among the Investment Divisions of the Separate Account are
permitted before and after the Retirement Date, subject to certain conditions
and in accordance with any applicable retirement plan. Certain restrictions
apply to transfers to or from the Fixed-Rate Option. (See "Transfers of Contract
Values," page 19.)
The Contracts contain the following additional features which are
described in more detail in this Prospectus
(1) No sales charges are deducted from Contract payments. However, if
part or all of the Accumulation Value is withdrawn during certain periods
of time following the payment of premiums, GIAC will deduct from such
Accumulation Value a contingent deferred sales charge ranging from 1.0% to
5.0%. The percentage amount and the length of time for which this charge
is applicable depends upon the particular Contract purchased. A federal
income tax penalty may be imposed on surrenders or partial withdrawals.
(See "Charges and Deductions," page 15, "Surrenders and Partial
Withdrawals," page 20 and "Federal Tax Matters," page 21.
(2) Withdrawals from Contracts issued in connection with Section 403(b)
qualified plans are restricted under the Code. (See "Qualified Contracts
-- Section 403(b) Plans," page 25, for information about the circumstances
under which withdrawals may be made from such Contracts.)
(3) Charges for the assumption by GIAC of the mortality and expense
risks under the Contracts, the administrative expenses incurred by GIAC
and state premium taxes, if any, are deducted from the Accumulation Value
of the Contracts. (See "Charges and Deductions," page 15.) In addition,
the Funds impose certain charges against their respective assets. (See the
applicable Fund prospectus for information about these charges.)
(4) In certain states, the Contractowner may cancel an individual
Contract no later than ten (10) days (twenty (20) days in a limited number
of states) after receiving it by returning the Contract along with a
written notice of cancellation to GIAC. (See "Right to Cancel the
Contract," page 28.) Certain Federal income tax advantages are currently
available to retirement plans which qualify either under
5
<PAGE>
Sections 401 or 403 of the Code or as individual retirement account plans
established under Section 408 of the Code. Individual Contracts are also
available in connection with state and municipal deferred compensation plans
under Section 457 of the Code and under other deferred compensation
arrangements, and are also offered under other retirement plans which may not
qualify for similar tax advantages. (See "Federal Tax Matters," page 21.)
- --------------------------------------------------------------------------------
EXPENSE TABLE
- --------------------------------------------------------------------------------
CONTRACTOWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases:....... None
Exchange Fee:............................ None
Contingent Deferred Sales Charge:
(1) Single Premium Payment Contracts:*
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.
Contract Year Charge*
1 ................. 5%
2 ................. 5%
3 ................. 4%
4 ................. 3%
5 ................. 2%
6 ................. 1%
7 and thereafter..... 0%
(2) Flexible Premium Payment Contracts:**
In connection with Flexible Premium Payment Contracts, this charge will be the
lesser of:
(a) 5% of the total payments made during the 72 months immediately
preceding the date of withdrawal, or
(b) 5% of the amount being withdrawn.
Annual Contract Administration Fee:
Single Premium Payment Contract ........... $30.00
Flexible Premium Payment Contract ......... $35.00
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%
- --------------------------------------------------------------------------------
Investment Division Level Annual Expenses:***
(as a percentage of average net assets)
Total Fund
Management Other Operating
Fees Expenses Expenses
---------- -------- ----------
The Guardian Cash Fund......................... .50% .04% .54%
The Guardian Bond Fund......................... .50% .04% .54%
The Guardian Stock Fund........................ .50% .03% .53%
Baillie Gifford International Fund............. .80% .18% .98%
Baillie Gifford Emerging Markets Fund.......... 1.00% .53% 1.53%
Value Line Centurion Fund...................... .50% .10% .60%
Value Line Strategic Asset Management Trust.... .50% .08% .58%
Gabelli Capital Asset Fund..................... 1.00% .31% 1.31%
- --------------------------------------------------------------------------------
* In any Contract year after the first and when such charge is applicable,
10% of the amount of the single premium payment can be withdrawn without
application of the charge. The maximum amount to which this charge may be
applied cannot exceed the single premium payment.
** In any Contract year after the first and when such charge is applicable,
10% of the total premiums paid under the Contract in the last 72 months
immediately preceding the date of withdrawal can be withdrawn without
application of the charge. The maximum amount of this charge during the 72
months immediately preceding the date of withdrawal will never exceed 5%
of the total of premiums paid during such period.
*** These percentages reflect the actual fees and expenses incurred by each
Fund during the year ended December 31, 1996. The percentages for Value
Line Centurion Fund and Value Line Strategic Asset Management Trust
reflect (as part of "Other Expenses" and "Total Fund Operating Expenses")
the annual effects of expense reimbursement arrangements pursuant to which
each of these Funds reimburses GIAC for certain administrative and
shareholder servicing expenses incurred by GIAC on their behalf.
- --------------------------------------------------------------------------------
6
<PAGE>
The following table is designed to assist the Contractowner in
understanding the various costs and expenses of the Separate Account and its
underlying Funds. (See "Charges and Deductions," and see the accompanying Fund
prospectuses for a more complete description of the various costs and expenses.)
Premium taxes ranging from approximately 0.5% to 3.5% are currently imposed by
certain states and municipalities on payments made under the Contracts. GIAC
will deduct the applicable premium tax from premium payments made by
Contractowners in those states, counties and municipalities where such taxes are
imposed on GIAC. Where applicable, such taxes will decrease the amount of each
premium payment available for allocation.
Comparison of Contract Expenses Among Underlying Funds
For Single Premium (SP) and Flexible Premium (FP) Payment Contracts*
<TABLE>
<CAPTION>
=================================================================================================================================
If you surrender your contract at If you do not surrender or you
the end of the applicable time period: annuitize at the end of the
You would pay the following expenses on a applicable time period:
$1,000 investment, assuming a 5% annual You would pay the following expenses on
return on assets: a $1,000 investment, assuming a 5% annual return
on assets:
Single Premium and Flexible Single Premium and Flexible
Premium Contracts Premium 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 CASH FUND $67 SP $92 SP $110 SP $197 SP $17 SP $52 SP $90 SP $197 SP
$67 FP $103 FP $141 FP $198 FP $17 FP $53 FP $91 FP $198 FP
- ---------------------------------------------------------------------------------------------------------------------------------
THE GUARDIAN BOND FUND $67 SP $92 SP $110 SP $197 SP $17 SP $52 SP $90 SP $197 SP
$67 FP $103 FP $141 FP $198 FP $17 FP $53 FP $91 FP $198 FP
- ---------------------------------------------------------------------------------------------------------------------------------
THE GUARDIAN STOCK FUND $67 SP $92 SP $110 SP $196 SP $17 SP $52 SP $90 SP $196 SP
$67 FP $103 FP $140 FP $197 FP $17 FP $53 FP $90 FP $197 FP
- ---------------------------------------------------------------------------------------------------------------------------------
BAILLIE GIFFORD $72 SP $106 SP $134 SP $245 SP $22 SP $66 SP $114 SP $245 SP
INTERNATIONAL FUND $72 FP $117 FP $165 FP $246 FP $22 FP $67 FP $115 FP $246 FP
- ---------------------------------------------------------------------------------------------------------------------------------
BAILLIE GIFFORD EMERGING $77 SP $124 SP $163 SP $303 SP $27 SP $84 SP $143 SP $303 SP
MARKETS FUND $77 FP $134 FP $194 FP $304 FP $27 FP $84 FP $144 FP $304 FP
- ---------------------------------------------------------------------------------------------------------------------------------
VALUE LINE CENTURION FUND $68 SP $94 SP $114 SP $203 SP $18 SP $54 SP $94 SP $203 SP
$68 FP $105 FP $144 FP $205 FP $18 FP $55 FP $94 FP $205 FP
- ---------------------------------------------------------------------------------------------------------------------------------
VALUE LINE STRATEGIC ASSET $67 SP $94 SP $113 SP $201 SP $17 SP $54 SP $93 SP $201 SP
MANAGEMENT TRUST $67 FP $104 FP $143 FP $203 FP $17 FP $54 FP $93 FP $203 FP
- ---------------------------------------------------------------------------------------------------------------------------------
GABELLI CAPITAL ASSET FUND $75 SP $117 SP $151 SP $280 SP $25 SP $77 SP $131 SP $280 SP
$75 FP $127 FP $182 FP $281 FP $25 FP $77 FP $132 FP $281 FP
=================================================================================================================================
</TABLE>
*Flexible Premium Payment Contracts include Group Contracts.
This expense comparison assumes that the expenses reported in the table on
the foregoing page will be the expenses incurred during the periods shown above.
This comparison is not a representation of 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 amount of such fees for
the year ended December 31, 1996 by the total average net assets for such year;
(2) adding this percentage to annual expenses; and (3) calculating the dollar
amounts.
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the
financial statements of the Separate Account which were audited by Price
Waterhouse LLP, independent accountants, for the years ended December 31, 1992
through 1996, and by other independent auditors for the prior periods listed.
The data should be read in conjunction with the financial statements, related
notes and other financial information from the Separate Account's 1996 Annual
Report to Contractowners and incorporated by reference into the Statement of
Additional Information. A copy of the 1996 Annual Report to Contractowners and
the Statement of Additional Information may be obtained by calling or writing to
GIAC's Customer Service Office. The address and phone number appear on the
second page of this Prospectus.
Selected data for Accumulation Units of the Separate Account outstanding
at the end of each period:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
TAX QUALIFIED
Accumulation Unit Value at
Beginning of Period:
The Guardian Cash Fund ...... $ 22.172 $ 21.217 $ 20.639 $ 20.307 $ 19.869 $ 19.003 $ 17.767
The Guardian Stock Fund ..... 57.929 43.446 44.443 37.415 31.469 23.376 26.755
The Guardian Bond Fund ...... 29.376 25.230 26.391 24.262 22.750 19.774 18.565
Gabelli Capital Asset Fund .. 10.763 10.000++ -- -- -- -- --
Baillie Gifford International
Fund ...................... 14.154 12.851 12.866 9.694 10.756 10.000* --
Baillie Gifford Emerging
Markets Fund .............. 8.647 8.785 10.000+ -- -- -- --
Value Line Centurion Fund ... 40.383 29.115 30.069 27.807 26.511 17.593 16.831
Value Line Strategic Asset
Management Trust .......... 27.247 21.408 22.729 20.521 18.013 12.691 12.836
Accumulation Unit Value at End
of Period:
The Guardian Cash Fund ...... $ 23.050 $ 22.172 $ 21.217 $ 20.639 $ 20.307 $ 19.869 $ 19.003
The Guardian Stock Fund ..... 72.788 57.929 43.446 44.443 37.415 31.469 23.376
The Guardian Bond Fund ...... 29.924 29.376 25.230 26.391 24.262 22.750 19.774
Gabelli Capital Asset Fund .. 11.832 10.763 -- -- -- -- --
Baillie Gifford International
Fund ...................... 16.175 14.154 12.851 12.866 9.694 10.756 --
Baillie Gifford Emerging
Markets Fund ................ 10.667 8.647 8.785 -- -- -- --
Value Line Centurion Fund ... 46.920 40.383 29.115 30.069 27.807 26.511 17.593
Value Line Strategic Asset
Management Trust .......... 31.261 27.247 21.408 22.729 20.521 18.013 12.691
Number of Accumulation Units
Outstanding at End of Period:
The Guardian Cash Fund ...... 1,935,600 2,089,104 2,648,986 2,942,235 3,921,593 4,692,570 5,608,349
The Guardian Stock Fund ..... 3,375,757 3,704,798 3,886,496 3,963,403 3,886,689 3,902,601 3,934,473
The Guardian Bond Fund ...... 1,300,339 1,628,230 1,823,384 2,142,451 2,477,490 2,576,627 2,486,450
Gabelli Capital Asset Fund .. 109,717 66,391 -- -- -- -- --
Baillie Gifford International 951,281 1,077,612 1,368,576 923,046 459,629 361,003 --
Fund
Baillie Gifford Emerging
Markets Fund .............. 209,419 101,949 55,254 -- -- -- --
Value Line Centurion Fund ... 2,247,319 2,390,917 2,541,147 2,829,258 3,180,170 3,316,085 3,320,186
Value Line Strategic Asset
Management Trust .......... 2,736,789 3,010,346 3,271,469 3,653,393 3,472,787 3,106,929 2,800,772
</TABLE>
Year Ended December 31,
-------------------------------------
1989 1988 1987
----------- ----------- -----------
TAX QUALIFIED
Accumulation Unit Value at
Beginning of Period:
The Guardian Cash Fund ...... $ 16.456 $ 15.484 $ 14.703
The Guardian Stock Fund ..... 21.890 18.367 18.209
The Guardian Bond Fund ...... 16.464 15.157 15.258
Gabelli Capital Asset Fund .. -- -- --
Baillie Gifford International
Fund ...................... -- -- --
Baillie Gifford Emerging
Markets Fund .............. -- -- --
Value Line Centurion Fund ... 12.926 12.134 12.615
Value Line Strategic Asset
Management Trust .......... 10.325 9.453 10.000**
Accumulation Unit Value at End
of Period:
The Guardian Cash Fund ...... $ 17.767 $ 16.456 $ 15.484
The Guardian Stock Fund ..... 26.755 21.890 18.367
The Guardian Bond Fund ...... 18.565 16.464 15.157
Gabelli Capital Asset Fund .. -- -- --
Baillie Gifford International
Fund ...................... -- -- --
Baillie Gifford Emerging
Markets Fund ................ -- -- --
Value Line Centurion Fund ... 16.831 12.926 12.134
Value Line Strategic Asset
Management Trust .......... 12.836 10.325 9.453
Number of Accumulation Units
Outstanding at End of Period:
The Guardian Cash Fund ...... 5,016,347 4,082,938 3,135,907
The Guardian Stock Fund ..... 3,528,351 2,517,696 2,287,756
The Guardian Bond Fund ...... 2,472,842 1,746,189 1,556,621
Gabelli Capital Asset Fund .. -- -- --
Baillie Gifford International -- -- --
Fund
Baillie Gifford Emerging
Markets Fund .............. -- -- --
Value Line Centurion Fund ... 3,313,530 3,946,617 5,342,529
Value Line Strategic Asset
Management Trust .......... 2,274,974 1,608,257 363,868
- ------------
* Commencing February 8, 1991.
** Commencing September 15, 1987.
+ Commencing October 17, 1994.
++ Commencing May 1, 1995.
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-TAX QUALIFIED
Accumulation Unit Value at
Beginning of Period:
The Guardian Cash Fund ...... $ 22.172 $ 21.217 $ 20.639 $ 20.307 $ 19.869 $ 19.003 $ 17.767
The Guardian Stock Fund ..... 57.929 43.446 44.443 37.415 31.469 23.376 26.755
The Guardian Bond Fund ...... 29.376 25.230 26.391 24.262 22.750 19.774 18.565
Gabelli Capital Asset Fund .. 10.763 10.000++ -- -- -- -- --
Baillie Gifford International
Fund ...................... 14.154 12.851 12.866 9.694 10.756 10.000* --
Baillie Gifford Emerging
Markets Fund .............. 8.647 8.785 10.000+ -- -- -- --
Value Line Centurion Fund ... 40.383 29.115 30.069 27.807 26.511 17.593 16.831
Value Line Strategic Asset
Management Trust .......... 27.247 21.408 22.729 20.521 18.013 12.691 12.836
Accumulation Unit Value at End
of Period:
The Guardian Cash Fund ...... $ 23.050 $ 22.172 $ 21.217 $ 20.639 $ 20.307 $ 19.869 $ 19.003
The Guardian Stock Fund ..... 72.788 57.929 43.446 44.443 37.415 31.469 23.376
The Guardian Bond Fund ...... 29.924 29.376 25.230 26.391 24.262 22.750 19.774
Gabelli Capital Asset Fund .. 11.832 10.763 -- -- -- -- --
Baillie Gifford International
Fund ...................... 16.175 14.154 12.851 12.866 9.694 10.756 --
Baillie Gifford Emerging
Markets Fund .............. 10.667 8.647 8.785 -- -- -- --
Value Line Centurion Fund ... 46.920 40.383 29.115 30.069 27.807 26.511 17.593
Value Line Strategic Asset
Management Trust .......... 31.261 27.247 21.408 22.729 20.521 18.013 12.691
Number of Accumulation Units
Outstanding at End of Period:
The Guardian Cash Fund ...... 2,573,440 2,583,393 3,789,032 3,646,983 4,269,426 5,128,078 6,662,947
The Guardian Stock Fund ..... 2,700,571 2,999,011 2,965,690 3,187,728 3,363,467 3,417,909 3,398,120
The Guardian Bond Fund ...... 1,316,331 1,794,933 1,973,991 2,482,373 2,996,262 3,328,076 3,476,609
Gabelli Capital Asset Fund .. 123,171 115,452 -- -- -- -- --
Baillie Gifford
International Fund ........ 1,105,132 1,315,858 1,688,165 1,690,547 656,189 452,249 --
Baillie Gifford Emerging
Markets Fund .............. 338,849 281,304 92,831 -- -- -- --
Value Line Centurion Fund ... 1,954,824 2,179,325 2,249,421 2,641,534 3,189,835 3,609,755 3,506,781
Value Line Strategic Asset
Management Trust .......... 1,681,531 1,833,099 2,041,394 2,380,606 2,305,769 2,214,243 2,037,985
</TABLE>
Year Ended December 31,
-------------------------------------
1989 1988 1987
----------- ----------- -----------
NON-TAX QUALIFIED
Accumulation Unit Value at
Beginning of Period:
The Guardian Cash Fund ...... $ 16.456 $ 15.484 $ 14.703
The Guardian Stock Fund ..... 21.890 18.367 18.209
The Guardian Bond Fund ...... 16.464 15.157 15.258
Gabelli Capital Asset Fund .. -- -- --
Baillie Gifford International
Fund ...................... -- -- --
Baillie Gifford Emerging
Markets Fund .............. -- -- --
Value Line Centurion Fund ... 12.926 12.134 12.615
Value Line Strategic Asset
Management Trust .......... 10.325 9.453 10.000**
Accumulation Unit Value at End
of Period:
The Guardian Cash Fund ...... $ 17.767 $ 16.456 $ 15.484
The Guardian Stock Fund ..... 26.755 21.890 18.367
The Guardian Bond Fund ...... 18.565 16.464 15.157
Gabelli Capital Asset Fund .. -- -- --
Baillie Gifford International
Fund ...................... -- -- --
Baillie Gifford Emerging
Markets Fund .............. -- -- --
Value Line Centurion Fund ... 16.831 12.926 12.134
Value Line Strategic Asset
Management Trust .......... 12.836 10.325 9.453
Number of Accumulation Units
Outstanding at End of Period:
The Guardian Cash Fund ...... 6,380,840 6,085,799 4,840,753
The Guardian Stock Fund ..... 3,680,472 2,431,214 2,315,585
The Guardian Bond Fund ...... 3,702,891 3,121,908 2,979,134
Gabelli Capital Asset Fund .. -- -- --
Baillie Gifford
International Fund ........ -- -- --
Baillie Gifford Emerging
Markets Fund .............. -- -- --
Value Line Centurion Fund ... 3,435,285 4,114,152 6,069,897
Value Line Strategic Asset
Management Trust .......... 1,970,805 1,542,803 635,921
- ------------
* Commencing February 8, 1991.
** Commencing September 15, 1987.
+ Commencing October 17, 1994.
++ Commencing May 1, 1995.
9
<PAGE>
DESCRIPTIONS OF GIAC AND THE SEPARATE ACCOUNT
GIAC
The Guardian Insurance & Annuity Company, Inc. ("GIAC"), a stock life
insurance company incorporated in the state of Delaware in 1970, is the issuer
of the Contracts offered by this Prospectus. GIAC is licensed to conduct an
insurance business in all 50 states of the United States and the District of
Columbia and had total assets (statutory basis) of over $6.0 billion as of
December 31, 1996. GIAC's executive office is located at 201 Park Avenue South,
New York, New York 10003, and the address of its Customer Service Office for
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, 1996, Guardian Life had total assets (statutory
basis) in excess of $12.1 billion. Guardian Life is licensed to conduct an
insurance business in all 50 states and the District of Columbia. Guardian Life
is not the issuer of the Contracts offered under this Prospectus and does not
guarantee the benefits provided therein.
GIAC's statutory basis financial statements appear in the Statement of
Additional Information.
THE SEPARATE ACCOUNT
GIAC established The Guardian Separate Account A (the "Separate Account")
in 1981 pursuant to the provisions of the Delaware Insurance Code. The Separate
Account is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act") and meets the definition of "Separate
Account" under the Federal securities laws.
There are eight Investment Divisions (which correspond to the eight Funds)
available for allocations of Net Premium Payments and Accumulation Values. Each
Investment Division invests in a specific underlying Fund and thereby reflects
that Fund's investment performance. Each such Division is divided into two
subdivisions, one for allocations under a tax qualified retirement plan and the
other for non-tax qualified plans, depending upon the plan under which the
Contract is issued. GIAC owns all of the Fund shares allocated to each
Investment Division but passes through to the Contractowners the voting rights
in such shares.
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 Division's subdivision are credited to or charged against
the assets held in that subdivision in accordance with the terms of each
Contract, without regard to other income, capital gains or capital losses of the
other subdivisions. Delaware insurance law provides that the assets of the
Separate Account are not chargeable with liabilities arising out of any other
business GIAC may conduct. (See "Federal Tax Matters.")
Assets of the Separate Account attributable to a Contract are invested in
shares of up to six of the Funds as selected by the Contractowner or, if
permitted by an applicable retirement plan, the Participant. Selecting the
Fixed-Rate Option reduces the number of Funds which may be selected for
allocation. No sales charges are assessed against premium payments invested in
the Funds under the Contracts. Transfers among the Investment Divisions may
currently be effected without fee, penalty or other charge through proper
transfer requests to GIAC's Customer Service Office in writing or by telephone.
(See "Transfers of Contract Values.")
All dividends and capital gains distributions received from a Fund are
reinvested in such Fund shares at net asset value and retained as assets of the
Separate Account through allocation to the applicable Investment Division. Fund
shares will be redeemed by GIAC at their net asset value to the extent necessary
to make annuity or other payments under the Contract.
10
<PAGE>
DESCRIPTIONS OF THE VARIABLE INVESTMENT OPTIONS
The Funds
Each Fund has a different investment objective which it tries to achieve
by following specified investment policies. The objective and policies of each
Fund will affect its potential returns and its risks. There is no guarantee that
a Fund will achieve its investment objective. The following chart states the
investment objective and lists typical portfolio investments of each Fund
currently available through the Separate Account.
Each of the Funds is an open-end diversified management investment company
or a series thereof, and is registered with the SEC under the 1940 Act. Such
registration does not involve any supervision by the SEC of the investment
management or policies of the Funds. The Funds do not impose a sales charge or
"load" for buying and selling their shares, so GIAC buys and sells shares at net
asset value in response to Contractowner-requested and other Contract
transactions.
All of the Funds are also available under other variable annuity contracts
funded by the Separate Account. Certain of the Funds are available under other
separate accounts supporting certain GIAC variable annuity contracts and
variable life insurance policies. Although GIAC does not anticipate any inherent
difficulties in offering these Funds to more than one separate account, it is
possible that certain conflicts of interest may arise in connection with the use
of the same Funds under both variable life insurance policies and variable
annuity contracts. While each Fund's Board of Directors intends to monitor
events in order to identify and, if deemed necessary, act upon any material
irreconcilable conflicts that may possibly arise, GIAC may also take action to
protect Contractowners. See the accompanying prospectuses for the Funds for more
information regarding such possible conflicts of interest.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE(S) TYPICAL INVESTMENTS
==================================================================================================================================
<S> <C> <C>
The Guardian Stock Fund Long-term growth of capital U.S. common stocks and convertible securities
- ----------------------------------------------------------------------------------------------------------------------------------
The Guardian Bond Fund Maximum income without undue risk Investment grade debt obligations and U.S.
of principal; capital appreciation government securities, including mortgage-
as a secondary objective backed securities
- ----------------------------------------------------------------------------------------------------------------------------------
The Guardian Cash Fund High level of current income Money market instruments
consistent with liquidity and
preservation of capital
- ----------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford International Fund Long-term capital appreciation Common stocks and convertible securities issued
by foreign companies
- ----------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Long-term capital appreciation Common stocks and convertible securities issued
by companies that are organized in, generally
operate in or which principally sell their
securities in emerging market countries
- ----------------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund Long-term growth of capital U.S. common stocks ranked 1 or 2 by the Value
Line Ranking System*
- ----------------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust High total investment return U.S. common stocks ranked 1 or 2 by the Value
(current income and capital Line Ranking System,* bonds and money market
appreciation) consistent with instruments
reasonable risk
- ----------------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund Growth of capital; current income U.S. common stocks and convertible securities
as a secondary objective
==================================================================================================================================
</TABLE>
Certain of the Funds may not be available in all States.
- ----------
* The Value Line Ranking System has been used substantially in its present
form since 1965. The System ranks stocks on a scale of 1 (highest) to 5
(lowest) for year-ahead relative performance (timeliness).
GIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Fund shares held by any Investment
Division. GIAC reserves the right to eliminate the shares of any of the Funds
and to substitute shares of another Fund, or of another registered open-end
management investment company or series thereof or other appropriate investment
vehicle, if: (1) the shares of the Fund are no longer
11
<PAGE>
available for investment; or (2) in GIAC's view it has become inappropriate to
continue investing in the Fund's shares. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contractowner's interest in an
Investment Division will not be made until the Contractowner has been notified
of the change.
A more detailed description of the investment objectives, policies,
charges, and expenses of the Funds may be found in the accompanying prospectuses
for the Funds. Read the prospectuses carefully before investing.
The Funds' Investment Advisers
The Guardian Stock Fund, The Guardian Bond Fund and The Guardian Cash Fund
are advised by GISC, 201 Park Avenue South, New York, New York 10003. GISC is
registered as an investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act"). GISC is wholly owned by GIAC. Each of these Funds pays
GISC an investment advisory fee at an annual rate of 0.50% of the Fund's average
daily net assets for the services and facilities GISC provides to the Fund. GISC
also serves as the manager of Gabelli Capital Asset Fund, as the investment
adviser of six of the eight series comprising The Park Avenue Portfolio, a
family of mutual funds, and The Guardian Small Cap Stock Fund series of GIAC
Funds, Inc.
The Baillie Gifford International Fund (the "International Fund") and
Baillie Gifford Emerging Markets Fund (the "Emerging Markets Fund") are advised
by Guardian Baillie Gifford Limited ("GBG"), 1 Rutland Court, Edinburgh, EH3
8EY, Scotland. GBG is registered as an investment adviser under the Advisers Act
and is a member of Great Britain's Investment Management Regulatory Organization
Limited ("IMRO"). GBG was incorporated in Scotland in November 1990 and is
wholly owned by GIAC (51%) and Baillie Gifford Overseas Limited ("BG Overseas")
(49%). GBG also serves as the investment adviser of two of the eight series
comprising The Park Avenue Portfolio. GBG receives an investment advisory fee at
an annual rate of 0.80% of the average daily net assets of the International
Fund and 1.00% of the average daily net assets of the Emerging Markets Fund for
the services and facilities GBG provides to the Funds.
GBG has appointed BG Overseas to serve as sub-investment adviser to the
International Fund and the Emerging Markets Fund. Like GBG, BG Overseas is
located at 1 Rutland Court, Edinburgh, EH3 8EY, Scotland. BG Overseas is also
registered under the Advisers Act and is a member of IMRO. BG Overseas is wholly
owned by Baillie Gifford & Co., which is currently one of the largest investment
management partnerships in the United Kingdom. BG Overseas advises several
institutional clients situated outside of the United Kingdom, and is also the
sub-investment adviser to the series of The Park Avenue Portfolio that are
advised by GBG. One half of the investment advisory fee paid by the Funds to GBG
is payable by GBG to BG Overseas for its services as these Funds' sub-investment
adviser. No separate or additional fee is paid by these Funds to BG Overseas.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund
are advised by Value Line, Inc. ("Value Line"), 220 East 42nd Street, New York,
New York 10017. Value Line is registered as an investment adviser under the
Advisers Act. Each of the Value Line Funds pays Value Line an investment
advisory fee at an annual rate of 0.50% of the Fund's average daily net assets
for the services and facilities Value Line provides to these Funds. Each of the
Value Line Funds reimburses GIAC for certain administrative and shareholder
servicing expenses incurred by GIAC on their behalf. Value Line also serves as
the investment adviser to its own family of mutual funds and publishes The Value
Line Investment Survey and The Value Line Mutual Fund Survey.
Gabelli Capital Asset Fund is managed by GISC, which has appointed Gabelli
Funds, Inc. ("GFI") as the investment adviser to the Fund. GFI is located at One
Corporate Center, Rye, New York 10580, and is registered as an investment
adviser under the Advisers Act. The Fund pays GISC a management fee at an annual
rate of 1.00% of its average daily net assets for services and facilities which
GISC provides to the Fund. For its services as investment adviser, GISC pays GFI
.75% of the management fee which GISC receives from the Fund. No
12
<PAGE>
separate or additional fee is paid by the Fund to GFI. GFI also serves as
investment adviser to various other open-end mutual funds and closed-end mutual
funds.
DESCRIPTION OF THE FIXED-RATE OPTION
That portion of the Single Premium Payment Contract relating to the
Fixed-Rate Option, described below, is not registered under the Securities Act
of 1933 ("1933 Act") and the Fixed-Rate Option is not registered as an
investment company under the 1940 Act. Accordingly, neither the Fixed-Rate
Option nor any interests therein are subject to the provisions or restrictions
of the 1933 Act or the 1940 Act. However, the following disclosure about the
Fixed-Rate Option may be subject to certain generally applicable provisions of
the Federal securities laws regarding the accuracy and completeness of
statements not in prospectuses. The Fixed-Rate Option may not be available for
allocation in all states in which the Single Premium Payment Contracts are
offered.
The purchaser of a Single Premium Payment Contract may allocate all or
part of the Net Premium Payment for his or her Contract to the Fixed-Rate
Option. GIAC guarantees that amounts invested under the Fixed-Rate Option will
accrue interest daily at an effective annual rate of at least 3% (the
"guaranteed minimum interest rate"). GIAC may also credit interest at a rate in
excess of 3% (the "excess interest rate") but is under no obligation to do so.
Any excess interest rate will be determined in the sole discretion of GIAC and
may be changed by GIAC from time to time and without notice. The Contractowner
assumes the risk that interest credited on the portion of the accumulation value
in the Fixed-Rate Option may not exceed the guaranteed minimum interest rate
(3%) for any given year.
There is no specific formula for the determination of whether to credit
excess interest or the rate thereof. Some of the factors that GIAC may consider
are general economic trends, rates of return currently available and anticipated
on GIAC's general account investments, regulatory and tax requirements and
competitive factors. GIAC is aware of no statutory limitations on the maximum
amount of interest it may credit, and the Board of Directors of GIAC has set no
limitations.
The amounts credited to the Fixed-Rate Option become part of the general
assets of GIAC and are segregated from those allocated to any separate account
of GIAC. GIAC invests the assets of the Fixed-Rate Option in those assets chosen
by GIAC and allowed by applicable law. The allocation of any payment to the
Fixed-Rate Option does not entitle a Contractowner to share in the investment
experience of those assets.
The interest rate initially credited to the Net Premium Payment allocated
to the Fixed-Rate Option will be the rate in effect on the date the Contract is
issued. Any excess interest rate credited to the amount allocated to the
Fixed-Rate Option will be guaranteed until the next Contract Anniversary Date.
GIAC may change the excess interest rate credited to a particular Contract on
each subsequent Contract Anniversary Date and each such subsequent interest rate
will also be guaranteed for one Contract year until the following Contract
Anniversary Date.
The Fixed-Rate Option will not be maintained after the Contractowner's
Retirement Date. Any accumulation value in the Fixed-Rate Option on the
Retirement Date will be applied to the Annuity Payout Option elected by the
Contractowner. Certain restrictions apply to transfers to and from the
Fixed-Rate Option (see "Transfers of Contract Values").
DESCRIPTIONS OF THE CONTRACTS
This section of the Prospectus highlights the more significant provisions
of the Contracts. The information included in this section generally describes,
among other things, the benefits, charges, rights and privileges under the
Contracts. These descriptions are qualified by reference to specimen Contracts
which have been filed as exhibits to the registration statement for the Separate
Account. The provisions of the Contracts may vary slightly from state to state
due to variations in state regulatory requirements.
13
<PAGE>
The variable annuity payments provided by the Contracts are funded through
investments in the Separate Account. Information regarding the Separate Account
is contained in the sections entitled "Descriptions of GIAC and the Separate
Account," "Descriptions of the Variable Investment Options," and in the current
prospectus for each of the Variable Investment Options.
INDIVIDUAL CONTRACTS
The Individual Contracts are only offered on the lives of individual
Annuitants. Two types of Individual Contracts are available: (1) a Single
Premium Payment Contract and (2) a Flexible Premium Payment Contract. Each of
these types of Individual Contracts are further subdivided into those which
qualify for special Federal income tax treatment ("Qualified Contracts") and
those which do not qualify for such treatment ("Non-Qualified Contracts"). (See
"Federal Tax Matters.")
A minimum purchase payment of $3,000 is required under Single Premium
Payment Contracts. A minimum initial purchase payment of $500 is required under
Flexible Premium Payment Contracts. Thereafter, the minimum additional flexible
payment is $100. However, if a Flexible Premium Payment Contract is purchased
by, or in connection with, an employer payroll deduction plan, the minimum
amount GIAC will accept as a premium payment is $50 per Contract. The aggregate
of flexible premium payments made in any Contract year after the first may not
exceed ten (10) times the amount of the premium payments made in the first
Contract year or $100,000, whichever is less, without the written consent of
GIAC.
GROUP CONTRACT
The Group Contract offered by this Prospectus is a Flexible Premium
Payment Contract under which Annuity Payments to plan Participants will begin at
selected future dates on a basis which is elected by the Contractowner in
accordance with a plan or trust.
The Contract is designed for use with several types of tax qualified plans
and other plans receiving favorable tax treatment, including retirement plans
established by corporate employers under Section 401 and public employee
deferred compensation plans under Section 457 of the Code. As such, the
provisions of the plan or trust should be referred to in connection with the
description of the Group Contract contained in this Prospectus.
A minimum initial purchase payment of $5,000 is required, with additional
payments of at least $500 accepted. Subsequent payments in excess of $100,000 in
any one Contract year are acceptable only with the written consent of GIAC.
METHOD OF PURCHASE
To purchase a Contract a complete application and initial premium payment
must be sent to The Guardian Insurance & Annuity Company, Inc., Customer Service
Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002. Registered, certified
and express mail should be sent to such office at 3900 Burgess Place, Bethlehem,
Pennsylvania 18017. If the application is acceptable to GIAC in the form
received, the initial purchase payment will be credited within two (2) business
days after receipt. If the initial purchase payment cannot be credited within
five (5) business days after receipt by GIAC because the application is
incomplete, GIAC will promptly return the payment and application to the
applicant. Acceptance is subject to GIAC's rules and GIAC reserves the right to
reject any application or initial purchase payment.
After issuance of the Contract, net premium payments received by GIAC at
its Customer Service Office prior to the close of GIAC's business day will
normally be credited to the Contract on that day. Net premium payments received
on a non-business day or after the close of GIAC's business day will normally be
credited at the next accumulation unit value calculated on the first business
day following receipt.
14
<PAGE>
CHARGES AND DEDUCTIONS
Charges and deductions under the Contracts are made for GIAC's assumption
of mortality and expense risk and administrative expenses, for any applicable
premium taxes and, where applicable, charges (or credits) to the non-tax
qualified subdivisions of the Separate Account for Federal income taxes, if any.
Although no sales charges are deducted from premium payments when made, a
contingent deferred sales charge will be assessed upon certain Contract
surrenders or withdrawals. The amount of this latter charge is based on the type
of Contract involved. The following describes each charge and deduction made
under the Contracts:
Mortality and Expense Risk Deduction: The mortality risk assumed by GIAC
arises from its promise to pay death benefit proceeds and from its contractual
obligation to make Annuity Payments to each Annuitant regardless of how long he
or she lives and regardless of how long all Annuitants as a group live. This
assures each Annuitant that neither his or her own longevity nor an improvement
in life expectancy generally will have an adverse effect on the Annuity Payments
he or she will receive under a Contract and relieves the Annuitant from the risk
that he or she will outlive the amounts actually accumulated for retirement. The
expense risk assumed by GIAC arises from the possibility that the amounts
deducted for sales and administrative expenses may be insufficient to cover the
actual cost of such items.
GIAC makes a daily charge of .000027 of the value of the net assets of
each Variable Investment Option (1.0% on an annual basis consisting of
approximately .65% for mortality risks and approximately .35% for expense risks)
to compensate it for the assumption of these risks. If this charge is
insufficient to cover the actual cost of these risks, the loss will fall on
GIAC. Conversely, if the charge proves more than sufficient, any excess may be
retained by GIAC for profit or use by it to meet any operational expense,
including that of distribution of the Contracts.
Variable annuity payments reflect the investment performance of the
Variable Investment Options but are not affected by changes in actual mortality
experience or by expenses incurred by GIAC in excess of the expense deductions
provided for in each Contract.
Other Charges Applicable to the Funds: The net asset value per share of
each of the Funds reflects investment management fees and certain general
operating expenses paid by the Funds. With the exception of the International
Fund, the Emerging Markets Fund and Gabelli Capital Asset Fund, each of the
Funds pays an annual investment management fee to its investment adviser that
equals 0.50% of such Fund's average daily net assets. The annual investment
management fee paid to the adviser of the International Fund and the Emerging
Markets Fund is 0.80% of the International Fund's average daily net assets and
1.00% of the Emerging Markets Fund's average daily net assets. Gabelli Capital
Asset Fund pays its manager an annual management fee of 1.00% of its average
daily net assets. No separate fee is payable to the respective sub-investment
advisers of these Funds. (See "The Funds".) The management fees and other
expenses incurred by the Funds are more fully described in the accompanying
prospectuses for the Funds.
Annual Contract Administration Fee: On each Contract Anniversary Date on
or before the Retirement Date, GIAC deducts a Contract administration fee of $30
from Individual Single Premium Payment Contracts and $35 from Individual
Flexible Premium Payment Contracts or Group Contracts by cancelling Accumulation
Units which are equal in value to the fee. This fee is deducted from the
Variable Investment Options and the Fixed-Rate Option on a pro-rata basis in the
same proportion as the percentage of the Contract's Accumulation Value
attributable to each Variable Investment Option and the Fixed-Rate Option. GIAC
deducts the Contract administration fee if a Contract is surrendered before the
Contract Anniversary Date. This fee is designed to reimburse GIAC for its actual
expenses incurred in administering the Contracts and it is not expected to
result in a profit. GIAC will not increase the Contract administration fee.
15
<PAGE>
Premium Taxes: Certain states and municipalities impose premium taxes when
premium payments are made or when annuity payments begin. Premium taxes range
from approximately 0.5% to 3.5% on premium payments made under the Contracts.
For those Contracts subject to a premium tax, GIAC deducts premium taxes either
from Contract premium payments when made or on the Retirement Date, as
determined in accordance with applicable law.
Contingent Deferred Sales Charge: GIAC makes no separate sales charge
assessment in connection with the purchase of a Contract or subsequent premium
payments under a Flexible Premium Payment or Group Contract. However, a
contingent deferred sales charge ("CDSC") is imposed by GIAC on certain
surrenders or partial withdrawals to cover certain expenses incurred in the sale
of the Contracts, including commissions to registered representatives and
various promotional expenses. The CDSC and the time periods for which it applies
differ depending upon the type of Contract purchased. In no event, however, will
the CDSC ever exceed, in the aggregate, 9% of the premium payments.
In connection with Individual Single Premium Payment Contracts, the
following charges will be assessed upon amounts withdrawn during the first six
Contract years measured from the date of issue:
Contract Year Charge
------------ ------
1.................................. 5%
2.................................. 5%
3.................................. 4%
4.................................. 3%
5.................................. 2%
6.................................. 1%
7 and thereafter................... 0%
However, in any Contract year after the first and when a CDSC is
applicable, 10% of the amount of the single premium payment can be withdrawn
annually by the Contractowner without application of the CDSC. Such withdrawals
may, however, be subject to penalty taxes and/or mandatory federal income tax
withholding. (See "Federal Tax Matters.") The maximum amount to which the CDSC
may be applied cannot exceed the single premium payment.
In connection with Individual Flexible Premium Payment Contracts and Group
Contracts, the CDSC will be the lesser of (a) 5% of the total premiums paid
during the 72 months immediately preceding the date of withdrawal annually, or
(b) 5% of the amount being withdrawn. However, in any Contract year after the
first and when a CDSC is applicable, 10% of the total premiums paid under the
Contract in the last 72 months immediately preceding the date of withdrawal can
be withdrawn without application of the CDSC. Such withdrawals may, however, be
subject to penalty taxes and/or mandatory federal income tax withholding. (See
"Federal Tax Matters.") The maximum amount of the CDSC during the 72 months
immediately preceding the date of withdrawal will never exceed 5% of the total
of premiums paid during such period.
PRE-RETIREMENT DEATH BENEFIT
Upon the death of the Annuitant (or the death of the Contractowner for
non-qualified Contracts) prior to the Retirement Date, an amount equal to the
Accumulation Value of the Contract (the current value of Accumulation Units
credited) as of the end of the Valuation Period during which GIAC receives due
proof of death, will be available for payment to the Beneficiary promptly after
proof of death is received by GIAC. (Under certain circumstances, the
Beneficiary may also choose to receive payments pursuant to one of the payout
options described under "Annuity Payout Options.") 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 payments made under such
16
<PAGE>
Contract, less a reduction for any prior redemptions and any charges assessed in
connection with those transactions. The Contractowner may designate a
Beneficiary and may change such designation at any time before Annuity Payments
begin.
ACCUMULATION PERIOD
Allocation of Net Premium Payment: The initial Net Premium Payment is used
to purchase Accumulation Units in the Investment Divisions or the Fixed-Rate
Option (available to Single Premium Payment Contracts only), as selected by the
Contractowner, at the unit values next computed following GIAC's decision to
issue the Contract. Subsequent Net Premium Payments under Flexible or Group
Contracts will be allocated among the underlying Contract options as initially
selected for allocation or pursuant to new allocation instructions which have
been submitted in writing to GIAC at its Customer Service Office. New allocation
instructions will be implemented by GIAC following their receipt. However, the
Contractowner may not be invested in more than six allocation options at any
given time.
Crediting Accumulation Units Under the Contract: Variable Accumulation
Units represent the interests in the Variable Investment Options and Fixed
Accumulation Units represent the interests in the Fixed-Rate Option. The total
number of Accumulation Units to be credited to a Contractowner's account is the
sum of the portion of the Net Premium Payment allocated to each option divided
by the Accumulation Unit value of each such option as next computed following
receipt of the payment by GIAC. The number of Accumulation Units will not change
because of a subsequent change in the value of the unit, but the dollar value of
Accumulation Units will vary based upon the investment experience of the
Variable Investment Options and interest credited to the Fixed-Rate Option.
Accumulation Value: The value of the Contractowner's account within any
particular Variable Investment Option or the Fixed-Rate Option is determined by
multiplying the number of Accumulation Units of that particular option credited
to the account by the applicable current Accumulation Unit value.
Value of an Accumulation Unit: The value of an Accumulation Unit is
determined by using one of two methods, depending upon whether it relates to a
Variable Investment Option or the Fixed-Rate Option. With respect to a Variable
Investment Option, the value of a Variable Accumulation Unit is determined by
multiplying the value of such Variable Accumulation Unit as of the end of the
immediately preceding Valuation Period by the net investment factor (described
below) for the current Valuation Period. With respect to the Fixed-Rate Option,
the value of a Fixed Accumulation Unit is determined by adding the interest
credited on such Fixed Accumulation Unit since the end of the immediately
preceding Valuation Period to the value of such unit as of the end of such
Valuation Period.
Net Investment Factor: The net investment factor is a measure of the
investment performance of each Variable Investment Option. For any particular
Valuation Period, the net investment factor is determined by:
(1) Adding the net asset value of a Fund share as determined at the
end of such Valuation Period to the per share amount of any dividend and
other distribution made by the Fund during the period, and
(2) Dividing by the net asset value of the particular Fund share
calculated as of the end of the immediately preceding Valuation Period,
and
(3) Subtracting from the above result any applicable taxes and the
mortality and expense risk charge.
ANNUITY PERIOD
Retirement Date: Annuity payments under the Contracts will begin on the
Retirement Date, which is the first day of the calendar month and year selected
by the Contractowner. This date cannot be later than the
17
<PAGE>
Annuitant's 85th birthday, except where otherwise agreed to by GIAC. The
Retirement Date may also be determined by the retirement plan under which the
Contract is issued.
Annuity Payments: Annuity Payments will be determined on the basis of (a)
the table specified in the Contract which reflects the nearest age and sex of
the Annuitant(s), (b) the Annuity Payout Option selected, and (c) the
performance of the Variable Investment Options selected. The amount of Annuity
Payments will not be affected by the longevity of Annuitants generally or any
increase in the expenses of GIAC in excess of the charges specified in the
Contract. The Annuitant receives the value of a fixed number of Annuity Units
each month. For the Variable Investment Options, the value of an Annuity Unit
will reflect the investment experience of the amounts allocated to the Variable
Investment Options, and the amount of each Annuity Payment will vary
accordingly.
The decision of the U.S. Supreme Court in Arizona Governing Committee v.
Norris can be interpreted to require all "employer-related plans" to use annuity
rate tables that are gender-neutral in calculating annuity purchase rates. In
order to accommodate employer-related plans funded by the Contracts,
gender-neutral annuity rate tables have been developed. Contracts that are not
purchased in connection with employer-related plans use gender-distinct annuity
rate tables except where prohibited by state law. Contracts offered by this
Prospectus to residents of such states will have Contract benefits which are
based on gender-neutral annuity rate tables.
Annuity Payout Options: The Contractowner and, under certain
circumstances, the Beneficiary, may elect to have Annuity Payments made under
any one of the Annuity Payout Options specified in the Contracts and described
below. For Group Contracts, GIAC will issue a certificate to the Contractowner
for delivery to each Participant when an Annuity is provided for that
Participant. Each such certificate will set forth in substance the amount and
terms of the Annuity Payments and any other benefits the Participant may be
entitled to under the Contract. A change of Annuity Payout Option is only
permitted prior to the Retirement Date. In the absence of an election, Annuity
Payments will be made in accordance with the annuity form known as "Option 2 --
Life Annuity with 120 Monthly Payments Certain" (see below). Annuity Payments
will be made monthly except that (a) proceeds of less than $2,000 will be paid
in a single sum and (b) the schedule of monthly installment payments may be
changed to avoid payments of less than $20. The Annuity Payout Options currently
available under the Contracts are as follows:
Option 1 -- Life Annuity Payments: An Annuity Payment made
monthly during the lifetime of the Annuitant which terminates with the
last monthly payment preceding the death of the Annuitant. Option 1
offers the maximum level of monthly payments, since there is no
guarantee of a minimum number of payments or provision for a death
benefit for Beneficiaries. It would be possible under Option 1 for the
Annuitant to receive only one Annuity Payment if he or she died before
the due date of the second Annuity Payment, two such payments if he or
she died before the third Annuity Payment date, and so on.
Option 2 -- Life Annuity with 120 Monthly Payments Certain: An
Annuity Payment made monthly during the lifetime of the Annuitant with
the provision that if, at the death of the Annuitant, payments have
been made for less than 120 months, Annuity Payments will be continued
during the remainder of such period to the Beneficiary designated by
the Contractowner. The Beneficiary at any time may elect to redeem in
whole or in part the commuted value of the current dollar amount of the
then remaining number of certain Annuity Payments. If the Beneficiary
dies while receiving Annuity Payments, the present value of the current
dollar amount of the remaining number of certain Annuity Payments shall
be paid in one sum to the estate of the Beneficiary.
Option 3 -- Joint and Two-Thirds Survivor Annuity Payments: An
annuity payment made monthly during the joint lifetimes of the
Annuitant and a designated second person and
18
<PAGE>
continuing during the lifetime of the survivor in a reduced amount
which reflects two-thirds of the number of Annuity Units in effect
when both persons were alive. It would be possible under Option 3
for the Annuitant and the designated second person to receive only
one Annuity Payment if both died before the date of the second
Annuity Payment, two such payments if both died before the third
Annuity Payment date, and so on.
TRANSFERS OF CONTRACT VALUES
Subject to the conditions described below and to the terms of any
applicable retirement plan, transfers among the Contract's Variable Investment
Options are permitted both before and after the Retirement Date. No charge is
presently made by GIAC for implementing any transfer. Nevertheless,
Contractowners who contemplate requesting a transfer should carefully consider
their annuity objectives and the investment objectives of the Funds involved in
the proposed transfer before choosing to request a transfer. Frequent transfers
may be inconsistent with the long-term objectives of the Contracts.
GIAC will implement transfers pursuant to proper written or telephone
instructions which specify in detail the requested changes. Proper transfer
requests received by GIAC at its Customer Service Office prior to 3:30 p.m.
Eastern time on a business day will normally be effected as of the end of that
day. GIAC reserves the right to limit the frequency of transfers to not more
than once every 30 days. Contractowners may be invested in a maximum of six
Variable Investment Options or the Fixed-Rate Option and five Variable
Investment Options under the Contract at any given time.
Before telephone transfer instructions will be honored by GIAC, a
telephone authorization form, properly completed by the Contractowner, must be
on file at GIAC's Customer Service Office. If the proper authorization is on
file at GIAC's Customer Service Office, telephone transfer instructions may be
made by calling toll-free 1-800-533-0099 between 9:00 a.m. and 3:30 p.m.
(Eastern time) on days when GIAC is open for business. Each telephone transfer
request must include a precise identification of the Contract and the
Contractowner's Personal Security Code. GIAC may accept telephone transfer
instructions from any caller who properly identifies the Contract number and
Personal Security Code. The Funds, GISC and GIAC shall not be liable for any
loss, damage, cost or expense resulting from following telephone transfer
instructions which any of them reasonably believed to be genuine. Contractowners
risk possible loss of principal, interest and capital appreciation in the event
of an unauthorized or fraudulent telephone transfer. All or part of any
telephone conversation relating to transfer instructions may be recorded by GIAC
without prior disclosure to the caller.
Telephone instructions apply only to previously invested monies and do not
change the allocation instructions for any future Net Premium Payments under the
Contract. Allocations of future Net Premium Payments can only be changed by
proper written request.
During periods of drastic economic or market changes, it may be difficult
to contact GIAC to request a telephone transfer. At such times, requests may be
made by regular or express mail and will be processed at the Accumulation Unit
Value on the date of receipt pursuant to the terms and restrictions described in
this "Transfers of Contract Values" section. GIAC reserves the right to modify,
suspend or discontinue the telephone transfer privilege at any time and without
prior notice.
Up until 30 days before the Retirement Date, the Contractowner may
transfer all or part of the value of his or her Variable Investment Options to
another or other Variable Investment Options.
After the Retirement Date, a Contractowner may also transfer all or a part
of the Annuity value from one or more Variable Investment Options to another or
other Variable Investment Options. However, such transfers may be made only once
per Contract year. Any such transfer will be effected at the next Annuity Unit
value calculated after receipt of proper transfer instructions by GIAC at its
Customer Service Office. No transfers into or out of the
19
<PAGE>
Fixed-Rate Option are currently permitted following the Retirement Date.
Prior to the Retirement Date, each transfer between the Contract's
Variable Investment Options will be based upon the appropriate Accumulation Unit
values as of the valuation date coincident with or next following the date the
transfer instructions are received by GIAC at its Customer Service Office. Where
such transfer is requested after the Retirement Date, the number of old Annuity
Units will be changed to reflect the new number of Annuity Units based upon
their respective values on December 31st next following the receipt of
instructions by GIAC.
A Contractowner may transfer amounts from the Fixed-Rate Option to any
Variable Investment Option once each Contract year and only during the 30-day
period beginning on the Contract Anniversary Date. If any Accumulation Value
remains in the Fixed-Rate Option, amounts may be transferred to no more than
three Variable Investment Options. The maximum amount which may currently be
transferred out of the Fixed-Rate Option each year is the greater of: (a) 25% of
the amount invested in the Fixed-Rate Option as of the applicable Contract
Anniversary Date or (b) $2,500. Transfer requests received within the 30-day
period beginning on the Contract Anniversary Date will normally be effected as
of the end of the business day on which the request is received. These limits
are subject to change in the future.
A Contractowner may not currently transfer any portion of the Accumulation
Value from a Variable Investment Option to the Fixed-Rate Option. An owner may
only allocate part or all of a single Net Premium Payment directly into the
Fixed-Rate Option.
GIAC may postpone requested transfers of all or part of the Contract
values under certain circumstances. See "Surrenders and Partial Withdrawals,"
below.
SURRENDERS AND PARTIAL WITHDRAWALS
During the Accumulation Period, the Contractowner may redeem the Contract
in whole (known as a "surrender") or in part (know as a "partial withdrawal").
Surrenders and partial withdrawals must be requested in writing in a form
acceptable to GIAC. If the request is for surrender of the Contract, said
request must be accompanied by the Contract (or an acceptable affidavit of loss)
in order to be deemed a proper written request. GIAC will not process a request
for a surrender prior to the receipt of the Contract (or an acceptable affidavit
of loss) at its Customer Service Office. GIAC will not honor a request for
surrender or partial withdrawal after the Retirement Date.
If a surrender or partial withdrawal is made in the first six (6) Contract
years, the contingent deferred sales charge may be imposed (see "Contingent
Deferred Sales Charge"). After the first Contract year, 10% of the amount of the
single premium payment with respect to Single Premium Payment Contracts and 10%
of the total premiums paid in the last 72 months immediately preceding the date
of withdrawal with respect to Flexible Premium Payment Contracts, can be
withdrawn without application of the contingent deferred sales charge.
Surrenders or partial withdrawals may also be subject to penalty taxes (see
"Federal Tax Matters").
The Accumulation Value on a given day is equal to the sum of the value of
the Variable Accumulation Units and any Fixed Accumulation Units under the
Contract. A surrender or partial withdrawal is effected by cancelling
Accumulation Units which have an aggregate value equal to the dollar amount of
the requested surrender or partial withdrawal as of the Valuation Period on or
next following the date proper written request for surrender or partial
withdrawal is received by GIAC at its Customer Service Office. If applicable,
the annual Contract administration fee and any contingent deferred sales charges
will be deducted from the surrender proceeds or the remaining Accumulation Value
by the cancellation of additional Accumulation Units.
In connection with a surrender or partial withdrawal, Accumulation Units
will be cancelled in the following order: First, GIAC will cancel all the
Variable Accumulation Units attributable to the Investment Divisions.
20
<PAGE>
Cancellation of the Variable Accumulation Units attributable to the Investment
Divisions will be on a pro rata basis reflecting the existing distribution of
the Variable Accumulation Units unless instructed to the contrary by the
Contractowner. Second, GIAC will cancel all Fixed Accumulation Units
attributable to the Fixed-Rate Option.
Payment of a surrender or partial withdrawal will ordinarily be made
within seven days after the date a proper written request is received by GIAC at
its Customer Service Office. GIAC can delay the payment if the Contract is being
contested and may postpone the calculation or payment of any Contract benefit or
transfer of amounts based on investment performance of the Investment Divisions
if: (a) the New York Stock Exchange is closed for trading or trading has been
suspended; or (b) the Securities and Exchange Commission ("SEC") restricts
trading or determines that a state of emergency exists which may make payment or
transfer impracticable. GIAC also reserves the right to defer the payment of
amounts withdrawn from the Fixed-Rate Option for a period not to exceed six
months from the date proper request for such withdrawal is received by GIAC.
The Contractowner may request a partial withdrawal of the Contract value
provided such partial withdrawal does not result in reducing the Contract value
to less than (a) $500 on the date of redemption for an Individual Single Premium
Payment Contract, (b) $250 on the date of the partial withdrawal for an
Individual Flexible Premium Payment Contract, or (c) $1,000 on the date of the
partial withdrawal for a Group Contract. If a partial withdrawal request would
result in any such reduction, GIAC will redeem the total Accumulation Value and
pay the remaining balance to the Contractowner. Such involuntary surrender would
be subject to the contingent deferred sales charge if surrender of the Contract
occurred within the time period for which this charge applied.
(See "Contingent Deferred Sales Charges.")
NOTE: Withdrawals from Contracts issued in connection with Section 403(b)
qualified plans are restricted under the Internal Revenue Code. See "Qualified
Contracts -- Section 403(b) Plans," for information regarding the circumstances
under which withdrawals may be made from such Contracts.
OTHER IMPORTANT CONTRACT INFORMATION
Assignment: Assignment of interests under the Contracts is prohibited when
the Contracts are used in connection with Keogh plans, any retirement plans
contemplated by Sections 403(b) or 408 of the Code and any corporate retirement
plan unless the Contractowner is not the Annuitant or the Annuitant's employer.
An assignment of the Contract may be treated as a taxable distribution to the
Contractowner. (See "Federal Tax Matters," below.)
Reports: GIAC will send to each Contractowner, at least semi-annually, a
report containing such information as may be required by applicable laws, rules
and regulations. In addition, a statement will be provided at least annually as
to the number of Accumulation Units and the value of such Accumulation Units
under the Contract.
Contractowner Inquiries: A Contractowner may direct inquiries to the
individual who sold him or her the Contract or may call 1-800-221-3253 or write
directly to: The Guardian Insurance & Annuity Company, Inc., Customer Service
Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002.
FEDERAL TAX MATTERS
GENERAL INFORMATION
The operations of the Separate Account form a part of, and are taxed with
GIAC's operations under the Code. Investment income and realized net capital
gains on the assets of the Separate account are reinvested and taken into
account in determining the Accumulation and Annuity Unit values. Thus,
investment income and realized net capital gains are automatically applied to
increase reserves under the Contract. GIAC believes that
21
<PAGE>
investment income and capital gains attributable to the Separate Account are
taxed under existing Federal income tax law but are offset by deductible reserve
increases. Accordingly, GIAC does not anticipate that it will incur any Federal
income tax liability attributable to the Separate Account and, therefore, GIAC
does not currently make provisions for any such taxes. However, if changes in
the Federal tax laws, or interpretations thereof, result in GIAC incurring a tax
liability on income or gains attributable to the Separate Account or certain
types of variable annuity contracts, then GIAC may impose a charge against the
Separate Account (with respect to some or all Contracts) to pay such taxes.
NON-QUALIFIED CONTRACTS
Diversification: Section 817(h) of the Code provides that variable annuity
contracts will not be treated as annuities unless the underlying investments are
"adequately diversified" in accordance with regulations prescribed by the
Secretary of the Treasury. Such regulations require, among other things, that
the Funds invest no more than 55% of the value of their respective assets in one
investment; 70% in two investments; 80% in three investments; and 90% in four
investments. GIAC intends that the Funds underlying the Contracts will be
managed by the applicable investment managers so as to comply with these
diversification requirements. If the diversification requirements are not met by
each and every Variable Investment Option, the Contract could lose its overall
tax status as an annuity, resulting in current taxation of the excess of
Contract value over the "investment in the Contract." A Contractowner's
"investment in the Contract" generally equals: (1) the aggregate amount of
premium payments or other consideration paid for the Contract minus (2) the
aggregate amount received under the Contract, to the extent such amount was not
excluded from gross income.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable contractowner's gross income. The IRS has stated that a variable
contractowner will be considered the owner of separate account assets if the
contractowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. To date, no regulations
or rulings have been issued regarding the circumstances under which a
contractowner's ability to control investments through premium allocation and
transfer privileges would cause him or her to be treated as the owner of the
assets in an insurance company's separate account. GIAC does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue to provide guidance in this
area. Accordingly, GIAC reserves the right to modify the Contract as necessary
to attempt to prevent the Contractowner from being considered the owner of the
assets of the Separate Account or otherwise to maintain favorable tax treatment
of the Contracts.
Distribution of Benefits: Non-qualified Contracts will not be treated as
annuity contracts for purposes of Section 72 of the Code unless the Contract
provides that: (1) if any Contractowner dies on or after the Retirement Date,
but prior to the time the entire interest in the Contract has been distributed,
the remaining portion of such interest will be distributed at least as rapidly
as under the method of distribution in effect when the Contractowner died; and
(2) if any Contractowner dies prior to the Retirement Date, the entire interest
will be distributed within five years of the Contractowner's death. These
requirements will be considered satisfied if that portion of the Contractowner's
interest which is payable to or for the benefit of a "designated beneficiary,"
will be distributed over the life or life expectancy of any new owner and such
distributions begin within one year of the Contractowner's death. The Contract's
"new owner" is the person designated by the Contractowner as Beneficiary and to
whom ownership of the Contract passes by reason of death. For this purpose, the
Beneficiary must be a natural person. If the Beneficiary is the Contractowner's
surviving spouse, the Contract may be continued with the surviving spouse as the
new Contractowner. Non-qualified Contracts contain provisions intended to comply
22
<PAGE>
with Section 72(s) of the Code. However, regulations interpreting these
requirements of the Code have not yet been issued. Accordingly, the provisions
contained in such Contracts will be reviewed and may be modified to assure
compliance with the Code's requirements when clarified by regulations or
otherwise.
Note: The remaining discussion concerning non-qualified Contracts assumes
that the Contracts will be treated as annuities under Section 72 of the Code,
that the underlying investments of the Contracts are "adequately diversified"
under Section 817(h) of the Code, and that the Contract is not issued in
connection with a retirement plan qualifying for favorable tax treatment under
the Code.
A Contractowner who is a natural person is generally not taxes on
increases in the value of a Contract until distribution, either as a lump sum
payment received by surrender or partial withdrawal, or as annuity payments. The
assignment or pledge of any portion of the Contract value may be treated as a
distribution. The taxed portion of a distribution (whether in the form of a lump
sum payment or an annuity) is taxed as ordinary income.
Contractowners who are not natural persons generally must include in
income any increase in the excess of the Contract's Accumulation Value over the
"investment in the Contract" during the taxable year, whether or not such
increase is distributed. There are some exceptions to this rule and a
prospective owner that is not a natural person may wish to discuss these with a
competent tax adviser.
The following discussion applies to Contracts owned by natural persons.
Generally, amounts received by surrender or partial withdrawal are first
treated as taxable income to the extent that the Contract's Accumulation Value
immediately before the surrender/withdrawal exceeds the "investment in the
contract." Any additional amount withdrawn is not taxable.
Although the tax consequences may vary depending on the form of Annuity
Payment Option selected, the recipient of an Annuity Payment generally is taxed
on the portion of such payment that exceeds the "investment in the contract."
For variable annuity payments, the taxable portion is determined by a formula
that establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the "investment in the contract" by the
total number of expected periodic payments. The entire distribution will be
fully taxable once the recipient has recovered the dollar amount of the
"investment in the contract."
A penalty tax on surrenders or withdrawals equal to 10% of the amount
treated as taxable income may be imposed unless such surrender or withdrawal is:
(made on or after age 59 1/2; (2) made as a result of death or disability; or
(3) received in substantially equal installments as a life annuity (subject to
special "recapture" rules if the series of payments is subsequently modified).
Annuity distributions are generally subject to withholding for the
recipient's income tax liability. The withholding rates vary according to the
type of the distribution and the recipient's tax status. Recipients generally
may elect not to have tax withheld from distributions. Redemption requests that
do not indicate a preference regarding withholding will be delayed in processing
until a preference form has been properly completed and received at GIAC's
Customer Service Office. Withholding on taxable distributions is generally
required if the recipient fails to provide GIAC with his or her correct Social
Security number or if the recipient is a U.S. citizen or expatriate living
abroad.
Amounts may be distributed from a Contract because of the death of a
Contractowner or the Annuitant. Generally, such amounts are includable in the
income of the recipient as follows: (1) if distributed in a lump sum
23
<PAGE>
they are taxed in the same manner as a full surrender of the Contract as
described above; or (2) if distributed under an annuity option, they are taxed
in the same manner as annuity payments as described above. For these purposes,
the investment in the contract is not affected by the Contractowner's or
Annuitant's death. That is, the investment in the contract remains the amount of
any purchase payments paid which were not excluded from gross income.
All non-qualified deferred annuity contracts that are issued by GIAC or
its affiliates to the same Contractowner during any calendar year are to be
aggregated for purposes of determining the amount includable in the
Contractowner's gross income under Section 72(e) of the Code. Thus, the proceeds
of a partial withdrawal, surrender or assignment of one or more non-qualified
deferred annuity contracts entered into during the same calendar year will be
includable in the Contractowner's income to the extent of the aggregate excess
of the accumulation values over the investment in all such contracts
("investment in the contract" is defined above). Potential purchasers of more
than one non-qualified annuity contract should seek advice from legal or tax
counsel as to the possible implications of these rules on the contracts they
intend to purchase.
Transferring the ownership of a Contract, or designating an Annuitant,
payee or other Beneficiary who is not also the Contractowner, the selection of
certain Retirement Dates, or the assignment or exchange of a Contract, may
result in certain income or gift tax consequences to the Contractowner that are
beyond the scope of this discussion. A Contractowner contemplating any transfer
or assignment of a Contract should contact a competent tax adviser about the
potential tax effects of such a transaction.
Possible Tax Changes: In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities. For
example, one such proposal would have changed the tax treamtent of non-qualified
annuities that did not have "substantial life contingencies" by taxing income as
it is credited to the annuity. Although as of the date of this Prospectus
Congress is not considering any legislation regarding the taxation of annuities,
there is always the possibility that the tax treatment of annuities could change
by legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
QUALIFIED CONTRACTS
Generally, increases in the value of amounts under a Contract purchased in
connection with a retirement plan qualifying for favorable tax treatment under
the Code are not taxable until benefits are received. However, the rules
governing the tax treatment of contributions and distributions under qualified
plans, as set forth in the Code and applicable rulings and regulations, are
complex and subject to change. These rules also vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, this Prospectus
does not attempt to provide more than general information about the use of the
Contracts with these various types of plans. Contractowners, Annuitants, and
Beneficiaries under qualified plans should be aware that the rights of any
person to any benefits under such plans may be subject to the terms and
conditions of the plans, regardless of the terms and conditions of the Contracts
issued in connection with such plans. Some retirement plans are subject to
distribution and other requirements that are not incorporated into GIAC's
Contract administration procedures. Contractowners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Adverse tax consequences may result from contributions in excess of specified
limits; distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of a specified annual
amount; and in other specified circumstances. Purchasers of Contracts for use
with any retirement plan should consult their legal counsel and tax adviser
regarding the
24
<PAGE>
suitability of the Contract.
Following are brief descriptions of the various types of plans with which
the Contracts described in the Prospectus may be used:
Section 403(b) Plans: Section 403(b) of the Code permits public schools
and employers specified in Section 501(c)(3) of the Code to purchase annuity
contracts and mutual fund shares through a Section 403(b)(7) custodial account
on behalf of their employees. Subject to certain limitations, the purchase
payments for such contracts or mutual fund shares are excluded from the
employees' gross income for tax purposes. However, these payments may be subject
to FICA (Social Security) taxes. These annuity contracts are commonly referred
to as "tax-sheltered annuities."
Distributions from tax-sheltered annuities are restricted unless the
employee is age 59 1/2, separates from service, dies, becomes disabled, or
incurs a hardship. The employee may not surrender amounts attributable to
either: (1) salary reduction contributions made in years beginning after
December 31, 1988; (2) income attributable to salary reduction contributions
made in years beginning after December 31, 1988 on salary reduction
accumulations held as of December 31, 1988. Hardship withdrawals are further
limited to salary reduction contributions only, and may not include income
earned thereon. Hardship withdrawals are generally subject to tax penalties and
contingent deferred sales charges.
If a Contract is purchased as a tax-sheltered annuity under Section 403(b)
of the Code, it is subject to the restrictions on redemption described above.
These restructions on redemption are imposed by the Separate Account and GIAC in
full compliance with and in reliance upon the terms and conditions of a
no-action letter on this subject issued by the staff of the Securities and
Exchange Commission.
Prospective purchasers of the Contracts as tax-sheltered annuities should
seek advice from legal or tax counsel about their eligibility to purchase a
tax-sheltered annuity, limitations on permissible amounts of purchase payments,
distribution restrictions, and tax consequences of distribution.
Individual Retirement Accounts: Sections 219 and 408 of the Code permit
individuals to contribute to an individual Retirement program known as an
"Individual Retirement Account" or "IRA." IRAs are subject to limitations on the
amount which may be contributed and deducted, and the time when distributions
may commence. In addition, distributions from certain other types of qualified
plans may be placed into an IRA on a tax-deferred basis. Individuals who
purchase Contracts for use with an IRA will receive, in addition to this
Prospectus and a copy of the Contract, a brochure containing information about
eligibility, contribution limits, tax consequences and other particulars
concerning IRAs. The Internal Revenue Service has not reviewed the Contract for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether a death benefit provision such as the provision in the
Contract comports with IRA qualification requirements.
Corporate Pension and Profit-Sharing Plans: Section 401(a) of the Code
permits corporate employers to establish various types of retirement plans for
employees, and self-employed individuals to establish qualified plans for
themselves and their employees. These retirement plans may permit the purchase
of the Contracts to accumulate retirement savings under the plans. Adverse tax
or other legal consequences to the plan, to the participant or to both may
result if this Contract is assigned or transferrred to any individual as a means
to provide benefit payments, unless the plan complies with all legal
requirements applicable to such benefits prior to transfer of the Contract.
Deferred Compensation Plans: Section 457 of the Code, while not actually
providing for a qualified plan
25
<PAGE>
as that term is normally used, provides for certain deferred compensation plans
with respect to service for state governments, local governments, rural electric
cooperatives, political subdivisions, agencies, instrumentalities, certain
affiliates of such entities which enjoy special treatment, and, effective
January 1, 1987, other tax-exempt employers. Amounts contributed by employers
through such plans are taxed to employees when paid or made available for
withdrawal. The Contract can be used with such plans. Under such plans, a
participant may specify the form of investment in which his or her contributions
will be made. In general, all such investments are owned by, and are subject to
the claims of the general creditors of, the sponsoring employers and, depending
on the terms of the particular plan, the employer may be entitled to draw on
deferred amounts for purposes unrelated to its section 457 plan obligations.
In certain governmental plans, however, deferred amounts must be held in trust
for the exclusive benefit of plan participants.
The following rules generally apply to distributions from Contracts
purchased in connection with the plans (other than Section 457 plans) discussed
above:
That portion of any contribution under a Contract made by or on behalf of
an individual (typically an employee) which is not excluded from his or her
gross income (generally, the individual's own nondeductible contribution)
constitutes his or her "investment in the contract." If a distribution is made
in the form of annuity payments, the investment in the contract (adjusted for
certain refund provisions) divided by the Annuitant's life expectancy (or other
period for which annuity payments are expected to be made) constitutes a
tax-free return of capital each year. The entire distribution will be fully
taxable once the Annuitant (or other appropriate payee) is deemed to have
recovered the dollar amount of the investment in the Contract. The dollar amount
of annuity payments received in any year in excess of such return is taxable as
ordinary income. For Contracts issued in connection with qualified plans, the
investment in the Contract can be zero.
If a surrender of or partial withdrawal from a Contract held in connection
with a Section 401(a) plan is effected and a distribution is made in a single
payment, the proceeds may qualify for special "lump-sum distribution" treatment.
Otherwise, the amount by which the payment exceeds the "investment in the
contract" (adjusted for any prior partial withdrawal) will generally be taxed as
ordinary income in the year of receipt, unless it is validly "rolled over" into
an IRA or another qualified plan.
A penalty tax of 10% will be imposed on the tqxable portion of surrenders
or partial withdrawals from all qualified Contracts, except under circumstances
similar to those relating to non-qualified Contracts (see above). Other adverse
tax consequences may result if distributions do not conform to specified
commencement and minimum distribution rules, or if aggregate distributions
exceed a specified annual amount, and in other circumstances.
The taxation of benefits payable upon an employee's death to his or her
Beneficiary generally follow these same principles, subject to a variety of
special rules. In particular, the tax on death benefits to be paid as a lump sum
may be deferred if, within 60 days after the lump sum becomes payable, the
Beneficiary instead elects to receive annuity payments.
Distributions from qualified plans are generally subject to the same
withholding rules as distributions from non-qualified Contracts. Certain
distributions from qualified plans are subject to mandatory federal income tax
withholding.
Restrictions under Qualified Contracts: Other restrictions with respect to
the election, commencement, or distribution of benefits may apply under
Qualified Congracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
OTHER TAX CONSIDERATIONS
26
<PAGE>
Presently, GIAC makes no charge to the Separate Account for any Federal,
state or local taxes (other than state premium taxes) that it incurs which may
be attributable to the Separate Account or to the Contracts. GIAC, however,
reserves the right to make a charge for any such taxes or other economic burden
which may result from the application of the tax laws and that GIAC determines
to be attributable to the Separate Account or to the Contracts. If any tax
charges are made in the future, they will be accumualted daily and transferred
from the Separate Account to the GIAC's general account.
Because of the complexity of the Federal tax law, and the fact that tax
results will vary according to the factual status of the entity or individual
involved, tax advice may be needed by anyone contemplating the purchase of a
Contract or the exercise of the various elections under the Contract. It should
be understood that this Prospectus' discussion of the Federal income tax
consequences of owning a Contract is not an exhaustive discussion of all tax
questions that might arise under the Contracts and that special rules exist in
the Code with respect to situations not discussed here. No representation is
made regarding the likelihood of the continuation of the current Federal tax
laws or interpretations thereof by the Internal Revenue Service. No attempt has
been made to consider any applicable state, local or other tax laws, except with
respect to the imposition of any premium taxes.
GIAC does not make any guarantee regarding the tax status of any Contract
and the above tax discussion is not intended as tax advice.
VOTING RIGHTS
To the extent required by applicable law, GIAC will vote the Fund shares
that it owns through the Separate Account according to instructions received
from Contractowners having an interest in such Fund's shares. GIAC will vote
shares for which no instructions are received in the same proportion as it votes
shares for which it has received instructions. GIAC will typically vote any Fund
shares that it is entitled to vote directly due to amounts it has contributed or
accumulated in the applicable Investment Division for proposals presented by
Fund Management. If the applicable law of interpretations thereof change so as
to permit GIAC to vote a Fund's shares in GIAC's own right or to restrict
Contractowner voting, GIAC reserves the right to do so.
GIAC will seek voting instructions from Contractowners for the number of
shares attributable to their Contracts. Contractowners are entitled to provide
instructions if, on the applicable record date, they have allocated values to
the Investment Division which corresponds to the Fund for which a shareholder
meeting is called.
Prior to the Retirement Date, the person having the voting interest under
a Contract shall be the Contractowner. The number of shares held in the
Investment Division which are attributable to a Contract is determined by
dividing the Contractowner's interest in each subdivision by the net asset value
per share of the applicable Fund.
After the Retirement Date, the person having the voting interest shall be
the person then entitled to receive Annuity Payments. This voting interest will
generally decrease with the gradual reduction of the Contract value during the
annuity payout period. The number of shares held in the Investment Divisions
which are attributable to each Contract is determined by dividing the reserve
for such Contract by the net asset value per share of the applicable Fund.
Contractowners have no voting rights with respect to the Fixed-Rate
Option.
DISTRIBUTION OF THE CONTRACTS
The Contracts are sold by insurance agents who are licensed by GIAC and
who are either registered
27
<PAGE>
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. In connection with the sale
of the Contracts, GIAC will generally pay sales commissions to these individuals
or entities which may vary but, in the aggregate, are not anticipated to exceed
an amount equal to 4.5% of a Contract premium payment. Where permitted by state
law, GIAC reserves the right to pay additional sales or service compensation
while a Contract is in force based on the value of the Contract. The principal
underwriter of the Contracts is GISC, located at 201 Park Avenue South, New
York, New York 10003.
RIGHT TO CANCEL THE CONTRACT
Where required by state law or regulation, the Individual Contract will
contain a provision which permits cancellation by returning the Contract to
GIAC, or to the registered representative through whom it was purchased, within
10 days (20 days in a limited number of states) of delivery of the Contract. The
Contractowner will then receive from GIAC, as and when required by state law or
regulation, either (a) the total amount paid for the Contract or (b) an amount
equal to the sum of (i) the difference between the premiums paid (including any
Contract fees or other charges) and the amounts allocated to any Investment
Divisions and the Fixed-Rate Option under the Contract, and (ii) the surrender
value of the Contract.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Separate
Account or GIAC is a party.
ADDITIONAL INFORMATION
A Statement of Additional Information is available (in accordance with the
directions on page 2 of this Prospectus) which contains more details regarding
the Contracts discussed herein. The following identifies the contents of that
document:
Statement of Additional Information
Table of Contents
Page
----
Services to the Separate Account................................ B-2
Annuity Payments................................................ B-2
Calculation of Yield Quotations for The Guardian Cash Fund...... B-3
Performance Comparisons......................................... B-3
Valuation of Assets of the Separate Account..................... B-4
Transferability Restrictions.................................... B-4
Experts......................................................... B-4
Financial Statements............................................ B-4
28
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT A
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
--------------
Statement of Additional Information dated May 1, 1997
--------------
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectus for The Guardian Separate
Account A (marketed under the name "Value Guard II") dated May 1, 1997.
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
Calculation of Yield Quotations for Value Line Cash Fund........ B-3
Performance Comparisons..........................................B-3
Valuation of Assets of the Separate Account..................... B-4
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 Separate Account A (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 Price Waterhouse 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 ("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 1996, 1995 and 1994, GISC received underwriting
commissions from GIAC with respect to the sales of the Contracts in the amount
of $1,851,468, $1,409,708, and $1,709,799, respectively.
ANNUITY PAYMENTS
Determination of the First Monthly Annuity Payment: At the time Annuity
Payments begin, the value of the Contractowner's account (or if a Group
Contract, the amount applied for a participant as stated by the Contractowner)
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 (or if a Group Contract, the amount applied for a participant as stated
by the Contractowner) 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 (or if a Group Contract, the
amount applied for a Participant as stated by the Contractowner).
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
B-2
<PAGE>
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 transfers among the Variable Investment Options are made.
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.
The second and subsequent monthly payments made under the Fixed-Rate
Option will be equal to the amount of the first monthly fixed annuity payment.
CALCULATION OF YIELD QUOTATIONS FOR THE GUARDIAN CASH FUND
The yield of the Investment Division of the Separate Account investing in
the Cash Fund represents the net change, exclusive of gains and losses realized
by the 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
subdivision may be for any specified period in the future. The Cash Fund
Investment Division's respective yields are not guaranteed.
The current and effective annualized yields for the Investment Division
investing in the Cash Fund Investment Division for the seven-day period ending
December 31, 1996 were 4.94% and 5.06%, 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 to other
investment vehicles and the separate accounts of other insurance companies as
reflected in independent performance data furnished by sources such as Lipper
Analytical Services,
B-3
<PAGE>
Inc., Morningstar, and Variable Annuity Research & Data Service, all of which
are independent services which monitor and rank the performance of variable
annuity issuers in each of the major categories of investment objectives on an
industry-wide basis. The performance analyses prepared by such services rank
issuers on the basis of total return, assuming reinvestment of distributions,
but may not take sales charges, redemption fees, or certain expense deductions
into consideration.
VALUATION OF ASSETS OF THE SEPARATE ACCOUNT
The value of Fund shares held in each 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.
TRANSFERABILITY RESTRICTIONS
Where a Contract is owned in conjunction with a retirement plan qualified
under the Internal Revenue Code, a tax-sheltered annuity program 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,
1996 have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants. The statutory basis balance sheets of GIAC as of
December 31, 1996 and 1995 and the related statutory basis statements of
operations, of changes in common stock and surplus and cash flows for each
of the three years in the period ended December 31, 1996 appearing in this
Statement of Additional Information have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants. Such statutory basis
financial statements have been included herein or incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
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 1996 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 1996 Annual Report
to Contractowners accompanies this Statement of Additional Information.
B-4
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
===================================================================================================
December 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1996 -- $491,271,164; 1995 -- $415,119,363) ......... $ 490,445,948 $ 405,213,799
Affiliated money market fund, at market, which approximates cost 2,755,672 2,633,939
Investment in subsidiary ....................................... 7,746,643 7,604,442
Policy loans -- variable life insurance ........................ 68,143,068 63,842,200
Cash and short-term investments ................................ 17,825,039 17,983,654
Investment in joint venture .................................... 285,874 44,418
Accrued investment income receivable ........................... 10,553,405 9,771,251
Due from parent and affiliates ................................. 6,507,913 2,982,854
Other assets ................................................... 12,173,268 9,932,726
Receivable from separate accounts .............................. 11,606,587 3,543,010
Variable annuity and EISP/CIP separate account assets .......... 5,248,159,777 4,174,493,377
Variable life separate account assets .......................... 342,921,803 311,173,536
-------------- --------------
TOTAL ADMITTED ASSETS ........................................ $6,219,124,997 $5,009,219,206
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves ...................................... $ 329,681,355 $ 300,059,252
Fixed immediate reserves ..................................... 5,874,894 4,966,569
Life reserves ................................................ 65,462,693 22,502,664
Minimum death benefit guarantees ............................. 1,257,777 1,171,951
Policy loan collateral fund reserve .......................... 65,762,820 61,798,105
Accrued expenses, taxes & commissions ............................. 2,712,360 1,250,797
Due to parent and affiliates ...................................... 15,304,638 16,072,198
Federal income taxes payable ...................................... 4,743,447 636,681
Other liabilities ................................................. 30,079,434 13,295,087
Asset valuation reserve ........................................... 15,121,269 9,341,353
Variable annuity and EISP/CIP separate account liabilities ........ 5,193,574,218 4,129,376,222
Variable life separate account liabilities ........................ 335,769,184 306,870,400
-------------- --------------
TOTAL LIABILITIES ............................................ 6,065,344,089 4,867,341,279
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized, issued and
outstanding .................................................... 2,000,000 2,000,000
Additional paid-in surplus ........................................ 137,398,292 137,398,292
Assigned and unassigned surplus ................................... 14,382,616 2,479,635
-------------- --------------
153,780,908 141,877,927
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS .................. $6,219,124,997 $5,009,219,206
============== ==============
</TABLE>
See notes to financial statements.
B-5
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
========================================================================================================
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Premiums and annuity considerations:
Variable annuity considerations .................... $ 731,792,764 $ 537,841,762 $ 533,763,975
Life insurance premiums and fixed
annuity considerations ........................... 44,874,269 73,938,212 71,289,987
Net investment income ................................ 42,366,902 36,293,598 27,909,606
Amortization of IMR .................................. 333,219 257,380 542,157
Net gain from operations from separate accounts ...... 8,860,462 -- --
Service fees ......................................... 58,774,486 46,560,286 35,858,692
Variable life -- cost of insurance ................... 4,844,028 4,232,564 3,828,702
Reserve adjustments on reinsurance ceded ............. 30,636,445 (32,192,749) 84,062,188
Commissions and expense allowances ................... 14,508,840 10,057,974 19,542,388
Other income ......................................... 2,535,356 1,127,526 819,726
------------- ------------- -------------
939,526,771 678,116,553 777,617,421
------------- ------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Death benefits ..................................... 6,785,456 4,774,584 3,740,612
Annuity benefits ................................... 426,072,773 276,568,762 173,188,734
Surrender benefits ................................. 17,459,706 17,660,413 9,882,392
Increase in reserves ............................... 82,891,516 65,349,399 80,386,221
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ...................... 323,093,897 252,772,988 448,425,833
Variable life ...................................... (10,417,095) (17,796,371) (8,822,426)
Commissions .......................................... 39,233,431 34,364,742 45,602,891
General insurance expenses ........................... 42,523,892 25,888,456 15,083,859
Taxes, licenses and fees ............................. 3,723,858 2,477,492 2,731,840
Reinsurance terminations ............................. (15,470,015) 11,002,701 3,517,681
------------- ------------- -------------
915,897,419 673,063,166 773,737,637
------------- ------------- -------------
INCOME BEFORE INCOME
TAXES AND REALIZED GAINS
FROM INVESTMENTS .............................. 23,629,352 5,053,387 3,879,784
Federal income taxes ................................. 3,941,460 439,667 601,468
------------- ------------- -------------
INCOME BEFORE REALIZED
GAINS FROM INVESTMENTS ........................ 19,687,892 4,613,720 3,278,316
Realized gains from investments, net of federal income
taxes, net of transfer to IMR ...................... 7,540 342,455 (2,232)
------------- ------------- -------------
NET INCOME ...................................... $ 19,695,432 $ 4,956,175 $ 3,276,084
============= ============= =============
</TABLE>
See notes to financial statements.
B-6
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
==========================================================================================================
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 ............... $ 2,000,000 $ 137,398,292 ($ 983,630) $138,414,662
------------ ------------- ------------ ------------
Net income from operations .................. 3,276,084 3,276,084
Decrease in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes .................. (527,471) (527,471)
Decrease in unrealized appreciation of
Company's investment in joint venture .... (255,163) (255,163)
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 24,034 24,034
Decrease in non-admitted assets ............. 5,818 5,818
Disallowed interest maintenance reserve ..... (1,124,268) (1,124,268)
Net increase in asset valuation reserve ..... (2,233,163) (2,233,163)
------------ ------------- ------------ ------------
Balances at December 31, 1994 ............... 2,000,000 137,398,292 (1,817,759) 137,580,533
------------ ------------- ------------ ------------
Net income from operations .................. 4,956,175 4,956,175
Increase in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes .................. 3,024,930 3,024,930
Decrease in unrealized appreciation of
Company's investment in joint venture .... (6,803) (6,803)
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 298,534 298,534
Increase in non-admitted assets ............. (7,078) (7,078)
Disallowed interest maintenance reserve ..... 143,080 143,080
Net increase in asset valuation reserve ..... (4,111,444) (4,111,444)
------------ ------------- ------------ ------------
Balances at December 31, 1995 ............... 2,000,000 137,398,292 2,479,635 141,877,927
------------ ------------- ------------ ------------
Net income from operations .................. 19,695,433 19,695,433
Tax on prior years separate account
seed investment unrealized gains ......... (104,732) (104,732)
Increase in unrealized appreciation of
Company's investment in joint venture .... 241,456 241,456
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 142,201 142,201
Decrease in unrealized appreciation of
Company's investment in other assets ..... (9,384) (9,384)
Increase in non-admitted assets ............. (80,815) (80,815)
Disallowed interest maintenance reserve ..... (128,107) (128,107)
Surplus changes resulting from reinsurance .. (2,073,155) (2,073,155)
Net increase in asset valuation reserve ..... (5,779,916) (5,779,916)
------------ ------------- ------------ ------------
Balances at December 31, 1996 ............... $ 2,000,000 $ 137,398,292 $ 14,382,616 $153,780,908
============ ============= ============ ============
</TABLE>
See notes to financial statements.
B-7
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
=======================================================================================================
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and deposit funds .. $ 780,710,735 $ 611,169,979 $ 600,336,507
Investment income ................................... 42,413,736 36,912,131 26,762,114
Commissions and expense allowances on
reinsurance ceded ................................. 37,315,301 (22,118,484) 104,767,754
Other income ........................................ 47,357,962 44,220,753 33,914,971
Life claims ......................................... (6,900,438) (4,420,866) (3,397,937)
Surrender benefits .................................. (2,774,865) (17,660,413) (9,882,392)
Annuity benefits .................................... (424,511,908) (276,163,436) (173,227,230)
Commissions, other expenses
and taxes (excluding FIT) ......................... (78,968,214) (57,714,112) (63,448,237)
Net transfers to separate accounts .................. (307,856,562) (231,230,812) (435,548,833)
Federal income taxes (excluding tax on capital gains) 682,025 (1,557,444) (1,522,592)
Increase in policy loans ............................ (4,300,868) (4,522,280) (6,527,387)
Other operating expenses and sources ................ 2,077,342 (8,945,084) 2,428,502
------------- ------------- -------------
NET CASH PROVIDED BY INSURANCE
ACTIVITIES ................................... 85,244,246 67,969,932 74,655,240
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities . 224,692,954 63,122,215 149,529,893
Purchases of investment securities .................. (309,590,319) (118,543,796) (230,182,416)
Net proceeds from short-term investments ............ 0 0 0
Federal income tax on capital gains ................. (505,496) 992,810 (1,233,244)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES .......... (85,402,861) (54,428,771) (81,885,767)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH ................... (158,615) 13,541,161 (7,230,527)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR ............................... 17,983,654 4,442,493 11,673,020
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR ..................................... $ 17,825,039 $ 17,983,654 $ 4,442,493
============= ============= =============
</TABLE>
See notes to financial statements.
B-8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1 -- Organization
Organization: The Guardian Insurance & Annuity Company, Inc. (GIAC or the
Company) is a wholly-owned subsidiary of The Guardian Life Insurance Company of
America (The Guardian). The Company is licensed to conduct life and health
insurance business in all fifty states and the District of Columbia. The
Company's primary business is the sale of variable deferred annuity contracts
and variable and term life insurance policies. For variable products other than
401(k) products, contracts are sold by insurance agents who are licensed by GIAC
and are either Registered Representatives of Guardian Investor Services
Corporation (GISC) or of broker-dealer firms which have entered into sales
agreements with GIAC and GISC. The Company's general agency distribution system
is used for the sale of other products and policies.
Guardian Investor Services Corporation is a wholly-owned subsidiary of the
Company. GISC is a registered broker-dealer under the Securities Exchange Act of
1934 and is a registered investment advisor under the Investment Advisor's Act
of 1940. GISC is the distributor and underwriter for GIAC's variable products,
and the investment advisor to certain mutual funds sponsored by GIAC which are
investment options for the variable products.
Insurance Separate Accounts: The Company has established twelve insurance
separate accounts primarily to support the variable annuity and life insurance
products it offers. The majority of the separate accounts are unit investment
trusts registered under the Investment Company Act of 1940. Proceeds from the
sale of variable products are invested through these separate accounts in
certain mutual funds specified by the contractholders. In addition, certain
variable annuity and variable life insurance contractholders may invest in The
Guardian Real Estate Account. Participating interests in the real estate account
are registered under the Securities Act of 1933. Of these separate accounts the
Company maintains two separate accounts whose sole purpose is to fund certain
employee benefit plans of The Guardian.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabilities of the Company. The assets of
the separate accounts will not be charged with any liabilities arising out of
any other business of the Company. However, the obligations of the separate
accounts, including the promise to make annuity and death benefit payments,
remain obligations of the Company. Assets and liabilities of the separate
accounts are stated primarily at the market value of the underlying investments
and corresponding contractholders obligations.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a comprehensive basis of accounting other than generally
accepted accounting principles that is prescribed or permitted by the Insurance
Department of the State of Delaware.
Prior to 1996, these policies were considered generally accepted
accounting principles ("GAAP") for mutual life insurance companies. However, in
April, 1993, the Financial Accounting Standards Board issued Interpretation No.
40, "Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", which establishes a different definition of
GAAP for mutual life insurance companies. Under this interpretation, financial
statements of mutual life insurance companies for periods beginning after
B-9
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
December 15, 1995 which are prepared on the statutory basis of accounting are no
longer characterized as being in conformity with GAAP. Financial statements
prepared on a statutory basis vary from financial statements prepared on a GAAP
basis because: (1) the costs relating to acquiring business, principally
commissions and certain policy issue expenses, are charged to income in the year
incurred, whereas on a GAAP basis they would be recorded as assets and amortized
over the future periods to be benefited; (2) life insurance and annuity reserves
are based on statutory mortality and interest requirements, without
consideration of withdrawals, whereas on GAAP basis they are on anticipated
Company experience for lapses, mortality and investment yield; (3) life
insurance enterprises are required to establish a formula-based asset valuation
reserve (AVR) by a direct charge to surplus to offset potential investment
losses; under GAAP, provisions for investments are established as needed through
a charge to income; (4) realized gains and losses resulting from changes in
interest rates on fixed income investments are deferred in the interest
maintenance reserve (IMR) and amortized into investment income over the
remaining life of the investment sold; for GAAP, such gains and losses are
recognized in income at the time of sale; (5) bonds are carried principally at
amortized cost for statutory reporting and at market value for GAAP; (6) annuity
and certain insurance premiums are recognized as premium income, whereas for
GAAP they are recognized as deposits; (7) deferred federal income taxes are not
provided for temporary differences between tax and book assets and liabilities
as they are under GAAP; (8) certain reinsurance transactions are accounted for
as reinsurance for statutory purposes and as financing transactions under GAAP,
and assets and liabilities are reported net of reinsurance for statutory
purposes and gross of reinsurance for GAAP.
The following reconciles the statutory net income of the Company as
reported to regulatory authorities to consolidated GAAP net income:
For the Year Ended
1996 1995
------------ ------------
Statutory net income ............................. $ 19,695,432 $ 4,956,175
Adjustments to restate to the basis of GAAP:
Statutory net income of subsidiaries ........... 142,201 298,534
Capitalization of deferred policy acquisition
costs ........................................ 42,525,493 29,971,479
Deferred premiums .............................. 4,096,976 --
Re-estimation of future policy benefits ........ 30,086,231 659,225
Reinsurance .................................... (36,696,036) 17,635,115
Deferred federal income tax expense ............ (13,074,280) (15,221,064)
Elimination of interest maintenance reserve .... (333,219) (257,381)
Other, net ..................................... (6,094,192) (759,141)
------------ ------------
Consolidated GAAP net income ..................... $ 40,348,606 $ 37,282,942
============ ============
B-10
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
December 31,
-----------------------------
1996 1995
------------- -------------
Statutory capital and surplus .................. $ 153,780,908 $ 141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs ............ 221,475,216 185,237,251
Elimination of asset valuation reserve ....... 15,121,269 9,341,353
Re-estimation of future policy benefits ...... (35,823,432) 5,870,371
Establishment of deferred federal income tax . (65,126,004) (53,923,759)
Other, net ................................... 33,178,992 (2,451,817)
------------- -------------
Consolidated GAAP stockholder's equity ......... $ 322,606,949 $ 285,951,326
============= =============
The preparation of financial statements of insurance enterprises requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements. As a provider of
life insurance and annuity products, GIAC's operating results in any given
period depend on estimates of policy reserves required to provide for future
policyholder benefits. The development of policy reserves for insurance and
investment contracts requires management to make estimates and assumptions
regarding mortality, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and, in many cases, state
insurance laws which require specific mortality, morbidity, and investment
assumptions to be used by the Company. Actual results could differ from those
estimates. Management monitors actual experience, and where circumstances
warrant, revises its assumptions and the related reserve estimates.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures established by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments
carried at market are recorded directly to unassigned surplus. Realized gains
and losses on disposition of investments are determined by the specific
identification method. Effective for 1996 financial statements, the NAIC
requires and the Company has recorded the net gain from the operations of the
separate accounts in the operations of the general account instead of surplus.
Bonds: Bonds are valued principally at amortized cost. Mortgage backed
bonds are carried at amortized cost using the interest method considering
anticipated prepayments at the date of purchase. Significant changes in future
anticipated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method with PSA standard prepayment rates.
Investment in subsidiary: GIAC's investment in GISC is carried at equity
in GIAC's underlying net assets. Undistributed earnings or losses are reflected
as unrealized capital gains and losses directly in unassigned surplus. Dividends
received from GISC are recorded as investment income and amounted to $9,500,000
in 1996, $6,700,000 in 1995 and $4,900,000 in 1994.
Short-Term Investments: Short-term investments are stated at amortized
cost and consist primarily of investments having maturities at the date of
purchase of six months or less. Market values for such investments approximate
carrying value.
B-11
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize policyholders' surplus against
market fluctuations in the value of equities and credit related declines in the
value of bonds. Changes in the AVR are recorded directly to unassigned surplus.
The IMR captures net after-tax realized capital gains which result from changes
in the overall level on interest rates for fixed income investments and
amortizes these net capital gains into income over the remaining stated life of
the investments sold. The Company uses the group method of calculating the IMR,
consistent with the prior year.
Contract and Policy Reserves: Fixed deferred reserves represent the fund
balance left to accumulate at interest under fixed annuity contracts that were
offered directly by the Company, a fixed rate option that is offered to variable
annuity contractowners and a single premium deferred annuity that is offered by
the Company. The fixed annuity contracts are no longer offered by the Company.
The estimated fair value of contractholder account balances within the
fixed deferred reserves has been determined to be equivalent to carrying value
as the current offering and renewal rates are set in response to current market
conditions and are only guaranteed for one year.
The interest rate credited on fixed annuity contracts included in fixed
deferred reserves for 1996 and 1995 was 5.75% and 5.75%, respectively. The
interest rates credited on the fixed rate option offered to certain variable
annuity contractowners ranged from 5.25% to 5.50% during 1996. For the fixed
rate option currently issued, the issue and renewal interest rates credited
varies from month to month and ranged from 5.0% to 5.25% in 1996. For single
premium deferred annuities the rates ranged from 5.0% to 5.75% in 1996. Fixed
immediate reserves are a liability within the general account for those
annuitants who have elected a fixed annuity payout option. The immediate
contract reserve is computed using the 1971 IAM Table and a 4% discount rate.
Minimum death benefit guarantees represent a reserve for term insurance to
support guaranteed insurance amounts on variable life policies in the event of
possible declines in separate account assets, assuming a 4% discount rate and
mortality consistent with the 1958 or 1980 CSO Table applicable in the pricing
of each policy.
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values. The reserve is credited with interest at 4% per
annum for single premium variable life policyowners and 6.5% for annual pay
variable life policyowners.
Non-admitted Assets: Certain assets designated as "non-admitted assets" in
accordance with rules and regulations of the Department of Insurance of the
State of Delaware are charged directly to unassigned surplus. At December 31,
1996 and 1995 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $123,785 and $84,575, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
B-12
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on variable life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also include service fees from the separate accounts consisting of
mortality and expense charges, annual administration fees, charges for the cost
of term insurance related to variable life policies and penalties for early
withdrawals. Services fees were not charged on separate account assets of $142.7
million and $117.7 million at December 31, 1996 and 1995, respectively, which
represent investments in The Guardian's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently taxable, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the
applicable federal income taxes. The taxable portion of unrealized appreciation
of the Company's separate account investments is also recorded.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1996 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1996, 1995 and 1994 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 8,270,274 $ 1,768,688 $ 1,357,924
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (1,478,476) 337,668 141,295
DAC Tax ........................................ 867,731 666,260 1,575,953
Dividend from subsidiary ....................... (3,325,000) (2,345,000) (1,715,000)
Other -- net ................................... (393,070) 12,051 (758,704)
----------- ----------- -----------
Federal income taxes .............................. $ 3,941,459 $ 439,667 $ 601,468
=========== =========== ===========
</TABLE>
The provision for federal income taxes includes deferred taxes in 1996,
1995 and 1994 of $353,051, $304,923 and $99,120, respectively, applicable to the
difference between the tax basis and the financial statement basis of recording
investment income relating to accrued market discount.
B-13
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Fixed maturities .................. $28,234,145 $25,795,915 $19,949,553
Affiliated money market funds ..... 121,733 130,729 84,083
Subsidiary ........................ 9,500,000 6,700,000 4,900,000
Policy loans ...................... 3,089,490 2,847,532 2,547,670
Short-term investments ............ 1,259,730 1,181,215 622,391
Joint venture dividend ............ 623,160 684,306 789,867
----------- ----------- -----------
42,828,258 37,339,697 28,893,564
Less: Investment expenses ......... 461,356 1,046,099 983,958
----------- ----------- -----------
Net investment income ............. $42,366,902 $36,293,598 $27,909,606
=========== =========== ===========
Net realized gains, less applicable federal income taxes and transfer to
IMR, are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Realized capital gains (losses) .......... $ 1,242,432 $ 1,323,447 $(3,994,715)
----------- ----------- -----------
Federal income tax expense (benefit):
Current .................................. 829,610 622,821 (1,110,135)
Deferred ................................. (394,759) (42,290) (248,068)
----------- ----------- -----------
Total Federal income tax expense (benefit) 434,851 580,531 (1,358,203)
----------- ----------- -----------
Transfer to IMR ............................. 800,041 400,461 (2,634,280)
----------- ----------- -----------
Net realized gains (losses) ................. $ 7,540 $ 342,455 $ (2,232)
=========== =========== ===========
</TABLE>
The increase in unrealized appreciation (depreciation) on fixed maturity
securities for the years ended December 31, 1996, 1995 and 1994 was
$(9,080,348), $26,899,449 and $(23,246,030), respectively.
The market values of bonds are based on quoted prices as available. For
certain private placement debt securities where quoted market prices are not
available, fair value is estimated by management using adjusted market prices
for like securities.
B-14
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
The cost and estimated market values of investments by major investment
category at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ....................... $133,436,167 $ 761,811 $ 435,887 $133,762,091
Obligations of states and political
subdivisions ....................... 40,444,325 148,692 70,771 40,522,246
Debt securities issued by foreign
governments ........................ 3,491,091 -- 65,431 3,425,660
Corporate debt securities ............. 313,074,365 2,279,414 1,792,612 313,561,167
Common stock of subsidiary ............ 9,398,292 -- 1,651,649 7,746,643
Affiliated mutual funds ............... 2,755,672 -- -- 2,755,672
------------ ---------- ------------ ------------
$502,599,912 $3,189,917 $ 4,016,350 $501,773,479
============ ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ....................... $ 86,663,351 $ 2,599,555 $ -- $ 89,262,906
Obligations of states and political
subdivisions ....................... 6,086,127 108,215 1,599 6,192,743
Debt securities issued by foreign
governments ........................ 8,061,711 537,479 -- 8,599,190
Corporate debt securities ............. 304,402,610 7,379,558 717,644 311,064,524
Common stock of subsidiary ............ 9,398,292 -- 1,793,850 7,604,442
Affiliated mutual funds ............... 2,633,939 -- -- 2,633,939
------------ ----------- ------------ ------------
$417,246,030 $10,624,807 $ 2,513,093 $425,357,744
============ =========== ============ ============
</TABLE>
At December 31, 1996, the amortized cost and estimated market value of
debt securities, by contractual maturity, is shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
B-15
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less .......................... $ 64,861,358 $ 65,045,326
Due after one year through five years ............ 286,602,923 287,118,976
Due after five years through ten years ........... 74,354,923 74,503,267
Due after ten years .............................. 25,247,736 25,461,329
------------ ------------
451,066,940 452,128,898
Sinking fund bonds
(including Collateralized Mortgage Obligations) 39,379,008 39,142,266
------------ ------------
$490,445,948 $491,271,164
============ ============
During 1996, proceeds from sales of investments in debt securities were
$224,681,546 and gross gains of $2,029,373 and losses of $798,350 were realized
on these sales.
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with The Guardian and outside parties to provide for
reinsurance of selected variable annuity contracts and group life and individual
life policies. Under the terms of the modified coinsurance agreements, reserves
related to the reinsurance business and corresponding assets are held by the
Company. Accordingly, policy reserves include $767,937,702 and $355,264,470 at
December 31, 1996 and 1995, respectively, applicable to policies reinsured under
modified coinsurance agreements. The reinsurance contracts do not relieve the
Company of its primary obligation for policyowner benefits. Failure of
reinsurers to honor their obligations could result in losses to the Company.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Premiums and deposits .................. ($83,250,212) ($41,212,253) ($157,953,149)
Net investment income .................. (61,779) -- --
Commission and expense allowances ...... 14,508,839 10,057,974 19,542,388
Reserve adjustments .................... 30,636,445 (32,192,749) 84,062,188
Other income ........................... (25,000) -- --
------------ ------------ -------------
Revenues ............................. (38,191,707) (63,347,028) (54,348,573)
Policyholder benefits .................. (26,873,945) (57,577,405) (60,707,011)
Increase in aggregate reserves ......... (5,658,260) (11,909,990) (16,349,743)
Reinsurance terminations ............... (15,470,015) 11,002,701 3,517,681
General expenses ....................... (81,667) (48,640) --
------------ ------------ -------------
Deductions ........................... (48,083,887) (58,533,334) (73,539,073)
------------ ------------ -------------
Net income (loss) from reinsurance ceded $ 9,892,180 ($ 4,813,694) $ 19,190,500
============ ============ =============
</TABLE>
B-16
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 6 -- Reinsurance Assumed
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Premiums and deposits ................... $ 41,133,358 $ 7,153,623 $ 21,245,974
Net investment income ................... 94,657 62,847 --
Other income ............................ 375,404 32,528 13,163
------------ ----------- ------------
Revenues .............................. 41,603,419 7,248,998 21,259,137
Policyholder benefits ................... 8,076,053 5,086,702 13,163
Increase in aggregate reserves .......... 31,556,908 (357,463) 21,192,811
Reinsurance expenses .................... (452,476) 1,451,058 8,503,485
Other expenses .......................... 551,319 54,043 --
------------ ----------- ------------
Deductions ............................ 39,731,804 6,234,340 29,709,459
------------ ----------- ------------
Net income (loss)from reinsurance assumed $ 1,871,615 $ 1,014,658 ($ 8,450,322)
============ =========== ============
</TABLE>
Note 7 -- Related Party Transactions
A major portion of the Company's business is produced by the registered
representatives of the Guardian Investor Services Corporation (GISC), a wholly
owned subsidiary of the Company. During 1996, 1995 and 1994, premium and annuity
considerations produced by GISC amounted to $528,353,595, $400,148,692 and
$482,872,000, respectively. The related commissions paid to GISC amounted to
$1,851,468, $1,409,708 and $1,709,799 for 1996, 1995 and 1994, respectively.
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$41,129,644 in 1996, $24,989,111 in 1995 and $14,055,494 in 1994, and, in the
opinion of management, were considered appropriate for the services rendered.
The Company has an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware Insurance law as an insurance
company separate account. GIAC has contributed capital to GREA from time to time
to provide funds for acquisitions and to preserve liquidity. At December 31,
1996 GIAC's investment amounts to $5,803,339 and maintains a 40% ownership of
GREA.
B-17
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
A significant portion of the Company's separate account assets are
invested in affiliated mutual funds. These funds consist of The Guardian Park
Avenue Fund, The Guardian Bond Fund, The Guardian Stock Fund, The Guardian Cash
Fund, The Guardian Baillie Gifford International Fund, The Guardian Asset
Allocation Fund, The Guardian Investment Quality Bond Fund and The Guardian Cash
Management Fund. Each of these funds has an investment advisory agreement with
GISC, except for The Guardian Baillie Gifford International Fund. The
investments as of December 31, 1996 and 1995 are as follows:
1996 1995
-------------- --------------
The Guardian Park Avenue Fund ............ $ 251,812,050 $ 214,919,292
The Guardian Bond Fund ................... 354,316,320 374,461,581
The Guardian Stock Fund .................. 2,226,887,181 1,615,270,799
The Guardian Cash Fund ................... 378,321,710 356,820,089
The Guardian Baillie Gifford International
Fund ................................... 19,720 --
The Guardian Asset Allocation Fund ....... 46,623 --
The Guardian Investment Quality Bond Fund. 9,385 --
The Guardian Cash Management Fund ........ 3,113,523 --
-------------- --------------
$3,214,526,512 $2,561,471,761
============== ==============
During November 1990, the Company entered into an agreement with Baillie
Gifford Overseas Ltd. to form a joint venture company - Guardian Baillie Gifford
Ltd. (GBG) - which is organized as a corporation in Scotland. GBG is registered
in both the United Kingdom and the United States to act as an investment advisor
for the Baillie Gifford International Fund (BGIF), the Baillie Gifford Emerging
Markets Fund (BGEMF) and the Guardian Baillie Gifford International Fund
(GBGIF). The Funds are offered in the U.S. as investment options under certain
variable annuity contracts and variable life policies. The amount of the
Company's separate account assets invested in the Funds as of December 31, 1996
and 1995 was $446,466,741 and $334,281,959, respectively.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1996 and 1995 this
amounted to $2,755,672 and $2,633,939, respectively.
B-18
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 8 -- Separate Accounts
The following represents a reconciliation of net transfers from GIAC to the
separate accounts. Transfers are reported in the Summary of Operations of the
Separate Account Statement:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Transfers to separate accounts ......... $ 767,741,428 $ 582,715,569 $ 688,657,147
Transfers from separate accounts ....... (518,683,141) (398,531,802) (288,606,548)
------------- ------------- -------------
Net transfers to separate accounts ... 249,058,287 184,183,767 400,050,599
------------- ------------- -------------
Reconciling Adjustments:
Mortality & expense guarantees -- Annuity 54,119,656 41,474,872 31,629,838
Mortality & expense guarantees -- VLI .. 1,687,711 1,571,955 1,341,318
Administrative fees -- VA only ......... 2,967,120 3,513,459 2,752,950
Cost of collection -- VLI .............. 4,844,028 4,232,564 3,828,702
------------- ------------- -------------
Total adjustments .................... 63,618,515 50,792,850 39,552,808
------------- ------------- -------------
Transfers as reported in the Summary of
Operations of GIAC ................... $ 312,676,802 $ 234,976,617 $ 439,603,407
============= ============= =============
</TABLE>
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
Year Ending 1996 Year Ending 1995
-------------------------- --------------------------
Amount % Amount %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ........ $ 44,480,214 10.22% $ 39,471,103 10.27%
total with adjustment or at
market value ...................... 44,480,214 10.22 39,471,103 10.27
at book value without adjustment
(minimal or no charge or
adjustment) ....................... 302,433,090 69.45 260,636,570 67.81
Not subject to discretionary withdrawal 88,546,538 20.33 84,263,477 21.92
------------ ------------ ------------ ------------
Total (gross) .......................... 435,459,842 100.00 384,371,150 100.00
Reinsurance ceded ...................... 4,879 0.00 -- 0.00
------------ ------------ ------------ ------------
Total .................................. $435,454,963 100.00% $384,371,150 100.00%
============ ============ ============ ============
</TABLE>
This does not include $5,098,658,097 and $4,046,768,087 of non-guaranteed
annuity reserves held in separate accounts, and $2,927,130 and $1,500,869 at
December 31, 1996 and 1995, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
B-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
February 11, 1997
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying balance sheets of The Guardian Insurance
& Annuity Company, Inc. as of December 31, 1996 and 1995, and the related
statements of operations, of changes in common stock and surplus and of cash
flows for the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities (statutory basis of accounting), which is a comprehensive
basis of accounting other than generally accepted accounting principles.
Accordingly, the financial statements are not intended to represent a
presentation in accordance with generally accepted accounting principles. The
effects on the financial statements of the variances between such practices and
generally accepted accounting principles are material and are described in Note
2.
In our report dated February 9, 1996, we expressed an opinion that the
1995 financial statements, prepared using accounting practices prescribed or
permitted by insurance regulatory authorities, were presented fairly, in all
material respects, in conformity with generally accepted accounting principles.
As described in Note 2 to these financial statements, pursuant to pronouncements
of the Financial Accounting Standards Board, financial statements of mutual life
insurance companies and their wholly owned stock insurance company subsidiaries
are no longer considered presentations in conformity with generally accepted
accounting principles. Accordingly, our present opinion on the presentation of
the 1995 financial statements, as presented herein, is different from that
expressed in our previous report.
In our opinion, the financial statements referred to above (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Guardian Insurance & Annuity Company, Inc. at December
31, 1996 and 1995, or the results of its operations or its cash flows for the
three years in the period ended December 31, 1996, because of the effects of the
variances between the statutory basis of accounting and generally accepted
accounting principles, and (2) present fairly, in all material respects, its
financial position and the results of its operations and its cash flows, in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities.
/s/ Price Waterhouse LLP
B-20
<PAGE>
The Guardian Separate Account A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The following financial statements have been incorporated by
reference or are included in Part B:
(1) The Guardian Separate Account A (incorporated by reference
into Part B):
Statement of Assets and Liabilities as of December 31, 1996
Combined Statement of Operations for the Year Ended December
31, 1996
Combined Statements of Changes in Net Assets for the Two Years
Ended December 31, 1996 and 1995
Notes to Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
(2) The Guardian Insurance & Annuity Company, Inc. (included in
Part B):
Statutory Basis Balance Sheets as of December 31, 1996 and
1995
Statutory Basis Statements of Operations for the Three Years
Ended December 31, 1996, 1995 and 1994
Statutory Basis Statements of Changes in Common Stock and
Surplus for the Three Years Ended December 31, 1996, 1995 and
1994
Statutory Basis Statements of Cash Flows for the Three Years
Ended December 31, 1996, 1995 and 1994
Notes to Statutory Basis Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
(b) Exhibits
Number Description
1 Resolutions of the Board of Directors of The
Guardian Insurance & Annuity Company, Inc.
establishing Separate Account A(1)
2 Not Applicable
3 Underwriting and Distribution Contracts:
(a) Distribution and Service Agreement between The
Guardian Insurance & Annuity Company, Inc. and
Guardian Investor Services Corporation(2)
(b) Form of Broker-Dealer Supervisory and Service
Agreement(3)
4 Variable Annuity Contracts
(a) Specimen of Single Purchase Payment Variable
Annuity Contract(1)
(b) Specimen of Flexible Purchase Payment Variable
Annuity Contract(1)
(c) Form of Endorsement Rider regarding the Fixed
Rate Option(4)
(d) Form of Endorsement Rider regarding the
Guardian Real Estate Account(4)
5 Form of Application for Variable Annuity
Contract(1)
6 (a) Certificate of Incorporation of The Guardian
Insurance & Annuity Company, Inc.(3)
(b) By-laws of The Guardian Insurance & Annuity
Company, Inc.(3)
C-1
<PAGE>
7 Automatic Indemnity Reinsurance Agreement between
The Guardian Insurance & Annuity Company, Inc. and
The Guardian Life Insurance Company of America(3)
8 Amended and Restated Agreement for Services and
Reimbursement Therefor, between The Guardian Life
Insurance Company of America and The Guardian
Insurance & Annuity Company, Inc.(8)
9 Opinion and Consent of Counsel(6)
10 (a) Consent of Price Waterhouse LLP
11 Not Applicable
12 Agreement with Respect to Providing the Initial
Capital for Separate Account A(1)
13(a) Powers of Attorney executed by a majority of the
Board of Directors and principal officers of The
Guardian Insurance & Annuity Company, Inc.(5)
13(b) Power of Attorney executed by a principal officer
of The Guardian Insurance & Annuity Company,
Inc.(7)
27 Financial Data Schedule
- ----------
(1) Incorporated by reference to the Registration Statement on Form N-4 (Reg.
No. 2-74906), as previously filed.
(2) Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration statement on Form N-4 (Reg. No. 2-74906), as filed on April 26,
1990.
(3) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-4 (Reg. No. 2-74906), as filed on February
27, 1987.
(4) Incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement on Form N-4 (Reg. No. 2-74906), as filed on September
23, 1988.
(5) Incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-4 (Reg. No. 2-74906), as filed on April 24,
1991.
(6) Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-4 (Reg. No. 2-74906), as filed on April 30,
1992.
(7) Incorporated by reference to Post-Effective Amendment No. 22 to the
Registration Statement on Form N-4 (Reg. No. 2-74906), as filed on April 29,
1993.
(8) Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-4 (Reg. No. 2-74906), as filed on April 28,
1995.
C-2
<PAGE>
Item 25. Directors and Officers of the Depositor
The following is a list of each director and officer 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 Office/Title
Joseph D. Sargent President & Chief Executive Officer
John M. Smith Executive Vice President
Frank J. Jones Executive Vice President & Chief
Investment Officer
Edward K. Kane Senior Vice President
Gary B. Lenderink Vice President, Group Pensions
Ryan W. Johnson Vice President, Equity Sales
Thomas R. Hickey, Jr. Vice President, Operations
Charles E. Albers Vice President, Equity Securities
John M. Fagan Vice President
Frank L. Pepe Vice President & Controller
Charles G. Fisher Vice President & Actuary
William C. Frentz Vice President, Real Estate
Michele S. Babakian Vice President
Donald P. Sullivan, Jr. Vice President
Richard T. Potter, Jr. Vice President & Counsel
Raymond J. Henry Second Vice President
Paul Iannelli Second Vice President
Alexander M. Grant, Jr. Second Vice President
Ann T. Kearney Second Vice President
Theresa Kaminski Second Vice President, Group
Pensions Admin.
Joseph A. Caruso Secretary
Karen Dickinson Asst. Secretary & Secretary Pro Tem
Earl Harry Treasurer
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 April 1,
1997:
State of Percent of
Incorporation Voting Securities
Name of Entity or Organization Owned
------------- ------------- --------------
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Asset Management Delaware 100%
Corporation
First International Life Insurance Delaware 100%
Company
Guardian Reinsurance Services, Inc. Connecticut 100%
Physicians Health Services, Inc. Delaware 14%
Private Healthcare Systems, Inc. Delaware 14%
Managed Dental Care, Inc. California 100%
The Guardian Baillie Gifford Massachusetts 30%
International Fund
The Guardian Investment Quality Massachusetts 34%
Bond Fund
Baillie Gifford International Fund Maryland 13%
Baillie Gifford Emerging Markets Fund Maryland 26%
The Guardian Tax-Exempt Fund Massachusetts 84%
The Guardian Asset Allocation Fund Massachusetts 17%
The following list sets forth the persons directly controlled by GIAC or
other affiliates of Guardian Life, and thereby indirectly controlled by Guardian
Life, as of April 1, 1997:
Approximate
Percentage of Voting
Place of Securities Owned
Incorporation by Guardian Life
Name of Entity or Organization Affiliates
------------- ------------- -----------------
Guardian Investor Services Corporation New York 100%
Guardian Baillie Gifford Ltd. Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
GIAC Funds, Inc. Maryland 100%
C-4
<PAGE>
Item 27. Number of Contractowners
Type of Contract Number as of April 1, 1997
---------------- --------------------------
Non-Qualified (Individual) ............. 7,789
Qualified (Individual) ................. 10,578
Qualified (Group) ...................... 375
------
Total ......................... 18,742
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 series: The Guardian Cash Management
Fund, The Guardian Park Avenue Fund, The Guardian Investment Quality Bond Fund,
The Guardian Tax-Exempt Fund, The Guardian Asset Allocation Fund and The
Guardian Baillie Gifford International Fund, and GBG Funds, Inc. a series fund
consisting of Baillie Gifford International Fund and Baillie Gifford Emerging
Markets 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 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 each director and officer of GISC.
The principal business address of each person is 201 Park Avenue South, New
York, New York 10003.
Name Office/Title
---- ------------
John M. Smith President
Charles E. Albers Executive Vice President
Edward K. Kane Senior Vice President
John M. Fagan Vice President
Ryan W. Johnson Vice President & National Sales
Director
Michele S. Babakian Vice President
Nikolaos D. Monoyios Vice President
Frank L. Pepe Vice President & Controller
Thomas R. Hickey, Jr. Vice President, Operations
Donald P. Sullivan, Jr. Vice President
Richard T. Potter, Jr. Vice President & Counsel
C-5
<PAGE>
Name Office/Title
---- ------------
Ann T. Kearney Second Vice President
Alexander M. Grant, Jr. Second Vice President
Kevin S. Alter Second Vice President
Joseph A. Caruso Secretary
Karen Dickinson Asst. Secretary & Secretary
Pro Tem
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, 201 Park Avenue South, New York, New York
10003.
Item 31. Management Services
None.
Item 32. Undertakings
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 Separate Account A 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 28th day of
April, 1997.
The Guardian Separate Account A
(Registrant)
By: THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
(Depositor)
By: /s/ THOMAS R. HICKEY, JR.
--------------------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
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/CHARLES E. ALBERS* Vice President, Equity Securities
- ---------------------------------
Charles E. Albers
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* Senior Vice President
- --------------------------------- and Director
Edward K. Kane
s/LEO R. FUTIA* Director
- ---------------------------------
Leo R. Futia
s/PHILIP H. DUTTER* Director
- ---------------------------------
Philip H. Dutter
Director
- ---------------------------------
Peter L. Hutchings
*By s/ THOMAS R. HICKEY, JR.* Date: April 28, 1997
------------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
Pursuant to a Power of Attorney
C-8
<PAGE>
The Guardian Separate Account A
Exhibit Index
Number Description
- ------ -----------
10(a) Consent of Price Waterhouse LLP
27 Financial Data Schedule
C-9
EX-99.10(a)
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. 26 to the registration statement on Form N-4 (the "Registration
Statement") of our report dated February 11, 1997, relating to the financial
statements appearing in the December 31, 1996 Annual Report to Contractowners of
The Guardian Separate Account A, which is also incorporated by reference into
the Registration Statement. We also consent to use in the Statement of
Additional Information of our report dated February 11, 1997, relating to the
statutory basis financial statements of The Guardian Insurance &Annuity Company,
Inc. which appears in such Statement of Additional Information, and the
incorporation by reference of our report into the Prospectus. We also consent to
the references to us under the heading "Condensed Financial Information" in the
Prospectus and under the heading "Experts" in the Statement of Additional
Information.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
April 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SEPARATE ACCOUNT A - VALUE GUARD II
This schedule contains financial information extracted from the "Annual
Report to Contractowners" dated December 31, 1996.
</LEGEND>
<CIK> 0000356385
<NAME> SEPARATE ACCOUNT A - VALUE GUARD II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 754,673,194
<INVESTMENTS-AT-VALUE> 1,029,104,922
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,029,104,922
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,961,357
<TOTAL-LIABILITIES> 9,961,357
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10,062,981
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 162,276,263
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 274,431,728
<NET-ASSETS> 1,019,143,565
<DIVIDEND-INCOME> 20,355,914
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 10,292,933
<NET-INVESTMENT-INCOME> 10,062,981
<REALIZED-GAINS-CURRENT> 162,276,263
<APPREC-INCREASE-CURRENT> (18,862,356)
<NET-CHANGE-FROM-OPS> 153,476,888
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,292,933
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,292,933
<AVERAGE-NET-ASSETS> 990,739,081
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 143,413,907
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
