As filed with the Securities and Exchange Commission on April 25, 1996
Registration No. 2-97765
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 18
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
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THE GUARDIAN SEPARATE ACCOUNT B
(Exact name of trust)
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
201 Park Avenue South, New York, New York 10003
(Complete address of depositor's principal executive offices)
------------
RICHARD T. POTTER, JR., ESQ.
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and complete address of agent for service)
Copy to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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It is proposed that this filing will become effective (check appropriate
box):
|_| immediately upon filing pursuant to paragraph (b), or
|X| on May 1, 1996 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i), or
|_| on (date) pursuant to paragraph (a)(i) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
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The Registrant has registered an indefinite number of its 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 recent
fiscal year was filed on February 28, 1996.
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<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Heading in Prospectus
----------- ---------------------
1,2,51(a).................... Cover Page
3............................ What is The Guardian Insurance & Annuity
Company, Inc. ("GIAC")?; The Guardian Separate
Account B (the "Account")
4............................ What Is Guardian Investor Services Corporation
("GISC")?; Distribution Agreement and Other
Selling Arrangements
5............................ What Is The Guardian Insurance & Annuity
Company, Inc. ("GIAC")?
6(a)......................... What Is The Guardian Separate Account B (the
"Account") and How Does It Operate?
6(b),7....................... Not Applicable
8............................ Financial Statements
9,10(a),(b).................. Not Applicable
10(c)........................ What Is the "Free Look" Period?; Right to
Examine a Policy ("Free Look"); How Does a
Policy's Cash Value Vary?; Cash Value Benefits
10(d)........................ Can a Policy Be Exchanged for a Fixed Life
Insurance Policy? Right to Exchange for Fixed
Life Insurance; How Can the Policyowner
Allocate the Account Value of a Policy?;
Allocation of Net Premium and Account Value
Among Investment Options
10(e)........................ Not Applicable
10(f)........................ Voting Rights
10(g),(h).................... Substitution of Investments
10(i),44(a),51(g)............ How Is the Premium Determined?; How Is the
Premium Allocated to the Account?; The Premium;
Underwriting; How Does a Policy's Death Benefit
Vary?; Death Benefit; Variable Insurance
Amount; What Is the Policy's Actual Rate Of
Return?; What Is a Policy's Excess Investment
Return?; The Policy's Excess Investment Return;
The Amount Invested: The Account Value; Other
Important Policy Provisions
11........................... Which Investment Divisions Invest in the
Funds?; Which Investment Divisions Invest in
the Trusts?
12........................... The Funds; The Trusts
13(a),(b),(c),51(g).......... Charges Deducted from the Premium; Charges
Under the Policy
13(d),(g).................... Not Applicable
(e),(f)...................... Charges Deducted from the Premium; Charges
Under the Policy
14........................... To Whom Is This Policy Available?; Underwriting
15........................... How Can the Policyowner Allocate the Account
Value of a Policy?; Allocation to the Account
16........................... Allocation of Net Premium and Account Value
Among Investment Options
17........................... Death Benefit; Cash Value Benefits
18........................... What Is The Guardian Separate Account B (the
"Account") and How Does It Operate?
19........................... Report to Policyowners
20........................... Not Applicable
<PAGE>
N-8B-2 Item Heading in Prospectus
----------- ---------------------
21(a,(b)).................... What Is the Loan Privilege?; What Is the Effect
of a Loan on the Policy?; Policy Loan
21(c),22,23.................. Not Applicable
24........................... Other Important Policy Provisions
25,27,29,48.................. What Is The Guardian Insurance & Annuity
Company, Inc. ("GIAC")?
26........................... Not Applicable
28........................... Management of GIAC
30,31,32,33,34,35,36,37...... Not Applicable
38,39,41(a).................. What Is Guardian Investor Services Corporation
("GISC")?; Distribution Agreement and Other
Selling Arrangements
40........................... The Funds; The Trusts
41(b),(c),42,43.............. Not Applicable
44(b)........................ Not Applicable
44(c)........................ The Premium; Underwriting
45........................... Not Applicable
46(a),47..................... The Funds; The Trusts
46(b)........................ Not Applicable
49,50........................ Not Applicable
51(b)........................ How Does This Policy Differ from a Traditional
Single Premium Life Insurance Policy?
51(c)........................ Death Benefit
51(e),(f).................... Other Important Policy Provisions
51(h),(i),(j)................ Not Applicable
52(a),(c).................... Substitution of Investments
52(b),(d).................... Not Applicable
53(a)........................ Charges Under the Policy
53(b),54,55,56,57,58......... Not Applicable
59........................... Financial Statements
<PAGE>
PROSPECTUS
May 1, 1996
[VALUE PLUS LOGO]
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Issued by
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
Executive Office:
201 Park Avenue South
New York, New York 10003
Customer Service Office:
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
1-800-533-0099
Distributed by
GUARDIAN INVESTOR SERVICES CORPORATION
201 Park Avenue South
New York, New York 10003
1-800-221-3253
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY ALL OF THE CURRENT
PROSPECTUSES FOR THE FOLLOWING: THE GUARDIAN STOCK FUND; THE GUARDIAN BOND FUND;
THE GUARDIAN CASH FUND; BAILLIE GIFFORD INTERNATIONAL FUND; VALUE LINE CENTURION
FUND; VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST; THE GUARDIAN REAL ESTATE
ACCOUNT; AND THE SMITH BARNEY FUND OF STRIPPED ("ZERO") U.S. TREASURY
SECURITIES, SERIES A.
<PAGE>
PROSPECTUS
May 1, 1996
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This Prospectus describes the Single Premium Variable Life Insurance Policy
(the "Policy/Policies") offered by The Guardian Insurance & Annuity Company,
Inc. ("GIAC"). The Policy is designed to provide lifetime insurance coverage on
the insured named in the Policy. However, a Policy may be surrendered for its
net cash value while the insured is living, in which case all insurance coverage
ends. The death benefit and cash values under a Policy will vary based on the
performance of the investment divisions comprising The Guardian Separate Account
B (the "Account"), which invests in certain mutual funds and a unit investment
trust, and on the performance of The Guardian Real Estate Account (the "Real
Estate Account"). The Account's investment divisions and the Real Estate Account
are collectively referred to in this Prospectus as the "investment options."
From the date that the completed application for the Policy, including the
premium payment, is submitted to GIAC and the investment date (i.e., the later
of 45 days from the date of the completed application or 10 days after the
Policy is issued), the premium will be allocated to the investment division
investing in The Guardian Cash Fund. On the investment date, the account value
will be allocated to up to four of the investment options, as designated by the
Policyowner.
Six of the Account's investment divisions buy shares of the following mutual
funds: The Guardian Stock Fund, The Guardian Bond Fund, The Guardian Cash Fund,
Baillie Gifford International Fund, Value Line Centurion Fund and the Value Line
Strategic Asset Management Trust (the "Funds/Fund"). One other investment
division of the Account buys units of the Smith Barney Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A which is comprised of one unit investment
trust (the "Trust"). Each Fund and the Trust are described in separate
prospectuses that accompany this Prospectus.
The Real Estate Account is authorized to invest in income-producing real
estate, mortgage loans and purchase-leaseback transactions. The Real Estate
Account is also described in a separate prospectus that accompanies this
Prospectus.
Under federal income tax law, the Policy is generally treated as a modified
endowment contract. Accordingly, all distributions from the Policy, including
Policy loans and surrenders, are fully taxable to the extent of income in the
Policy and may be subject to adverse tax consequences and/or penalties (see
"Federal Tax Considerations").
(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 MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUSES OF THE FUNDS, THE TRUST AND THE REAL ESTATE ACCOUNT.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
1
<PAGE>
Regardless of a Policy's underlying investment performance, the death
benefit can never be less than the Guaranteed Insurance Amount provided by the
Policy (with the proceeds payable reduced by any outstanding Policy debt).
During the first Policy month, the death benefit equals the Guaranteed Insurance
Amount. Afterwards, the death benefit may increase or decrease on a monthly
basis, depending on the performance of the investment options designated by the
owner for allocation of the account value. However, the death benefit will never
decrease below the Guaranteed Insurance Amount (with the proceeds payable
reduced by any outstanding Policy debt).
A Policy's cash value may increase or decrease on any day, depending on
investment performance. No minimum amount of cash value is guaranteed. In early
Policy years, the cash value may be lower than the single premium accumulated at
interest. Therefore, a Policy should be purchased only if the owner intends to
keep it in effect for a reasonable period of time.
When another life insurance contract that has not been treated as a modified
endowment contract is exchanged for a Policy that is supplemented by a
seven-year fixed benefit level term rider ("Term Rider"), then the Policy
received as a result of the exchange should not be treated as a modified
endowment contract. The Term Rider provides an additional guaranteed amount of
insurance for the first seven (7) years that the Policy is in force. When the
Term Rider expires, the guaranteed death benefit decreases by the face amount of
the Term Rider, and thereafter equals the Guaranteed Insurance Amount provided
by the Policy without a Term Rider. The Term Rider has no effect on the Variable
Insurance Amount. THE TERM RIDER WILL ONLY BE ISSUED IN THOSE STATES WHERE IT IS
AVAILABLE AND ONLY TO APPLICANTS WHO WISH TO ACQUIRE A POLICY BY EXCHANGING A
LIFE INSURANCE CONTRACT THAT WAS NOT TREATED AS A MODIFIED ENDOWMENT CONTRACT
PRIOR TO THE EXCHANGE. See "Federal Tax Considerations" and "Other Important
Policy Provisions."
Certain deductions and charges are assessed against the single premium paid
under a Policy before allocation to the Account (see "Charges Deducted from the
Premium"). Initially, GIAC will add the amount of these charges (the "Policy
loading") to the Policy's account value. GIAC will recover the entire Policy
loading from the Policy's account value by subtracting it in equal installments
at the beginning of the second through eleventh Policy years. During the period
of time that any portion of the Policy loading is included in the Policy's
account value, the benefits under the Policy will be greater if the actual rate
of return is greater than zero, but will create larger decreases in benefits if
the actual rate of return is zero or less (see "Variable Insurance Amount").
A Policy may be returned and cancelled as provided in the "free look"
provision (see "Right to Examine a Policy"). A Policy also may be exchanged for
fixed life insurance under certain conditions (see "Right to Exchange for Fixed
Life Insurance" and "Substitution of Investments").
It may not be advantageous to replace existing insurance with a Policy. In
addition, employers and employee organizations should consider whether it is
appropriate to purchase a Policy for any employment-related insurance or benefit
program (see "Legal Considerations for Employers").
2
<PAGE>
CONTENTS
Page
----
SUMMARY OF THE POLICY AND UNDERLYING INVESTMENT OPTIONS................. 4
THE POLICY.............................................................. 11
Death Benefit......................................................... 11
Variable Insurance Amount............................................. 11
The Premium........................................................... 14
Underwriting.......................................................... 14
Charges Deducted from the Premium..................................... 15
Allocation to the Account............................................. 15
Allocation of Net Premium and Account Value Among Investment Options.. 16
The Amount Invested: The Account Value................................ 17
Charges Under the Policy.............................................. 17
The Policy's Excess Investment Return................................. 18
Cash Value Benefits................................................... 19
Policy Loan........................................................... 20
Right to Exchange for Fixed Life Insurance............................ 21
Right to Examine a Policy ("Free Look")............................... 21
Distribution Agreement and Other Selling Arrangements................. 21
Federal Tax Considerations............................................ 22
Legal Considerations for Employers.................................... 24
Voting Rights......................................................... 24
Reports to Policyowners............................................... 25
THE INVESTMENT OPTIONS.................................................. 26
The Guardian Separate Account B (the "Account")....................... 26
The Funds............................................................. 26
The Trust............................................................. 28
Substitution of Investments........................................... 29
THE REAL ESTATE ACCOUNT................................................. 29
OTHER INFORMATION....................................................... 31
Management of GIAC.................................................... 31
State Regulation...................................................... 35
Legal Proceedings..................................................... 35
Legal Matters......................................................... 35
Registration Statement................................................ 36
Independent Accountants............................................... 36
Experts............................................................... 36
Financial Statements.................................................. 36
The Guardian Separate Account B.................................... 37
The Guardian Insurance & Annuity Company, Inc...................... 48
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES......................... 62
OTHER IMPORTANT POLICY PROVISIONS....................................... 68
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE POLICIES OR CERTAIN INVESTMENT OPTIONS MAY NOT BE AVAILABLE IN ALL STATES.
THE TERM RIDER MAY NOT BE AVAILABLE IN ALL STATES IN WHICH THE POLICIES ARE
AVAILABLE.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN EACH POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY
WAY SIMILAR OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
3
<PAGE>
SUMMARY OF THE POLICY AND UNDERLYING INVESTMENT OPTIONS
The following summary is qualified in its entirety by: (1) the terms of the
Policy issued to the Policyowner; (2) the more detailed information contained in
this Prospectus; and (3) the accompanying prospectuses for the underlying
investment options (i.e., the Funds, the Trust and the Real Estate Account).
Unless otherwise noted, the term "Policy" refers to the Policy exclusive of the
Term Rider.
How Does This Policy Differ from a Traditional Single Premium Life Insurance
Policy?
Like other single premium life insurance policies, a Policy provides a death
benefit that is payable to the beneficiary upon the insured's death.
Unlike a traditional fixed single premium life insurance policy, the Policy
owner chooses how the account value is allocated among an array of investment
options. The owner can select up to four of the investment options available
under the Policy.
Like conventional life insurance policies, a Policy provides a guaranteed
minimum death benefit (also known as the "face amount" or the "Guaranteed
Insurance Amount").
Unlike traditional life insurance, the death benefit may increase above the
Guaranteed Insurance Amount (i.e., the face amount). There can be no assurance,
however, that this will occur. A Policy's death benefit may increase or decrease
on a monthly basis, depending on the underlying performance of the investment
options selected by the owner. Regardless of investment return, the death
benefit can never be less than a Policy's Guaranteed Insurance Amount (with the
proceeds payable reduced by any outstanding Policy debt).
The Policyowner bears the risk that any amount of death benefit that exceeds
the Guaranteed Insurance Amount can change on each monthly Policy date. During a
Policy month, GIAC bears the risk for any daily change, but the Policyowner
forgoes any intra-month increase in death benefit until the next monthly Policy
date if investment results remain favorable. GIAC bears the investment risk for
the entire Guaranteed Insurance Amount, for which GIAC imposes a risk charge
(see "Charges Deducted from the Premium").
Like other life insurance, the owner can cancel a Policy while the insured
is living and receive its net cash value.
Unlike traditional life insurance, a Policy offers the opportunity for
appreciation of its account value based upon investment results. There can be no
assurance that such appreciation will occur. The account value may increase or
decrease on any day, depending on the underlying performance of the investment
options selected by the Policyowner.
The owner bears the investment risk for growth or loss in the cash value,
since no minimum amount is guaranteed. In a traditional fixed-benefit life
insurance policy, cash values are guaranteed as set forth in those policies.
Who Can Buy a Policy?
GIAC will issue a Policy to a purchaser who resides in a state or
jurisdiction where the Policy may be offered to insure the life of anyone 75
years old, or under, who meets GIAC's underwriting requirements. Individual
consideration will be given for proposed insureds over age 75. The insured and
the Policyowner may be the same person or different people.
4
<PAGE>
How Is the Premium Determined?
The premium amount depends on a Policy's face amount and the insured's sex,
insurance age and rating class. Where distinctions between men and women are
prohibited in determining premiums for Policies, GIAC will use sex-neutral
actuarial tables.
The minimum single premium is $5,000.
How Is the Premium Allocated to the Account?
The premium is allocated to the Account on the Policy date and becomes the
Policy's account value. The net premium, which equals the premium less the
Policy loading, is the cash value on the Policy date and is also used to
determine the face amount. The term "Policy loading" is defined in the next
answer.
The Policy date is either the date of the completed application or the date
the premium is received, if GIAC receives the payment more than five business
days after it receives the completed application. On the Policy date, GIAC also
allocates the Policy loading to the Account thereby increasing the Policy's
account value by the amount of the Policy loading.
At the beginning of each of Policy years two through eleven, GIAC will
recover 10% of the Policy loading by deducting it from the account value. This
means that the Policy loading to which GIAC is entitled as of the Policy Date
will actually be paid over time, and the owner is entitled to any gains (and
experiences any losses) on the portion of the Policy loading that remains in the
account value. (See "Allocation to the Account".)
What Charges Are Deducted from the Policy?
GIAC deducts charges known as the "Policy loading" from the single premium.
These charges consist of: (a) a sales load equal to 4% of the single premium;
(b) an administrative expenses charge not to exceed $500; (c) a charge for state
premium taxes equal to 2.25% of the single premium; and (d) a risk charge of
1.0% or 1.5% of the single premium depending on the insured's risk
classification. The 2.25% premium tax charge deducted from all Policies is an
approximate average of the premium taxes that GIAC expects to pay in all states
for the Policies. (See "Charges Deducted from the Premium" for more information
concerning these charges.)
A charge for the cost of insurance is calculated daily to determine the
Policy's cash value. GIAC's cost of insurance rates are based on age, sex and
risk classifications. GIAC also charges the Account and the Real Estate Account
for the mortality and expense risks it assumes under the Policies. The mortality
and expense risk charge is deducted daily at an effective annual rate of .50% of
the Account's and the Real Estate Account's assets. In addition, GIAC charges
the investment division that invests in the Trust at an effective annual rate of
.25% of the Trust's assets to reimburse GIAC for transaction charges it incurs
in connection with the Trust. This latter charge may be increased in the future
but in no event will it exceed an effective annual rate of .50%. Investment
advisory fees and other expenses are deducted from the assets of each of the
Funds and the Real Estate Account (see "Charges Under the Policy").
Currently, GIAC does not charge the Account or the Real Estate Account for
its Federal income taxes since GIAC does not currently expect to incur Federal
income taxes that are attributable to the Account or the Real Estate Account.
However, if GIAC does incur Federal income taxes that are attributable to the
Account, the Real Estate Account or the Policies, it may make a charge for those
taxes (see "Possible Charge for GIAC Income Taxes").
5
<PAGE>
How Does a Policy's Death Benefit Vary?
The death benefit of the Policy is the Guaranteed Insurance Amount plus the
Variable Insurance Amount, if positive. The Variable Insurance Amount is zero
during the first Policy month. The Variable Insurance Amount reflects the
cumulative amount of variable insurance purchased by each month's excess
investment return (see "The Policy's Excess Investment Return"). GIAC calculates
the excess investment return each month; it may be positive or negative. The
excess investment return depends on the actual rate of return for the investment
options selected by the Policyowner (see "The Policy's Excess Investment
Return"). If the excess investment return is positive, the Variable Insurance
Amount increases by the amount of insurance that can be purchased by the dollar
amount of excess investment return.
Even in months when the Variable Insurance Amount increases, it is possible
that the death benefit may not exceed the Guaranteed Insurance Amount. This can
occur, for example, if the Variable Insurance Amount had been negative and the
increase in the Variable Insurance Amount is not sufficient to make the Variable
Insurance Amount positive.
When the excess investment return under a Policy is negative, GIAC cancels
an amount of Variable Insurance that is equal to the amount of Variable
Insurance that would have been purchased if the return was positive. The
Variable Insurance Amount can be less than zero, but the death benefit will not
be lower than the Guaranteed Insurance Amount (see "Death Benefit").
On each Policy anniversary, GIAC can adjust the Variable Insurance Amount
for Policies issued in the preferred and standard risk classifications based on
certain assumed favorable mortality results (see "Underwriting").
What Is the Policy's Actual Rate of Return?
The actual rate of return under a Policy reflects: (a) increases or
decreases in the net asset value of each Fund's shares plus any distribution
made during a Policy month by a Fund; (b) increases or decreases in the value of
the Trust's units plus any distribution made during a Policy month by the Trust;
(c) increases or decreases in the value of the interests in the Real Estate
Account plus any distribution made during a Policy month by the Real Estate
Account; and (d) interest credited to the owner on any Policy loan collateral;
minus (e) all charges assessed under the Policy's terms. (See "The Policy's
Excess Investment Return".)
What Is a Policy's Excess Investment Return?
A Policy's excess investment return is the dollar amount of the Policy's
account value at the beginning of a Policy month multiplied by the actual rate
of return for that month; minus the cash value at the beginning of the Policy
month multiplied by 1/12th of 4%. Remember that the account value during the
first 10 Policy years exceeds the cash value by the amount of the unrecovered
Policy loading. Hence, the excess investment return can be favorably or
unfavorably affected by the actual returns on the unrecovered Policy loading.
How Does a Policy's Cash Value Vary?
On the Policy date the cash value equals the net premium. Thereafter, the
cash value of a Policy may increase or decrease from day to day depending upon
the excess investment return. (See "Cash Value Benefits".) There is no minimum
guaranteed cash value. A Policy may be surrendered at any time for its net cash
value, which is the cash value minus any Policy debt. A surrender may have
Federal income tax consequences to the Policyowner. (See "Federal Tax
Considerations".)
6
<PAGE>
What Is The Guardian Separate Account B (the "Account") and How Does it Operate?
The Account was established by GIAC's Board of Directors under the laws of
Delaware in November 1984. The Account meets the definition of "separate
account" under the Federal securities laws and is registered with the Securities
and Exchange Commission ("SEC") as a unit investment trust. The Account is used
only to support the variable life insurance policies described in this
Prospectus (see "The Guardian Separate Account B"). It is not part of GIAC's
general account.
The variable life insurance benefits for the Policies are provided through
investments made in the Account and in the Real Estate Account. There are
currently seven investment divisions within the Account, six of which invest in
shares of the Funds (see "The Funds") and one of which invests in units of the
Trust (see "The Trust"). The Account's financial statements appear in this
Prospectus.
What Is The Guardian Real Estate Account (the "Real Estate Account")and How Does
it Operate?
The Real Estate Account is a separate investment account of GIAC which was
also organized under the laws of Delaware. The Real Estate Account is authorized
to invest in income-producing real estate and mortgage loans, and engage in
purchase-leaseback transactions. The Real Estate Account is used to fund both
these Policies and certain variable annuity contracts issued by GIAC. The
account values attributable to Policyowners who elect to invest in the Real
Estate Account will be maintained in a subdivision of the Real Estate Account.
The Real Estate Account's assets are not part of GIAC's general account.
Investment in the Real Estate Account involves a significant degree of risk.
The Real Estate Account's assets are subject to fluctuations in real estate
values, and its assets may not be readily saleable on commercially reasonable
terms. Also, there is a risk that the Real Estate Account will not achieve
sufficient geographic and functional diversification to protect it against
possible adverse performance by certain of its real estate-related investments.
Policyowners are restricted from withdrawing account values that are allocated
to the Real Estate Account and may be subject to other limitations. Furthermore,
the investments and operation of the Real Estate Account may involve certain
conflicts of interest.
The Real Estate Account is briefly described in this Prospectus. More
detailed information about the Real Estate Account, and its financial
statements, are contained in a separate prospectus which accompanies this
Prospectus.
How Can the Policyowner Allocate the Account Value of a Policy?
On the Policy date, GIAC will allocate the premium to the investment
division which invests in The Guardian Cash Fund. On the investment date (i.e.,
the later of 45 days from the date of the completed application or 10 days after
issuance of the Policy), GIAC will allocate the account value among the
investment options selected by the Policyowner on the Policy application or in
any change received by GIAC. The Policyowner may request transfers among the
investment options by writing to or telephoning GIAC. Units of the Trust may not
always be available for allocations or transfers. Also, allocations into and out
of the Real Estate Account are subject to certain limitations (see "Allocation
of Net Premium and Account Value Among Investment Options").
Which Investment Divisions Invest in the Funds?
Six of the Account's investment divisions invest in the Funds (the "Fund
Division(s)"). The Fund Divisions and the primary investment objectives of their
corresponding Funds are:
7
<PAGE>
Fund Division Primary Investment Objective of Fund
------------- ------------------------------------
The Stock Fund Division which invests in Long-term growth of capital
The Guardian Stock Fund (the "Stock
Fund")
The Bond Fund Division which invests in Maximum income without undue risk of
The Guardian Bond Fund (the "Bond principal
Fund")
The Cash Fund Division which invests in High current income consistent with
The Guardian Cash Fund (the "Cash preservation of capital and
Fund") liquidity
The International Fund Division which Long-term capital appreciation
invests in Baillie Gifford
International Fund ("International
Fund"), a series of GBG Funds, Inc.
The Centurion Fund Division which Long-term growth of capital
invests in Value Line Centurion
Fund")
The Strategic Trust Division which High total investment return with
invests in Value Line Strategic reasonable risk
Asset Management Trust ("Strategic
Trust")
The Cash Fund, the Stock Fund and the Bond Fund are advised by Guardian
Investor Services Corporation ("GISC"). The International Fund is advised by
Guardian Baillie Gifford Limited. The Strategic Trust and the Centurion Fund are
advised by Value Line, Inc. Each Fund pays an investment advisory fee and bears
certain Fund expenses as explained in this Prospectus and discussed in the
accompanying prospectuses for the Funds.
Which Investment Division Invests in the Trust?
One of the Account's investment divisions invests in units of the Trust (the
"Trust Division"). The Trust currently available for investment by the Trust
Division has a maturity date in 2004. The Trust invests in zero coupon debt
obligations issued by the United States of America and receipts and certificates
for such zero coupon obligations.
Smith Barney Inc. ("SB"), a subsidiary of The Travelers Inc., is the sponsor
of the Trust and sells units of the Trust to the Trust Division. The price of
these units includes a transaction charge which GIAC pays to SB out of GIAC's
general account assets. By agreement between GIAC and SB, the transaction charge
is not greater than that ordinarily paid by a dealer for similar securities.
GIAC is reimbursed for the amounts it pays to SB through a daily asset charge
against the assets of the Trust Division. The effective annual rate of this
charge is .25% of the assets in the Trust Division. This charge may be
increased, but in no event will it exceed .50% of the assets in the Trust
Division because it is cost-based (taking into account a loss of interest) with
no anticipated element of profit for GIAC.
Account values allocated to the Trust Division may fluctuate widely from day
to day because the prices of zero coupon obligations are more sensitive to
interest rate changes than conventional bonds. Fluctuations should become less
pronounced as maturities shorten.
The Trust is explained in this Prospectus and discussed in the accompanying
prospectus for the Trust.
Is the Death Benefit Excludable from Gross Income for Federal Income Tax
Purposes?
The death benefit under a Policy should be fully excludable from the
beneficiary's gross income for Federal income tax purposes. However, pre-death
distributions from a Policy, including policy loan proceeds, can be taxable as
income and may be subject to tax penalties. (See "Federal Tax Considerations.")
What Is the Federal Income Tax Treatment of Cash Value Increases?
The Policyowner should not be deemed to be in constructive receipt of
increases in the cash value that are not distributed from the Policy. Most
Policies entered into after June 20, 1988 will be treated as modified endowment
contracts under the Internal Revenue Code of 1986, as amended, and its related
rules and regulations
8
<PAGE>
(the "Code"). Hence, all Policy loans, surrenders or other benefits paid in
advance of death will be wholly or partially taxable distributions. Under the
Code, taxable earnings are distributed before the investment in the Policy
(i.e., the Policyowner's basis). Prior to age 59 1/2, pre-death distributions
are generally subject to a 10% penalty tax. (See "Federal Tax Considerations.")
Different rules may apply to Policies entered into before June 21, 1988 (see
"Cash Value Benefits" and "Federal Tax Considerations") or to Policies that are
issued with Term Riders upon certain exchanges (see "Other Important Policy
Provisions"). Exchanging another life insurance contract for a Policy may have
Federal income tax consequences.
What Is the Loan Privilege?
The Policyowner may borrow up to 90% of the Policy's cash value (less any
outstanding loans and loan interest) from GIAC. The minimum loan amount is $500.
The Policy will be the only security required for the loan. The Policyowner may
repay all or part of the loan at any time while the insured is living or within
60 days after the date of the insured's death. The minimum loan repayment amount
is the lesser of $500 or the outstanding loan balance.
GIAC charges interest on outstanding loans at an annual rate of 4.75%. If
interest is not paid when due, GIAC will add it to the outstanding loan balance.
Loans from Policies that are modified endowment contracts and past due loan
interest that is added to such loans are treated as taxable distributions (see
"Federal Tax Considerations"). Loans based on cash values attributable to the
Real Estate Account are subject to certain limitations. (See "Policy Loan".)
What Is the Effect of a Loan on the Policy?
While a loan is outstanding, GIAC holds that portion of the cash value that
equals the loan amount in its general account. Cash values held in the general
account as collateral for Policy loans earn interest at an annual rate of 4%.
GIAC does not consider this loan collateral when it calculates a Policy's excess
investment return. Accordingly, the Variable Insurance Amount and the cash value
can be permanently affected by a loan, whether or not repaid. GIAC subtracts the
amount of any outstanding Policy debt (i.e., the current loan balance plus
accrued loan interest) from the death benefit or cash value upon settlement (see
"Policy Loan"). If the Policy debt exceeds the cash value, GIAC will terminate
the Policy. In addition, if the Policy lapses with a loan outstanding, adverse
tax consequences may result.
Under the current Federal law, a loan taken from a Policy which is treated
as a modified endowment contract may be taxable as ordinary income. Moreover,
with only limited exceptions, a 10% penalty tax will be imposed on the portion
of any loan amount that is includible in income. (See "Federal Tax
Considerations".)
What Is The Guardian Insurance & Annuity Company, Inc. ("GIAC")?
GIAC is the issuer of the Policies described in this Prospectus. GIAC is a
stock life insurance company which was incorporated in the State of Delaware in
1970. Its executive offices are located at 201 Park Avenue South, New York, New
York 10003. GIAC underwrites and administers the Policies from its Customer
Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002-6210. GIAC is
authorized to do business in all 50 states and the District of Columbia and had
total assets of over $5.0 billion as of December 31, 1995.
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. Guardian Life maintains its executive offices at 201 Park Avenue
South, New York, New York 10003. Guardian Life had total assets in excess of
$10.9 billion
9
<PAGE>
as of December 31, 1995. The assets of Guardian Life do not back any liabilities
of GIAC for benefits payable under the Policies.
GIAC's financial statements appear in this Prospectus.
What Is Guardian Investor Services Corporation ("GISC")?
GISC is wholly owned by GIAC. GISC was incorporated in the State of New York
in 1968. GISC provides marketing services to GIAC and is the principal
underwriter and distributor of the Policies. (See "Distribution Agreement and
Other Selling Arrangements".) GISC is registered with the SEC as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc.
("NASD"). GISC is also registered with the SEC as an investment adviser and
provides investment advisory services to the Stock Fund, Bond Fund, Cash Fund,
and Real Estate Account. GISC also serves as manager of one other open-end
investment company. (See "The Funds" and "The Real Estate Account".)
The Policies are sold by registered representatives of GISC who are also
licensed life insurance agents of GIAC. The Policies are also sold by registered
representatives of other registered broker-dealers, including SB and Value Line
Securities, Inc. which have entered into sales agreements with GISC. Registered
representatives of these firms must also be licensed agents of GIAC. (See
"Distribution Agreement and Other Selling Arrangements".)
What Is the "Free Look" Period?
GIAC will refund the entire premium paid for a Policy if the Policy is
returned within 10 days after the owner receives it or 45 days after the
application for the Policy was signed, whichever is later. Longer periods apply
in certain states. (See "Right to Examine a Policy ("Free Look").")
Can a Policy Be Exchanged for a Fixed Life Insurance Policy?
The Policyowner may exchange this Policy for a fixed single premium whole
life insurance policy on the life of the insured, without evidence of
insurability, within 24 months of this Policy's issue date subject to certain
conditions. (See "Right to Exchange for Fixed Life Insurance".) Under certain
circumstances, a Policy may also be exchanged in accordance with state insurance
regulations. (See "Substitution of Investments".)
What Is the Effect of Exchanging Another Life Insurance Contract for a Policy?
Even though newly issued Policies are generally treated as "modified
endowment contracts" under federal law, GIAC believes that a Policy received in
exchange for another life insurance contract may not be so treated if: (1) the
exchanged life insurance contract was not treated as a modified endowment
contract prior to the exchange; and (2) a portion of the exchanged life
insurance contract's cash value is applied to acquire a seven-year fixed-benefit
level term insurance rider ("Term Rider") to the Policy received as a result of
the exchange. The Term Rider provides an additional guaranteed amount of
insurance which increases the Guaranteed Insurance Amount available under the
Policy received upon the exchange for the first seven (7) years that such Policy
is in force.
The Term Rider expires after the Policy has been in force for seven (7)
years. When the Term Rider expires, the guaranteed death benefit decreases by
the face amount of the Term Rider to the Guaranteed Insurance Amount provided by
the Policy without the Term Rider. The Term Rider has no effect on the Variable
Insurance Amount under a Policy.
Policies received as a result of all other exchanges will generally be
treated as modified endowment contracts. (See "Federal Tax Considerations" and
"Other Important Policy Provisions -- Exchange of Another Life Insurance
Contract for a Policy".)
10
<PAGE>
THE POLICY
The variable life insurance benefits provided by the Policies are funded
through investments in Separate Account B (the "Account") and the Real Estate
Account. The benefits, charges and other major provisions of the Policies are
described below. Other important Policy provisions are also described in this
Prospectus. Unless otherwise noted, the term "Policy" refers to the Policy
exclusive of the Term Rider. The provisions of the Policy may vary slightly from
state to state due to variations in state regulatory requirements. For
information about the Account, its operations and its investment divisions, see
"The Investment Options." For information about the Real Estate Account, see
"The Real Estate Account."
Death Benefit
The payable death benefit is the Guaranteed Insurance Amount, plus any
positive Variable Insurance Amount on the date of the insured's death, minus any
Policy debt (see "Policy Loan"). GIAC will ordinarily pay the death benefit
proceeds to the named beneficiary within seven days after it receives due proof
of the insured's death (e.g., a certified copy of the death certificate) at its
Customer Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002-6210.
Registered, certified and express mail should be addressed to 3900 Burgess
Place, Bethlehem, PA 18017. The proceeds may be paid in cash or under one or
more of the payment options described under "Other Important Policy Provisions."
GIAC will pay interest on the death proceeds from the date of death to the date
the proceeds are paid. The interest rate will be the higher of (a) the rate set
forth in Payment Option 1 or (b) the rate required by law.
GIAC may postpone paying death benefit proceeds if the Policy is being
contested or whenever the New York Stock Exchange is closed for trading or
trading has been suspended, or when the SEC restricts trading or determines that
a state of emergency exists which may make such payment impracticable.
GIAC reserves the right to defer payment of any Policy benefits (other than
guaranteed death benefits) that are funded by the Real Estate Account for up to
six months if the Real Estate Account lacks sufficient cash to meet requests for
payments, and the Real Estate Account cannot sell or dispose of its assets to
raise cash on commercially reasonable terms.
GIAC has reinsured, and intends to continue to reinsure, a portion of the
risks assumed under the Policies.
Variable Insurance Amount
The Variable Insurance Amount is the amount of insurance that is purchased
or cancelled on each monthly Policy date in response to the Policy's investment
returns. The Variable Insurance Amount is zero during the first Policy month.
Thereafter, it may be positive or negative.
GIAC determines the Variable Insurance Amount for each Policy month at the
beginning of such month by combining the then-effective Variable Insurance
Amount (whether positive or negative) with the amount of insurance that is
purchased or cancelled by the Policy's investment returns for the preceding
month (see "The Policy's Excess Investment Return"). For this reason, the
Variable Insurance Amount changes only on a monthly Policy date.
The Variable Insurance Amount for Policies issued in the standard and
preferred underwriting classes may also be adjusted on each Policy Anniversary
to reflect favorable mortality results (see "Underwriting").
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<PAGE>
For example: Using the Policy illustrated on page 67 and assuming the 6%
hypothetical gross annual investment return (equivalent to a net rate of
return of 4.85%), the Variable Insurance Amount would affect death benefit
in the following manner:
Guaranteed Variable
Insurance Insurance Death
Amount Amount Benefit
--------- --------- -------
End of Policy Year 5.............. $113,608 $ 6,705 $120,313
Change during Policy Year 6....... 0 1,206 1,206
------- ------ -------
End of Policy Year 6.............. $113,608 $ 7,911 $121,519
If instead the gross annual investment return during Policy year 6 had been 0%
(equivalent to a net rate of return of -1.15%), the death benefit at the end of
Policy year 6 would be affected as follows:
Guaranteed Variable
Insurance Insurance Death
Amount Amount Benefit
--------- --------- --------
End of Policy Year 5.............. $113,608 $ 6,705 $120,313
Change during Policy Year 6....... 0 (6,015) (6,015)
-------- ------- --------
End of Policy Year 6.............. $113,608 $ 690 $114,298
Before GIAC recovers the Policy loading, the precise actual rate of return
necessary to create a positive excess investment return will be less than 4%.
After the Policy loading has been fully recovered from the account value, the
Variable Insurance Amount will increase so long as the Policy's annual rate of
return exceeds 4%. If the actual rate of return is less than 4%, the excess
investment return will be negative, so the Variable Insurance Amount will
decrease. In the absence of a mortality adjustment, a zero excess investment
return results in no change in the Variable Insurance Amount. (See "The Policy's
Excess Investment Return" and "Underwriting".)
If the Variable Insurance Amount is negative at the end of a Policy month,
the death benefit will equal the Guaranteed Insurance Amount for the next Policy
month. The death benefit will exceed the Guaranteed Insurance Amount on the next
monthly Policy date only if the excess investment return is sufficiently
positive to offset the negative Variable Insurance Amount in the prior Policy
month.
For example: Using the Policy illustrated on page 64 and assuming a 0%
hypothetical gross annual investment return (equivalent to a net rate of
return of -1.15%) for the first five Policy years, the Variable Insurance
Amount is -$25,909 at the end of Policy year 5. The death benefit cannot
exceed the Guaranteed Insurance Amount at the end of Policy year 6 unless
the rate of return in Policy year 6 is at least 34.07%.
To calculate the Variable Insurance Amount purchased or cancelled for any
month, GIAC uses a net single premium per $1 of paid-up whole life insurance
based on the insured's sex and age at the Policy anniversary. For intermediate
months, GIAC interpolates to arrive at net single premiums. Thus, for example,
if the excess investment return for a female age 65 is $100, positive or
negative, the Variable Insurance Amount will increase or decrease by $188 (see
table on page 13). For a female, age 65 and 2 months, an excess investment
return of $100, positive or negative, causes the Variable Insurance Amount to
increase or decrease by $187.
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<PAGE>
For example: Using the Policy illustrated on page 67 and assuming a 6%
hypothetical gross annual investment return (equivalent to a net rate of
return of 4.85%) the Variable Insurance Amount purchased or cancelled in
Policy year 6 is less than the change occurring during Policy year 20.
Calculation of Change in Variable Insurance
Amount for the First Month of a Policy Year
-------------------------------------------
6th 20th
Policy Year Policy Year
----------- -----------
(1) Account Value at Beginning of Policy Year......... $ 57,948 $ 90,752
x .0040 x .0040
-------- ---------
(2) Actual Investment Return.......................... $ 232 $ 363
$ 57,948 $ 90,752
x .0033 x .0033
-------- ---------
(3) Assumed Investment Return......................... $ 191 $ 299
(4) Excess Investment Return [Subtract (3) from (2)].. $ 41 $ 64
(5) Net Single Premium................................ .46458 .67076
(6) Change in Variable Insurance Amount at end of
the first month in the 6th and 20th Policy Years. $ 88 $ 95
The net single premium used to calculate the Variable Insurance Amount
increases as the insured ages (see table below). Thus, larger dollar amounts of
excess investment return are required each year to maintain the same increases
in the Variable Insurance Amount.
The Policy includes a table of net single premiums for increasing or
decreasing the Variable Insurance Amount based on a Policy's actual excess
investment return. These premiums will not change if the insured's health
changes after the Policy is issued. Unless distinctions based on the insured's
sex are prohibited by state law, the net single premium will be lower for a
Policy issued for a female than for a Policy issued for a male (see table
below). The net single premium will also be lower for a Policy issued for an
insured who is within one of GIAC's preferred or standard risk classes. The net
single premium is also used to set the single premium payment to buy a Policy.
Table of Illustrative Net Single Premiums
-----------------------------------------
Net Single Premium
Per $1.00 of Variable Insurance
Variable Insurance Amount Purchased or
Amount or Guaranteed Cancelled by $1.00 of
Attained Insurance Amount Investment Return
---------------- -----------------
Age Male Female Male Female
--- ---- ------ ---- ------
5 $ .09731 $ .08071 $ 10.28 $ 12.39
15 .13484 .11146 7.42 8.97
25 .18165 .15426 5.51 6.48
35 .25173 .21509 3.97 4.65
45 .34749 .29718 2.88 3.36
55 .46704 .40160 2.14 2.49
65 .60301 .53300 1.66 1.88
75 .73828 .68489 1.35 1.46
85 .84665 .82411 1.18 1.21
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<PAGE>
Some states prohibit insurers from using actuarial tables that distinguish
between men and women to determine premiums and benefits for life insurance
policies. Where "unisex" rates are required by state law, GIAC uses the female
attained age net single premium table, set forth above, to determine premium
payments and the Variable Insurance Amount, as well as to perform other Policy
calculations for both men and women. Otherwise, GIAC uses actuarial tables that
differentiate on the basis of sex (see "Legal Considerations for Employers").
The Premium
The minimum single premium payment is $5,000.
In setting its premium rates, GIAC considers actuarial estimates for death
benefits and cash value benefits, and classifies insureds by the underwriting
risks. GIAC projects that there will be more favorable mortality results in the
preferred and standard risk classes than in the substandard class. GIAC also
considers expenses, investment experience and an amount to be contributed to its
surplus. In addition, assets are allocated to GIAC's general account to
accumulate as a reserve to cover the contingency that an insured may die at a
time when the Guaranteed Insurance Amount exceeds the death benefit that would
have been payable based upon the Policy's cumulative investment performance
alone.
Underwriting
GIAC issues Policies for insureds who are classified as preferred, standard
or substandard risks.
Insureds of the same age are grouped into a class which can be expected to
produce mortality experience consistent with the actuarial structure for that
class. GIAC uses the following underwriting methods for the Policies: (a)
simplified underwriting not requiring a physical examination, and (b)
paramedical or medical underwriting which requires an examination. The method of
underwriting chosen for any given Policy will be based on age, premium or net
amount at risk.
Notwithstanding the simplified underwriting procedures, GIAC reserves the
right to request a medical examination if an applicant's affirmative response to
one of the medical questions in Part II of the application requires additional
underwriting by GIAC. In all other situations, paramedical or medical
underwriting will be used.
Preferred classification is available for insureds age 20 or over if the
premium is $50,000 or more. The proposed insured must also (a) be a non-smoker,
(b) be employed in a non-hazardous and healthful occupation, (c) be in superior
physical condition and (d) have a favorable personal health history and
favorable personal habits. GIAC deducts a lower risk charge from the gross
single premium for preferred class insureds.
For Policies issued in both the preferred and standard classes, the Variable
Insurance Amount will be adjusted on the first Policy anniversary and may be
adjusted on subsequent Policy anniversaries to reflect assumed favorable
mortality results. This adjustment is called the "mortality adjustment." The
preferred class mortality adjustment is currently based on a factor ranging
between 0 and .011. The standard class mortality adjustment is currently based
on a factor ranging between 0 and .002. The mortality adjustment factor is not
guaranteed. The Variable Insurance Amount will be unaffected when the factor is
zero and will increase when the factor is positive. GIAC adjusts the Variable
Insurance Amount in response to the mortality adjustment factor by:
(1) multiplying the total account value immediately before the Policy
anniversary by
(2) the adjustment factor for the applicable Policy anniversary (as set
forth in the table included in a rider to the Policy) and dividing the
result by
(3) the net single premium for the insured's age at the Policy anniversary.
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<PAGE>
No mortality adjustment will ever decrease the Variable Insurance Amount.
Substandard insureds are not eligible for the mortality adjustment and are
charged a higher premium for the same face amount of insurance protection. The
premium paid for insureds who are classified as substandard will never be more
than 120% of the premium that would be paid for the same Policy for a standard
insured.
Charges Deducted from the Premium
GIAC deducts certain charges from the single premium to reach the net
premium, which is then allocated to the Account to support the benefits provided
by the Policies. These charges are known as the "Policy loading." They are
described below.
Sales Charge. The sales charge is equal to 4% of the single premium. GIAC
may reduce the sales charge for larger premiums, or when Policies are purchased
to cover a group of individuals, or when Policies are sold to the employees of
an employer. The dollar amount of sales load paid under a substandard risk
Policy will exceed the dollar amount of sales load payable under a standard or
preferred risk Policy because substandard risk premiums are higher for the same
face amount. However, the sales charge for a substandard risk Policy will never
exceed 4.8% of the single premium that would be required to purchase the same
Policy in a standard risk class.
The amount of the sales charge cannot be specifically related to sales
expenses. To the extent that sales expenses are not recovered from the sales
charge, they may be recovered from other sources, including the mortality and
expense risk charge and mortality gains.
Administrative Charge. This charge compensates GIAC for insurance
underwriting, establishing and maintaining permanent Policy records, obtaining
attending physician statements or medical examinations, if required, and other
expenses incurred as Policies are issued. The administrative charge for a Policy
is (a) $125 for issue ages 0-14, (b) $150 for issue ages 15-20, or (c) $5 for
each $1,000 of face amount for issue ages 21 and over, with a minimum charge of
$150 and a maximum charge of $500. This charge has been set at a level intended
to recover no more than the actual costs associated with issuing the Policies.
State Premium Tax Charge. GIAC deducts 2.25% of the single premium to pay
taxes on premiums. Premium taxes vary from state to state, and range from zero
to 4% currently. GIAC imposes this 2.25% charge regardless of the premium tax
rate in effect in any state. Thus, a Policyowner may have a premium tax charge
deducted from the Policy in situations when his or her state does not impose
such a charge. The 2.25% rate is an approximate average of the premium taxes
that GIAC expects to pay in all states for the Policies.
Risk Charge. This charge is 1.5% of the single premium for Policies
classified as standard or substandard risks and 1.0% of the single premium for
Policies classified as preferred risks. The proceeds of this charge compensate
GIAC for the risk GIAC assumes by guaranteeing that the death benefit will not
be less than the Guaranteed Insurance Amount.
Allocation to the Account
GIAC allocates the sum of the net premium and the Policy loading to the
Account on the Policy date (i.e., the date GIAC receives the completed
application or the date the premium is received if more than five business days
later.)
At the beginning of each of the second through the eleventh Policy years,
GIAC subtracts 10% of the Policy loading from a Policy's account value. Thus,
the Policy loading is actually paid in 10 installments over 10 years, rather
than as a lump sum on the Policy date. The Policyowner will retain any earnings
attributable to the unrecovered
15
<PAGE>
Policy loading that remains in the account value, but there can be no assurance
that investment experience relating to the Policy loading will be favorable.
For example: The following allocations apply for the indicated single
premiums:
Female 55 -- Standard Risk
Single Face Net Policy Initial
Premium Amount Premium Loading* Allocation
$ 10,000 $ 22,597 $ 9,075 $ 925 $ 10,000
25,000 56,720 22,779 2,221 25,000
50,000 113,608 45,625 4,375 50,000
100,000 228,461 91,750 8,250 100,000
* GIAC is entitled to the full amount of the Policy loading on the Policy date
and will recover the entire amount.
Allocation of Net Premium and Account Value Among Investment Options
On the Policy date, the Policy's total account value is allocated to the
Cash Fund Division and the Policy benefits begin to vary with investment
results. The account value remains fully invested in the Cash Fund Division
until the investment date (i.e., the later of 45 days from the date of the
completed application or 10 days after the Policy was issued). On the investment
date, GIAC will allocate the account value to up to four of the Policy's
investment options in accordance with the instructions provided by the
Policyowner on the application or any subsequently changed instructions received
in writing before the investment date. The Policyowner may be invested in a
maximum of four investment options at any given time.
The Policyowner can change the allocation of the total account value among
the Policy's investment options by writing to GIAC's Customer Service Office.
The address for regular mail is P.O. Box 26210, Lehigh Valley, Pennsylvania
18002-6210, and the address for registered, certified or express mail is 3900
Burgess Place, Bethlehem, Pennsylvania 18017. If the proper authorization is on
file, the Policyowner may authorize transfers among the investment options 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. The caller must identify the Policy
precisely and provide the Policyowner's Personal Security Code. GIAC will accept
telephone transfer instructions from any caller who can provide all required
identifying information. Policyowners risk possible loss of interest, capital
appreciation and principal in the event of an unauthorized or fraudulent
telephone transfer. GIAC, GISC, the Funds, the Trust and the Real Estate Account
shall not be liable for any loss, damage, cost or expense resulting from
following the foregoing procedures to implement telephone transfer instructions
which any of them reasonably believed to be genuine. But if the procedures are
not followed, there may be liability for losses related to following fraudulent
instructions. All or part of any telephone conversation relating to transfer
instructions may be recorded by GIAC without prior disclosure to the caller.
Reallocations and transfers are effected at the relative unit values for the
affected investment options next determined after GIAC receives proper
instructions. GIAC reserves the right to limit the frequency of reallocations
and transfers among the investment options to not more than once every 30 days.
GIAC also reserves the right to modify, suspend or discontinue the telephone
transfer privilege at any time and without prior notice.
Transfers from the Real Estate Account to any investment division of the
Separate Account are permitted only during the 30-day period beginning on a
Policy anniversary. The maximum amount that may be transferred out of the Real
Estate Account each year is the greater of: (a) 33 1/3% of the amount invested
in the Real Estate Account as of the Policy anniversary or (b) $10,000. GIAC
will implement transfer requests received within the 30-day period beginning on
a Policy anniversary as of the end of the business day on which it receives the
request at its Customer Service Office. GIAC reserves the right to further
restrict transfers out of the Real Estate Account if the Account
16
<PAGE>
lacks sufficient cash to meet transfer requests and it cannot sell assets on
commercially reasonable terms to raise additional cash. GIAC also reserves the
right to restrict allocations or transfers into the Real Estate Account under
the limited circumstances described in the Real Estate Account's Prospectus.
Policyowners can only allocate or transfer into the investment division that
invests in the Trust when units of the Trust are available. When the Trust
matures, any account value held in its corresponding Trust Division will be
automatically transferred to the Cash Fund Division unless the Policyowner
directs otherwise. GIAC will notify Policyowners who have account values in the
Trust Division of the impending maturity of its corresponding Trust 30 days in
advance of the maturity date. The Policyowner must properly notify GIAC at its
Customer Service Office, either in writing or by telephone, at least seven days
prior to the maturity date of the Trust if he or she wants the account value
attributable to the Trust transferred to an investment option other than the
Cash Fund Division.
The Amount Invested: The Account Value
Total Account Value. The total account value is the amount available for
investment at any time. It is the sum of the account values held in each of the
Policy's investment options, plus the amount set aside in GIAC's general account
for any Policy debt. The Policyowner selects the investment options in which to
place the unloaned account value (see "Policy Loan").
Account Value in Each Investment Option. On the Policy date, the account
value is the net premium plus the Policy loading. This amount will initially be
allocated to the Cash Fund Division. On the investment date (defined above),
GIAC will allocate the account value among up to four of the Policy's investment
options.
At the beginning of each Policy month, the portion of the Policy's account
value in each investment option equals the proportionate amount of a Policy's
net cash value (see "Cash Value Benefits") allocated to that particular option,
plus a correspondingly proportionate amount of any unrecovered Policy loading.
On each date during a Policy month, the portion of the account value allocated
to any particular investment option will be adjusted to reflect the investment
experience of that option (see "The Policy's Excess Investment Return").
Charges Under the Policy
Cost of Life Insurance. GIAC calculates a charge for the cost of life
insurance each day to determine a Policy's cash value (see "Net Cash Value").
GIAC deducts cost of life insurance charges from the account value at the end of
each Policy month. This charge compensates GIAC for the anticipated cost of
paying death benefits to the beneficiaries of those insureds who die during that
period. The amount of the charge is calculated based upon: (a) the assumption
that the actual number of deaths during the month will be accurately predicted
by the 1980 Commissioners Standard Ordinary Mortality Tables; (b) the sum of the
Guaranteed Insurance Amount and the Variable Insurance Amount provided during
the month; and (c) the insured's age, sex (unless prohibited) and risk class.
The cost of insurance generally increases with the attained age of the insured.
The cost of insurance is higher for insureds classified as substandard than for
insureds in the preferred or standard classes.
Expenses Charged to All Investment Options. GIAC charges the Account and the
Real Estate Account at an effective annual rate of 0.50% of the average daily
value of the aggregate assets of such accounts for mortality and expense risks
assumed by GIAC. Thus, the dollar amount of this charge varies directly with the
size of the accounts, which is increased by unrecovered Policy loadings, and may
be increased or decreased by the investment performance. The mortality risk that
GIAC assumes is that insureds may live for a shorter period of time than GIAC
estimated, so more death benefits than expected will be payable. The expense
risk that GIAC assumes is that expenses incurred in issuing and administering
the Policies will be higher than estimated. If amounts collected
17
<PAGE>
through this charge exceed the amounts required to provide benefits or pay
expenses, GIAC may realize a profit on the charge. GIAC may use any such profit
to defray expenses incurred in selling the Policies.
Other Charges Applicable to the Funds and the Real Estate Account. The net
asset values of each of the Funds and the price of the Real Estate Account's
participating interests reflect the deduction of investment advisory fees and
other general operating expenses. Each Fund, with the exception of the
International Fund, pays an annual investment advisory fee to its investment
adviser equal to 0.50% of such Fund's average daily net assets. The
International Fund pays an annual investment advisory fee that equals 0.80% of
its average daily net assets. The Real Estate Account pays an aggregate annual
investment advisory fee to its investment advisers of up to 1.0% based on a
weighted average of (a) an annual fee of 1.0% on the average daily value of the
real estate-related assets maintained in the Account and (b) an annual fee of
0.50% on the average daily value of the non-real estate-related assets
maintained in the Account. (See "The Funds" and "The Real Estate Account".) The
operational expenses for the Strategic Trust and the Centurion Fund reflect the
effects of expense reimbursements paid by those funds to GIAC for certain
administrative and shareholder servicing expenses incurred by GIAC on their
behalf. For the year ended December 31, 1995, GIAC was reimbursed $584,237 by
the Strategic Trust and $369,160 by the Centurion Fund. The accompanying
prospectuses for the Funds and the Real Estate Account describe investment
advisory fees and other expenses in more detail, and should be read before
making allocation or transfer decisions.
Expenses Charged to the Division Investing in the Trust. GIAC charges the
investment division investing in the Trust to obtain reimbursement for the
transaction charges that it pays directly to SB when Trust units are sold to the
Account. GIAC pays the transaction charges from its general account assets. The
charge to the Trust Division equals an annual charge of 0.25% of the Division's
assets. This amount may be increased in the future, but in no event will it
exceed 0.50% of a Division's assets. GIAC does not expect to profit from this
charge.
The Trust pays certain fees, including bank trustee's and evaluator's fees
in excess of those paid by SB. The Trust will hold one or more interest-bearing
Treasury securities to provide income with which to pay the Trust's expenses.
The prospectus for the Trust describes the Trust's fees and expenses in more
detail, and should be read before making allocation or transfer decisions.
Possible Charge for GIAC Income Taxes. GIAC does not charge the Account or
the Real Estate Account for federal, state or local income taxes attributable to
such accounts or the Policies.
However, GIAC reserves the right to impose additional charges if the income
tax treatment of variable life insurance changes for insurance companies, or if
there is a change in GIAC's tax status, or if GIAC becomes subject to any other
tax-related economic burdens that are attributable to the Account, the Real
Estate Account or the Policies.
Guarantee of Certain Charges. GIAC guarantees, and may not increase: the
maximum level of its cost of insurance rates for each age, sex and risk class;
the mortality and expense risks charge; or the maximum charge against the Trust
Division.
The Policy's Excess Investment Return
GIAC calculates and uses a Policy's excess investment return to purchase or
cancel the amount of variable insurance provided by the Policy. The excess
investment return is based upon a Policy's actual rate of return (see "Variable
Insurance Amount").
GIAC determines a Policy's actual rate of return monthly. The rate of return
reflects, through the Policy's investment options, (a) increases or decreases in
the net asset value of each Fund's shares plus any distribution made during the
Policy month on such shares, (b) increases or decreases in the value of the
units of the Trust plus any distribution
18
<PAGE>
made during the Policy month on such units, (c) increases or decreases in the
value of the interests in the Real Estate Account plus any distribution made
during the Policy month on such interests, and (d) interest credited to the
owner on any Policy loans, less any charges against the assets in each division
(see "Charges Under the Policy").
Each Fund's method for calculating its net asset value is described in its
accompanying prospectus. Units of the Trust are valued at the "Sponsor's
Repurchase Price" as defined in the accompanying prospectus for the Trust. The
accompanying prospectus for the Real Estate Account describes how its
participating interests are valued.
A Policy's excess investment return is the account value at the beginning of
the Policy month multiplied by the actual rate of return adjusted to the date of
calculation, minus the cash value at the beginning of the month multiplied by an
annualized rate of 4%. During the first 10 Policy years, the account value
exceeds the cash value by the amount of the unrecovered Policy loading. The
effect of the addition of the Policy loading to the account value during this
period is to create greater increases in benefits if the actual rate of return
is greater than zero, or to create larger decreases in benefits if the actual
rate of return is less than zero. Regardless of the actual rate of return,
however, GIAC will deduct the full amount of the Policy loading over a 10-year
period as described in this Prospectus.
There will be a positive excess investment return and the Variable Insurance
Amount will increase for a Policy month if the actual rate of return is greater
than 4% (on an annualized basis). Before GIAC recovers the entire Policy loading
from the account value, the actual rate of return necessary to create a positive
or negative excess investment return will vary with the amount of Policy loading
remaining in the account value. After all Policy loading has been recovered,
there will be a negative excess investment return if the actual rate of return
is less than 4%, unless there is a mortality adjustment (see "Underwriting").
GIAC will reduce the Variable Insurance Amount if the excess investment return
is negative.
Cash Value Benefits
Cash Value. The cash value increases or decreases daily to reflect a
Policy's actual rate of return. The cash value for a Policy at the end of a
Policy month is equal to the net single premium per $1 of paid-up whole life
insurance on that date multiplied by the sum of the Guaranteed Insurance Amount
and the Variable Insurance Amount.
The cash value on a date during a Policy month, assuming no Policy loans,
can be expressed approximately as:
(1) The cash value at the end of the preceding Policy month; plus
(2) The actual rate of return (positive or negative) for a Policy applied to
the account value, including any unrecovered Policy loading, at the beginning of
the month; minus
(3) The charge for the cost of insurance protection (which will vary
monthly) provided since the end of the preceding Policy month. The cost of
insurance charge is computed based upon the sum of the Guaranteed Insurance
Amount and the Variable Insurance Amount provided during the month, and the
insured's age, sex (unless prohibited) and risk class on such date. Except on
Policy anniversaries after the 10th Policy year, the cash value does not equal
the account value.
No minimum amount of cash value is guaranteed.
How Account Value Relates to Cash Value. The account value will exceed a
Policy's cash value on the Policy date and during the first 10 Policy years by
the amount of any unrecovered Policy loading. During a Policy month, the account
value and cash value will also differ because the cash value reflects a daily
adjustment for the cost of insurance protection while the corresponding
adjustment to the account value is only made at the end of a Policy month. For
these reasons, the account value is not a measure of the cash value except on
monthly Policy dates after the 10th Policy year.
19
<PAGE>
Net Cash Value. The net cash value is the cash value minus any Policy debt.
The net cash value does not include any unrecovered Policy loading.
The Policyowner can surrender and cancel a Policy at any time while the
insured is living and receive its net cash value. Partial surrenders are not
permitted. GIAC will cancel the Policy as of the date it receives both a proper
written request for cancellation and the Policy (or an acceptable affidavit of
loss). GIAC will ordinarily pay the net cash value within seven days after it
receives this required documentation, but payment may be deferred under certain
limited circumstances (see "Deferment").
Policy Loan
The Policyowner may borrow money from GIAC using a Policy as the only
security for the loan. After the end of the "free look" period, a loan may be
taken any time a Policy is in effect. The amount of the loan may not exceed the
loan value of the Policy. The maximum loan value equals 90% of the Policy's cash
value, less any outstanding loans and loan interest. The Policyowner may repay
all or part of the loan at any time while the insured is living. Taking a loan
from a Policy that is treated as a modified endowment contract may have Federal
income tax consequences and, prior to age 59 1/2, a 10% penalty tax may be
imposed (see "Federal Tax Considerations").
The interest rate on loans is 4.75% a year. Policyowners are expected to pay
loan interest on each Policy anniversary. Unpaid interest is added to the
outstanding loan and thereafter bears interest at the same rate. The minimum
loan is $500. The minimum loan repayment is $500 or the balance of the loan, if
smaller. The sum of all outstanding loans plus accrued interest is called the
Policy debt.
Policyowners must complete and submit a Loan Form to GIAC's Customer Service
Office to request a loan. Loan Forms are available from the Customer Service
Office. To collateralize a loan, GIAC transfers the requested loan amount from
the investment options to its general account as of the date it received the
Loan Form. GIAC transfers loan amounts first from the investment divisions of
the Account and then from the Real Estate Account. The loan request may
designate the investment divisions of the Account from which the loan amount
will be transferred. Without a designation, GIAC will transfer the loan amount
proportionately from the investment divisions until they are exhausted and then
from the Real Estate Account. GIAC reserves the right to defer paying loan
proceeds funded by interests in the Real Estate Account for up to six months if
that Account lacks sufficient cash to meet loan requests or pay other benefits,
and it cannot sell assets on commercially reasonable terms.
Loan repayments can be allocated to any investment option designated by the
Policyowner so long as the Policyowner is not invested in more than four
investment options thereafter. Without a designation, GIAC will allocate loan
repayments among the investment options in proportion to the account value in
each option as of the date of the repayment.
Loan collateral held in GIAC's general account will be credited interest at
the assumed rate of return of 4%. GIAC retains the difference between this
credited rate of interest and the 4.75% loan interest paid by the Policyowner.
GIAC reserves the right to reduce the credited rate of return in response to
changes in tax laws affecting the Policy. Amounts transferred to GIAC's general
account as Policy loan collateral no longer share in the investment experience
of the options from which they were transferred. Accordingly, a loan will have a
permanent effect on the Policy's death benefit and cash values even if the loan
is repaid. The effect could be favorable or unfavorable, depending on investment
experience while the loan is outstanding. Unpaid Policy debt reduces the payable
death benefit and cash value proceeds.
20
<PAGE>
For example: Using the Policy illustrated on page 67 and assuming the 6%
gross and annual investment return (equivalent to a net rate of return of
4.85%), and further assuming a loan of $4,000 at the end of Policy year 5,
the death benefit at the end of Policy year 6 would be $121,451:
Guaranteed Variable
Insurance Insurance Death
Amount Amount Benefit
-------- ------ --------
End of Policy Year 5 .......... $113,608 $6,705 $120,313
Change during Policy Year 6 ... 0 1,138 1,138
-------- ------ --------
End of Policy Year 6 .......... $113,608 $7,843 $121,451
The increase is only $1,138 as compared to the $1,206 increase shown in the
example on page 12. The difference reflects the fact that the loan amount
held in GIAC's general account was credited with 4% rather than the 4.85%
actual rate of return. If the insured had died during the 6th Policy year,
the loan amount of $4,000 plus any accrued interest would have been deducted
from the death benefit proceeds.
If the Policy debt exceeds the cash value, GIAC will terminate the Policy.
GIAC will provide 31 days written notice of its intent to terminate the Policy.
If the Policy lapses with a loan outstanding, adverse tax consequences may
result (see "Federal Tax Considerations").
Right to Exchange for Fixed Life Insurance
The Policyowner may exchange a Policy for a single premium whole life
insurance policy with benefits that do not vary with investment results. The
exchange must be elected, in writing, within 24 months from the Policy issue
date. No evidence of insurability is required. The new policy will be issued by
GIAC or an affiliate.
A cash adjustment on exchange will be calculated based on the Policy's net
cash value minus the new policy's tabular cash value, adjusted for any
additional reserves which the issuer of the new policy is required to maintain
for the new policy. If the result is positive, GIAC will pay the Policyowner. If
the result is negative, the Policyowner must pay GIAC before the new policy is
issued. Under some circumstances, it may be less advantageous to exchange a
Policy for a fixed life insurance policy than to purchase a fixed life insurance
policy in the first instance.
The new policy's owner and beneficiary will be the same as those of the
Policy on the effective date of the exchange. The new policy will have the same
issue date, risk class and face amount as the original Policy or, at the
discretion of the Policyowner, the face amount of the original Policy plus the
Variable Insurance Amount, if positive. (See "Federal Tax Considerations" for a
discussion of the tax implications of an exchange.)
Right to Examine a Policy ("Free Look")
A Policy may be returned within 10 days after the Policyowner receives it,
or within 45 days after the Policyowner completes and signs Part I of the
application for insurance, whichever is later. Longer periods may apply in
certain states. The returned Policy can be mailed or delivered either to GIAC or
to the registered representative who sold it. GIAC will void the returned Policy
from the beginning and promptly refund the entire premium paid.
GIAC reserves the right to defer accepting an application for a new Policy
which specifies the same owner and the same insured as a returned Policy for up
to six months.
Distribution Agreement and Other Selling Arrangements
GISC is the principal underwriter, or distributor, of the Policies. GISC is
registered with the SEC as a broker-
21
<PAGE>
dealer and is a member of the NASD. GIAC compensates GISC for distributing the
Policies and other variable insurance products issued by GIAC, pursuant to a
distribution agreement. The amounts paid or accrued to GISC under this agreement
totalled $1,738,613, $1,709,799 and $1,409,708 in 1993, 1994 and 1995,
respectively.
GISC has entered into sales agreements with other SEC registered
broker-dealer firms which are members of the NASD, including SB and Value Line
Securities, Inc. Under these agreements, registered representatives of the firms
can sell Policies if they are appropriately licensed and appointed as agents of
GIAC.
A sales commission of up to 4% of the premium paid for a Policy is payable
to the GISC registered representative who sold the Policy. Firms that have
entered into selling group agreements may receive override payments and expense
reimbursements in connection with sales of the Policies. GISC may, from time to
time, pay additional commissions or provide other non-cash promotional
incentives to GISC registered representatives or other broker-dealers in
connection with the sale of the Policies as permitted by law.
Federal Tax Considerations
The following discussion of federal income tax considerations that relate to
the Policies is based upon GIAC's understanding of federal income tax laws as
they are currently interpreted by the Internal Revenue Service ("IRS").These
laws are complex, and tax results may vary among individuals. Anyone who buys a
Policy or exercises elections under the Policy should seek competent tax advice.
This is not an exhaustive discussion of all tax questions that might arise
under the Policies. No attempt has been made to address any federal estate tax
or state and local tax issues which may arise in connection with a Policy. For
complete information, consult a qualified tax adviser.
GIAC does not guarantee the tax status of any Policy and the following tax
discussion is not intended as tax advice.
(a) Tax Character of the Policy
Section 7702 of the Code defines the term "life insurance contract" for
federal income tax purposes. This definition can be satisfied by complying with
either of two tests set forth in Section 7702. Although there is only limited
official guidance on Section 7702, GIAC believes that the Policy should meet the
statutory definition of a life insurance contract.
Section 817(h) of the Code requires the investments of the Real Estate
Account and each division of the Account to be "adequately diversified" under
Treasury regulations for the Policy to qualify as a life insurance contract
under Section 7702. The investment advisers of the Funds and the Real Estate
Account are expected to comply with these diversification requirements.
To date, no regulations or rulings have been issued to provide guidance
regarding the circumstances under which a Policyowner's ability to control his
or her investments under a Policy by exercising premium allocation and transfer
privileges would cause him or her to be treated as the owner of a pro-rata
portion of the assets in an insurance company's separate account. If a
Policyowner was considered the owner of assets in the Account or the Real Estate
Account, the income and gains attributable to his or her Policy would be
included in his or her gross income each year. GIAC currently believes that it,
and not its Policyowners, is considered to own the Account's and the Real Estate
Account's assets. However, GIAC cannot predict when the Treasury Department or
the IRS will issue guidance regarding these matters, nor the nature of any such
guidance. GIAC therefore reserves the right to modify the Policy, as necessary,
to attempt to prevent a Policyowner from being considered the owner of a pro
rata
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<PAGE>
share of the assets of the Account or the Real Estate Account, or to assure that
the Policy continues to be treated as a life insurance contract under the Code.
(b) Tax Treatment of Policy Benefits
GIAC believes that benefits paid under the Policy should receive the same
federal income tax treatment as the benefits from a fixed-benefit life insurance
policy. Accordingly,
(1) The death proceeds received by a beneficiary should not be subject
to federal income tax, and cash value increases resulting from investment
experience should not be subject to federal income tax unless they are
distributed from a Policy before the insured's death. Income recognized from
a pre-death distributions will be characterized and taxed as "ordinary
income."
(2) Interest on Policy loans, even if paid, is generally not tax
deductible.
(c) Status of the Policy as a "Modified Endowment Contract"
Section 7702A of the Code classifies certain life insurance policies entered
into after June 20, 1988 as "modified endowment contracts." A life insurance
policy is a modified endowment contract if the cumulative amount paid under it
at any time during the first seven Policy years exceeds the sum of the net level
premiums which would have been paid to acquire paid-up future benefits through
the payment of seven level annual premiums.
In light of the Policy's premium requirements, a Policy entered into after
June 20, 1988 is considered to be a "modified endowment contract" under Section
7702A of the Code. However, under certain limited circumstances, a Policy
received after June 20, 1988 in exchange for another life insurance contract may
not be treated as a modified endowment contract. A prospective applicant should
read "Other Important Policy Provisions -- Exchange of Another Life Insurance
Contract for a Policy" carefully and consult a competent tax adviser before
authorizing the exchange of his or her current life insurance contract. A Policy
entered into prior to June 21, 1988 should not be characterized as a modified
endowment contract, unless there is a material change in the benefits or other
terms of that Policy. In that event, it may become a modified endowment
contract.
Distributions from Policies that are modified endowment contracts,
including assignments, surrenders, maturity benefits, Policy loan proceeds and
unpaid policy loan interest, are treated as taxable income to the extent that
the cash value immediately before any such distribution exceeds the investment
in the Policy. Investment in the Policy is defined as (a) the single premium
paid for the Policy, plus the amount of any prior loan that has already been
included in the Policyowner's gross income, minus (b) the aggregate amount of
any prior distributions that were excluded from the Policyowner's gross income.
In addition, the Code imposes a ten percent (10%) penalty tax on the taxable
income from a distribution unless the distribution is made to a taxpayer who is
at least 59 1/2 years old; or is attributable to a disability; or is a part of a
series of substantially equal periodic payments for the taxpayer's life or the
joint lives of the taxpayer and a beneficiary.
All modified endowment contracts issued by GIAC (or its affiliates) to the
same Policyowner during any calendar year are treated as one modified endowment
contract for purposes of determining the taxable portion of any distribution.
Distributions from Policies that are not modified endowment contracts should
generally be treated as first recovering the investment in the Policy and then
as distributing taxable income. Loans from such Policies should not be treated
as distributions. Instead, such loans are generally treated as indebtedness of
the Policyowner. However, if a Policy that is not a modified endowment contract
lapses with an outstanding loan, cancellation of the loan and all accrued
interest will be treated as a distribution and may be taxable. Generally, Policy
loan interest is not tax deductible by the Policyowner.
23
<PAGE>
(d) Exchanging a Policy
A life insurance contract received in exchange for a Policy entered into on
or after June 21, 1988 will generally be treated as a modified endowment
contract because the Policy being exchanged will typically be a modified
endowment contract. Thus, exercising the exchange rights described in this
Prospectus may have tax consequences. A Policyowner should consult a tax adviser
before exchanging a Policy for another life insurance contract.
Legal Considerations for Employers
(a) Gender Neutrality
In 1983, the United States Supreme Court held that optional annuity benefits
provided under an employee's deferred compensation plan could not, under Title
VII of the Civil Rights Act of 1964, vary between men and women on the basis of
sex. The Court applied its decision to benefits derived from contributions made
on or after August 1, 1983. Lower federal courts have since held that the Title
VII prohibition of sex-distinct benefits may apply at an earlier date. In
addition, some states prohibit using sex-distinct mortality tables.
The Policy uses sex-distinct actuarial tables, unless state law requires the
use of sex-neutral actuarial tables. As a result, the Policy generally provides
different benefits to men and women of the same age. Employers and employee
organizations which may consider buying Policies in connection with any
employment-related insurance or benefits program should consult their legal
advisers to determine whether the Policy is appropriate for this purpose.
(b) Taxation
The tax attributes of deferred compensation, split-dollar and salary
continuance plans differ depending on the terms of each arrangement. If the
value of a plan depends wholly or partially on its tax consequences, a qualified
tax adviser should be consulted before a Policy is used in connection with the
plan.
Voting Rights
As explained under "The Funds," GIAC buys and sells shares of the Funds for
the Account's Fund Divisions. GIAC is the record owner of such shares and will
attend, and has the right to vote, at any meeting of a Fund's shareholders.
To the extent required by applicable law, GIAC will vote the Fund shares
that it owns through the Account according to instructions received from
Policyowners. GIAC will vote shares for which no instructions are received in
the same proportion as it votes shares for which it has received instructions.
GIAC will vote any Fund shares that it is entitled to vote directly due to
amounts it has contributed or accumulated in the applicable Fund Division in the
same proportion as all of its Policyowners and contractowners vote, including
those who participate in other GIAC separate accounts. If the applicable law or
interpretations thereof change so as to permit GIAC to vote a Fund's shares in
GIAC's own right or to restrict Policyowner voting, GIAC reserves the right to
do so.
GIAC will seek voting instructions from Policyowners for the number of
shares attributable to their Policies. Policyowners are entitled to provide
instructions if, on the applicable record date, they have allocated account
values to the investment division which corresponds to the Fund for which a
shareholder meeting is called. The record date shall be at least 10 and no more
than 90 days before the meeting. GIAC determines the number of shares
attributable to a Policy by dividing the account value in the applicable Fund
Division by the net asset value per Fund share as of the record date. Fractional
shares are counted.
If permitted by state insurance regulatory authorities, GIAC may disregard
voting instructions relating to
24
<PAGE>
changes in a Fund's investment adviser, investment advisory contract, investment
objective or investment policies. GIAC will only take such action if it
reasonably disapproves the proposed changes, and, in the case of a change in
investment adviser or an investment policy, if it makes a good faith
determination that the proposed change is contrary to state law or otherwise
inappropriate in view of the Fund's investment objective and purpose. GIAC will
explain its actions in the next semi-annual report to Policyowners.
GIAC will solicit voting instructions from Policyowners who have allocated
or transferred values to the Trust Division in the manner described above.
However, the matters to be voted upon will generally be limited to removing the
trustee or to amend or terminate a Trust indenture.
Policyowners have no voting rights with respect to the Real Estate Account.
Reports to Policyowners
GIAC will send the Policyowner a statement setting forth the death benefit,
cash value and the amount of any outstanding Policy debt as of each semi-annual
Policy anniversary. These statements will also report the allocation of the
account value among the Policy's investment options as of each semi-annual
anniversary. GIAC also sends semi-annual and annual reports containing financial
statements for the Account and the Funds to all Policyowners. GIAC sends annual
reports containing financial statements for the Trust and the Real Estate
Account to each Policyowner who has allocated account value to either the Trust
Division or the Real Estate Account, as applicable.
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<PAGE>
THE INVESTMENT OPTIONS
The Guardian Separate Account B (the "Account")
GIAC established the Account under Delaware law in November 1984. The
Account is registered as a unit investment trust with the SEC under the
Investment Company Act of 1940 (the "1940 Act"). Such registration does not
involve supervision of the management of the Account or GIAC by the SEC.
The Account is a separate investment account of GIAC. It is used only to
support the death benefits and cash values of the variable life insurance
policies described in this Prospectus. The assets in this Account are kept
separate from GIAC's general account and other separate accounts. Income and
realized and unrealized gains or losses from assets in the Account are credited
to, or charged against, the Account without regard to other income, gains or
losses in GIAC's other accounts.
GIAC owns the assets in the Account and is required to maintain assets which
are at least equal to the reserves and other liabilities of the Account. Assets
equal to such reserves and other liabilities may not be charged with liabilities
that arise from any other business GIAC conducts. GIAC may also retain assets
which exceed the reserves and liabilities of the Account in the Account. Such
assets can include GIAC's direct contributions to the Account, accumulated
mortality and expense risks charges, mortality gains, recovered Policy loading,
or the investment results attributable to GIAC's retained assets. Because such
retained assets do not relate to GIAC's obligations under the Policies, GIAC may
transfer them from the Account to its general account.
All assets of the Account are held in custody for safekeeping by GIAC. There
are currently seven investment divisions within the Account. Six divisions
invest in shares of the Funds and one division invests in units of the Trust.
The assets of each investment division of the Account are kept physically
segregated and held separate and apart from assets of the other divisions. The
Account maintains a record of all purchases and redemptions for shares of the
Funds and units of the Trust held in each Account Division.
GIAC retains the right, subject to applicable law, to (1) deregister the
Account under the 1940 Act; (2) operate the Account as a management investment
company or any other form permitted by law; (3) combine any two or more separate
accounts; (4) transfer the assets of the Account or the Real Estate Account to
another separate account; and (5) modify the Contracts as necessary to preserve
the favorable tax treatment accorded to them under the Code, including
modifications designed to prevent the Policyowner from being considered the
owner of the assets of the Account or the Real Estate Account and, consequently,
to be subject to taxation.
The Funds
Each Fund is a diversified, open-end management investment company, and is
registered with the SEC under the 1940 Act. Such registration does not involve
supervision by the SEC of the investments or investment policies of a Fund. GIAC
buys shares of each Fund for the corresponding Fund Division within the Account
at net asset value (i.e., without sales load). All dividends and capital gains
distributions received from a Fund are reinvested in that Fund's shares at net
asset value and retained in the Fund's corresponding Fund Division. GIAC redeems
Fund shares at their net asset value to pay Policy benefits and effect Policy
transactions, such as loans or transfers.
Each Fund has an 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 each Fund's
objective and lists typical portfolio investments.
26
<PAGE>
<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 Investment grade debt
undue risk of principal obligations and U.S.
capital appreciation is government securities,
a secondary objective including mortgage-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
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 High total investment return U.S. common stocks ranked 1 or 2
Management Trust current income and capital by the Value Line Ranking System*,
appreciation) consistent with bonds and money market instruments
reasonable risk
</TABLE>
The Stock, Bond and Cash Funds 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 investment adviser to five of
the six series funds comprising The Park Avenue Portfolio, a family of mutual
funds, and is co-adviser of The Real Estate Account. GISC also serves as manager
of one other open-end investment company.
The International Fund is one of the two series funds comprising GBG Funds, Inc.
The International Fund is advised by Guardian Baillie Gifford Limited ("GBG"), 1
Rutland Court, Edinburgh, EH3 8EY, Scotland. GBG is registered as an investment
adviser under the Advisers Act and is a member of Great Britain's Investment
Management Regulatory Organization Limited ("IMRO"). GBG was incorporated in
Scotland by GIAC and Baillie Gifford Overseas Limited ("BG Overseas") in
November 1990. GBG is also the investment adviser of one of the six series funds
comprising The Park Avenue Portfolio and the second series fund within GBG
Funds, Inc. Baillie Gifford International Fund pays GBG an investment advisory
fee at an annual rate of 0.80% of the Fund's average daily net assets for the
services and facilities GBG provides to the Fund.
- ----------
* 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).
27
<PAGE>
GBG has appointed BG Overseas to serve as sub-investment adviser to the Baillie
Gifford International Fund. Like GBG, BG Overseas is located at 1 Rutland Court,
Edinburgh, EH3 8EY, Scotland. BG Overseas is also registered under the Advisers
Act and is a member of IMRO. BG Overseas is wholly owned by Baillie Gifford &
Co., which is currently one of the largest investment management partnerships in
the United Kingdom. BG Overseas advises several institutional clients situated
outside of the United Kingdom, and is also the sub-investment adviser to the
series fund within The Park Avenue Portfolio that is advised by GBG and the
second series fund within GBG Funds, Inc. One half of the investment advisory
fees paid by the International Fund to GBG is payable by GBG to BG Overseas for
its services as the International Fund's sub-investment adviser. No separate or
additional fee is paid by this Fund to BG Overseas.
The Strategic Trust and the Centurion Fund are advised by Value Line, Inc.
("Value Line"), 220 East 42nd Street, New York, New York 10017. Value Line is
registered as an investment adviser under the Advisers Act. Each of the Value
Line funds pays Value Line an investment advisory fee at an annual rate of 0.50%
of the fund's average daily net assets for the services and facilities Value
Line provides to the fund. Value Line also serves as the investment adviser to
its own family of mutual funds and publishes The Value Line Investment Survey
and The Value Line Mutual Fund Survey.
The Trust
The objective of the Trust is to provide safety of capital and income
through investment in a fixed portfolio of zero coupon securities. Zero coupon
securities are U.S. Treasury securities that have been stripped of their
unmatured interest coupons, the stripped coupons or receipts and certificates
for such coupons. Zeros are issued and sold at a steep discount from their face
value, and do not pay interest prior to maturity or a specified maturity date.
The market prices of zero coupon securities generally are more volatile than the
market prices of conventional interest-bearing securities. Smith Barney Inc.
("SB"), a subsidiary of The Travelers Inc., is the sponsor of the Trust and
sells units of the Trust to GIAC for the Account. Because the Trust invests in a
specified portfolio of zero coupon securities, there is no investment manager.
The maturity date of the Trust is November 15, 2004. The estimated annual
rate of return to maturity of the Trust as of March 31, 1996 is 5.63%. This rate
reflects the estimated compound rate of growth in the Trust's units, as well as
the charge for mortality and expense risks and the daily asset charge that
reimburses GIAC for transaction costs relating to the Trust (See "Expenses
Charged to All Investment Options" and "Expenses Charged to the Division
Investing in the Trust."). It does not reflect the applicable charges for Policy
loading and cost of insurance that are also deducted under a Policy. Since the
value of the Trust's units will vary daily to reflect the market value of the
zero coupon securities held in its portfolio, the compound rate of growth to
maturity and, hence, the estimated rate of return to maturity will also vary
daily.
Fluctuations in the value of the Trust's units will also affect the Variable
Insurance Amount and cash values under a Policy which has account value
allocated to the Trust Division.
GIAC buys and sells units in the Trust in response to premium allocations
and other Policy transactions, such as transfers or Policy Loans, and to pay
Policy benefits. SB has undertaken to maintain a secondary market in units of
the Trust, and GIAC sells units back to the Trust.
GIAC and SB reserve the right to cease offering units of the Trust and to
create additional Trusts in the future.
The accompanying prospectus for The Smith Barney Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A contains more detailed information about the
Trust. Read the prospectus carefully before investing.
28
<PAGE>
Substitution of Investments
GIAC can substitute shares or units of another mutual fund or unit
investment trust for shares of a Fund or the Trust if: (a) it is determined that
a Fund or the Trust no longer suits the purposes of the Policies due to a change
in its investment objectives or restrictions; (b) the shares or units of a Fund
or the Trust are no longer available for investment; or (c) in GIAC's view it
has become inappropriate to continue investing in the shares or units of a Fund
or the Trust. Before effecting a substitution, GIAC will obtain approval from
the SEC, the Delaware Insurance Department or such other regulatory authorities
as may be necessary.
An affected Policyowner may exchange a Policy for a fixed life insurance
policy in accordance with state insurance regulations if the Trust has been
terminated or ceases to have available units prior to its maturity date, or if
any Fund: (a) changes its investment adviser, or (b) makes material changes in
its investment objectives or restrictions. A Policyowner will be affected by
these events if he or she has allocated or transferred some or all of his or her
account value to the Trust or the applicable Fund when the event occurs.
GIAC will notify the affected Policyowners, in writing, if any such event
occurs and will describe the terms for an exchange. An affected Policyowner will
be able to exchange a Policy within 60 days of receiving such notice, or by the
effective date of the change, whichever is later. Exchanging a Policy may have
tax consequences.
THE REAL ESTATE ACCOUNT
The Real Estate Account is a separate account of GIAC that pursues its
objectives by investing in income-producing real estate (such as office
buildings, shopping centers or industrial properties), mortgage loans and other
real estate-related investments, including purchase-leasebacks. The Real Estate
Account seeks to: (a) preserve and protect its capital; (b) provide for the
compounding of income by reinvesting cash flow from investments; and (c) provide
for increases over time in the amount of such income through appreciation in the
value of its assets. There is no assurance that sufficient suitable investments
will be found for the Real Estate Account or that the Real Estate Account's
objectives will be attained.
The real estate-related investments of the Real Estate Account are primarily
managed on behalf of GIAC by O'Connor Realty Advisors Incorporated ("O'Connor
Realty"), a wholly owned subsidiary of J.W. O'Connor & Co., Inc. The Real Estate
Account pays O'Connor Realty an investment management fee at an annual rate of
1.0% of the average daily value of the Real Estate Account's real estate-related
assets.
GISC manages the Real Estate Account's investments in short- and medium-term
debt instruments. The Real Estate Account pays GISC an investment management fee
at an annual rate of 0.50% of the average daily value of these liquid assets.
Investment in the Real Estate Account involves significant risks. These
include the risk of fluctuating real estate values, the risk that the Real
Estate Account will not achieve sufficient geographic and functional
diversification to protect it against possible adverse performance by certain of
its real estate-related investments, and the risk that the appraised or
estimated values of the Real Estate Account's real estate-related investments
will not be realized upon their disposition. Presently, the Real Estate Account
owns real properties in a limited number of geographic locations, which places
it at a greater risk of being adversely affected by fluctuating property values
than an account which has acquired properties in a greater number of geographic
locations.
The Real Estate Account's real estate-related investments will generally not
be quickly convertible into cash on commercially reasonable terms. Accordingly,
the Real Estate Account should be viewed only as a long-term investment option.
Additionally, GIAC has reserved the right to defer payment of any Policy
benefits (other than
29
<PAGE>
the Guaranteed Insurance Amount) that are funded by the Real Estate Account for
a period of up to six months, and imposes restrictions on transfers out of the
Real Estate Account.
The Real Estate Account is also available for investment under certain
variable annuity contracts issued by GIAC. The Real Estate Account may not be
available in all states.
The accompanying prospectus for the Real Estate Account includes its
financial statements and describes its investment objectives, policies,
risks and restrictions. The Real Estate Account is not subject to the
requirements of the Investment Company Act of 1940. Read the prospectus
carefully before investing.
30
<PAGE>
OTHER INFORMATION
Management of GIAC
The names of GIAC's directors and officers and a brief statement of each
person's business experience for the past five years appears below. Unless
otherwise noted, the business address for these individuals is 201 Park Avenue
South, New York, New York 10003.
The directors and officers of GIAC are named below together with
information about their principal occupations and affiliations during the past
five years. The business address of each director and officer is 201 Park Avenue
South, New York, New York 10003. The "Guardian Fund Complex" referred to in the
biographical information is comprised of (1) The Guardian Stock Fund, (2) The
Guardian Bond Fund, (3) The Guardian Cash Fund, (4) The Park Avenue Portfolio (a
series trust that issues its shares in six series) and (5) GBG Funds, Inc. (a
series fund that issues its shares in two series).
Name Title Business History
---- ----- ----------------
CHARLES E. ALBERS Vice President, Senior Vice President, The
Equity Securities Guardian Life Insurance Company
of America 1/91 - present; Vice
President prior thereto.
Executive Vice President of
Guardian Investor Services
Corporation and Guardian Asset
Management Corporation. Officer
of four mutual funds within the
Guardian Fund Complex.
MICHELE S. BABAKIAN Vice President Vice President, Fixed Income
Securities, The Guardian Life
Insurance Company of America
1/95 - present; Second Vice
President prior thereto. Vice
President of Guardian Asset
Management Corporation, Guardian
Investor Services Corporation
and three mutual funds within
the Guardian Fund Complex.
JOSEPH A. CARUSO Secretary Vice President and Corporate
Secretary, The Guardian Life
Insurance Company of America
3/96 - present; Second Vice
President and Corporate
Secretary 1/95 - 2/96; Corporate
Secretary 10/92 - 12/94;
Assistant Secretary 1/91-10/92;
Manager, Board Relations prior
thereto. Secretary, Guardian
Investor Services Corporation,
Guardian Asset Management
Corporation, Guardian Baillie
Gifford Limited and five mutual
funds within the Guardian Fund
Complex.
PEGGY L. COPPOLA Assistant Assistant Vice President, GISC
Vice President Agency Division, The Guardian
Life Insurance Company of
America 3/96 - present;
Director, GISC Agency Division
4/94 - 2/96; Manager, GISC
Agency Division prior thereto.
Assistant Vice President,
Guardian Investor Services
Corporation.
31
<PAGE>
Name Title Business History
---- ----- ----------------
KAREN DICKINSON Assistant Secretary Assistant Secretary, The
and Secretary Pro Guardian Life Insurance Company
Tem of America, Guardian Investor
Services Corporation and five
mutual funds within the Guardian
Fund Complex.
PHILIP H. DUTTER Director Management Consultant
(self-employed). Director of The
Guardian Life Insurance Company
of America 3/88 - present.
Director of Guardian Investor
Services Corporation.
JOHN M. EMANUELE Treasurer Treasurer, The Guardian Life
Insurance Company of America
1/84 - present. Treasurer of
Guardian Investor Services
Corporation.
JOHN M. FAGAN Vice President Vice President, Life Policy
Operations, The Guardian Life
Insurance Company of America
3/92 - present; Vice President,
Equity Administration prior
thereto. Vice President of
Guardian Investor Services
Corporation.
ARTHUR V. FERRARA Director Retired. Chairman of the Board
and Chief Executive Officer, The
Guardian Life Insurance Company
of America 1/93 - 12/95;
President and Chief Executive
Officer prior thereto. Director
1/81 - present. Director
(Trustee) of Guardian Investor
Services Corporation and five
mutual funds within the Guardian
Fund Complex.
RODOLFO E. FIDELINO, Chief Medical Vice President and Chief Medical
M.D. Director Director, The Guardian Life
Insurance Company of America
1/92 - present. Vice President
and Medical Director, Security
Benefit Life prior thereto.
CHARLES G. FISHER Vice President Second Vice President and
and Actuary Actuary, The Guardian Life
Insurance Company of America
12/86 - present.
WILLIAM C. FRENTZ Vice President, Vice President, Real Estate, The
Real Estate Guardian Life Insurance Company
of America 1/85 - present.
LEO R. FUTIA Director Retired. Former Chairman of the
Board and Chief Executive
Officer, The Guardian Life
Insurance Company of America;
Director 5/70 - present.
Director (Trustee) of Guardian
Investor Services Corporation
and five mutual funds within the
Guardian Fund Complex. Director
(Trustee) of various mutual
funds sponsored by Value Line,
Inc.
32
<PAGE>
Name Title Business History
---- ----- ----------------
ALEXANDER M. GRANT, JR. Second Vice Assistant Vice President,
President Investments, The Guardian Life
Insurance Company of America
9/93 - present; Investment
Officer prior thereto. Second
Vice President, Guardian
Investor Services Corporation.
Officer of three mutual funds
within the Guardian Fund
Complex.
RAYMOND J. HENRY Second Vice Second Vice President, Fixed
President Income Securities, The Guardian
Life Insurance Company of
America 1/94 - present;
Assistant Vice President prior
thereto.
THOMAS R. HICKEY, JR. Vice President, Vice President, Equity
Operations Operations, The Guardian Life
Insurance Company of America
3/92 - present; Second Vice
President and Equity Counsel
prior thereto. Vice President,
Guardian Investor Services
Corporation. Vice President of
five mutual funds within the
Guardian Fund Complex.
PETER L. HUTCHINGS Director Executive Vice President and
Chief Financial Officer, The
Guardian Life Insurance Company
of America 5/87 - present.
Director of Guardian Investor
Services Corporation and
Guardian Asset Management
Corporation.
PAUL IANNELLI Assistant Vice Assistant Equity Controller, The
President Guardian Life Insurance Company
of America 4/94 - present;
Manager, Equity Accounting prior
thereto. Assistant Controller,
Guardian Investor Services
Corporation.
RYAN W. JOHNSON Vice President and Second Vice President, Equity
National Sales Sales, The Guardian Life
Director Insurance Company of America
3/95 - present; Regional Sales
Director for Equity Products,
Western Division, prior thereto.
FRANK J. JONES Executive Vice Executive Vice President and
President, Chief Investment Officer, The
Chief Investment Guardian Life Insurance Company
Officer and of America 1/94 - present;
Director Senior Vice President and Chief
Investment Officer 8/91 - 12/93.
First Vice President, Director
of Global Fixed Income Research
and Economics, Merrill Lynch &
Co. prior thereto. Director,
Guardian Investor Services
Corporation, Guardian Baillie
Gifford Limited and Guardian
Asset Management Corporation.
Officer of three mutual funds
within the Guardian Fund
Complex.
33
<PAGE>
Name Title Business History
---- ----- ----------------
EDWARD K. KANE Senior Vice Senior Vice President and
President, General General Counsel, The Guardian
Counsel and Life Insurance Company of
Director America 1/83 - present; Director
11/88 - present. Senior Vice
President, General Counsel and
Director, Guardian Investor
Services Corporation. Director,
Guardian Asset Management
Corporation.
ANN T. KEARNEY Second Vice Second Vice President, Group
President Pensions, The Guardian Life
Insurance Company of America
1/95 - present; Assistant Vice
President and Equity Controller
6/94 - 12/94; Assistant
Controller prior thereto.
Controller of five mutual funds
within the Guardian Fund
Complex.
GARY B. LENDERINK Vice President, Vice President, Group Pensions,
Group Pensions The Guardian Life Insurance
Company of America 1/95 -
present; Second Vice President
prior thereto.
PAUL PARENTEAU Assistant Vice Director, Variable Products
President Administration, The Guardian
Life Insurance Company of
America 1/94 - present; Manager,
Variable Annuity Administration
prior thereto.
FRANK L. PEPE Vice President Vice President and Controller,
and Controller Equity Products, The Guardian
Life Insurance Company of
America 1/96 - present; Second
Vice President and Controller,
Equity Products prior thereto.
Vice President and Controller of
Guardian Investor Services
Corporation. Officer of five
mutual funds within the Guardian
Fund Complex.
RICHARD T. POTTER, JR. Vice President Vice President and Equity
and Counsel Counsel, The Guardian Life
Insurance Company of America
1/96 - present; Second Vice
President and Equity Counsel
1/93 - 12/95; Counsel 1/92 -
12/92. Vice President-Counsel,
Home Life Insurance Com pany
prior thereto. Vice President
and Counsel of Guardian Investor
Services Corporation. Counsel of
Guardian Asset Management
Corporation and five mutual
funds within the Guardian Fund
Complex.
JOSEPH D. SARGENT President, Chief President, Chief Executive
Executive Officer Officer and Director, The
and Director Guardian Life Insurance Company
of America 1/96 - present;
President 1/93 - 12/95;
Executive Vice President prior
thereto; Director 1/93- present.
Chairman of the Board of
Guardian Investor Services
Corporation, Guardian Asset
Management Corporation and five
mutual funds within the Guardian
Fund Complex. Director of
Guardian Baillie Gifford
Limited.
34
<PAGE>
Name Title Business History
---- ----- ----------------
JOHN M. SMITH Executive Executive Vice President, The
Vice President Guardian Life Insurance Company
and Director of America 1/95 - present;
Senior Vice President, Equity
Products prior thereto.
President and Director, Guardian
Investor Services Corporation
and Guardian Asset Management
Corporation. President, GBG
Funds, Inc. Director, Guardian
Baillie Gifford Limited.
DONALD P. SULLIVAN, JR. Vice President Second Vice President, The
Guardian Life Insurance Company
of America 1/95-present;
Assistant Vice President prior
thereto. Vice President of
Guardian Investor Services
Corporation.
WILLIAM C. WARREN Director Retired. Dean Emeritus, Columbia
Law School. Former Chairman of
the Board, Sandoz, Inc.;
Director of The Guardian Life
Insurance Company of America
since 1/57 and Director of
Guardian Investor Services
Corporation.
No officer or director of GIAC receives any compensation from the Account.
No separately allocable compensation has been paid by GIAC, or any of its
affiliates, to any person listed above for services rendered to the Account.
State Regulation
GIAC is subject to the laws of the state of Delaware governing insurance
companies and to regulation by Delaware's Commissioner of Insurance (the
"Commissioner"). In addition, it is subject to the insurance laws and
regulations of the other states and jurisdictions in which it is licensed. An
annual statement in a prescribed form, including a separate statement with
respect to the operations of GIAC's separate accounts, must be filed with the
Commissioner and with regulatory authorities of other states on or before March
1st in each year. This statement covers GIAC's operations for the preceding year
and its financial condition as of December 31st of that year. GIAC's affairs are
subject to review and examination conducted by the Commissioner at least once in
every five years.
Guardian Life, GIAC's corporate parent, is subject to the laws of the State
of New York governing insurance companies and to regulation by the
Superintendent of Insurance of New York. Similarly, it is subject to the
insurance laws and regulations of the other states and jurisdictions in which it
is licensed to operate and is required to submit annual statements in the form
described above to New York and to the other states and jurisdictions. Its
affairs are subject to review and examination by the Superintendent of Insurance
of New York and his agents at all times, and a full examination is made at least
once in every five years.
Legal Proceedings
There are no legal proceedings pending to which the Account is a party
which would materially affect the Account.
Legal Matters
The legal validity of the Policies described in this Prospectus has been
passed upon by Richard T. Potter, Jr., Vice President and Equity Counsel of
Guardian Life and Vice President and Counsel of GIAC.
35
<PAGE>
Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC on behalf of the Account relating to the Policies described in this
Prospectus. This Prospectus does not include all of the information set forth in
the Registration Statement, as portions have been omitted pursuant to the rules
and regulations of the SEC. The omitted information may be obtained at the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
Independent Accountants
Price Waterhouse, LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as independent accountants for the Account and for GIAC.
Experts
Actuarial matters included in this Prospectus have been examined by Charles
G. Fisher, F.S.A., Second Vice President and Actuary of Guardian Life and Vice
President and Actuary of GIAC. His opinion appears as an exhibit to the
Registration Statement for the Account filed with the SEC.
Financial Statements
The financial statements of the Account and GIAC are set forth in this
Prospectus. The financial statements of GIAC should be distinguished from the
financial statements of the Account and should be considered only as bearing
upon the ability of GIAC to meet its obligations under a Policy.
36
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
Assets
Investments in:
The Guardian Stock Fund, Inc. (3,246,707 shares at net asset value of $34.72 per share;
LIFO Cost, $69,111,388).................................................................... $112,725,664
The Guardian Bond Fund, Inc. (2,414,510 shares at net asset value of $12.25 per share;
LIFO Cost, $29,670,024).................................................................... 29,577,753
The Guardian Cash Fund, Inc. (4,470,665 shares at net asset value of $10.00 per share;
which equals cost)......................................................................... 44,706,637
Baillie Gifford International Fund, Inc. (771,014 shares at net asset value of $15.37 per
share; LIFO Cost, $9,876,920).............................................................. 11,850,481
Value Line Centurion Fund, Inc. (3,084,782 shares at net asset value of $24.25 per share;
LIFO Cost, $42,066,257).................................................................... 74,805,974
Value Line Strategic Asset Management Trust (1,233,854 shares at net asset value of
$20.27 per share; LIFO Cost, $14,137,860).................................................. 25,010,240
Smith Barney Fund of Stripped ("Zero") U.S. Treasury Securities, Series A:
2004 Trust (12,236,676 units at unit value of $.6126; LIFO Cost, $3,631,881)............... 7,496,187
------------
Total Assets.................................................................................... 306,172,936
------------
Liabilities
Due to The Guardian Insurance & Annuity Company, Inc............................................ 365,576
------------
Net Assets-- Note 4................................................................................. $305,807,360
============
</TABLE>
See notes to financial statements.
37
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income:
Income:
Reinvested dividends ......... $ 7,659,873 $ 2,578,648 $ 1,774,450 $ 2,478,072
Expenses:-- Note 3
Mortality and expense risk
charges ..................... 1,550,245 529,940 153,576 232,823
------------ ------------ ------------ ------------
Net Investment income/
(expense) ..................... 6,109,628 2,048,708 1,620,874 2,245,249
------------ ------------ ------------ ------------
Realized and Unrealized Gain/
(Loss) From investments:
Realized gain/(loss)
from investments:
Net realized gain/(loss)
from sale of
investments ................ 5,961,186 543,943 13,619 --
Reinvested realized gain
distributions .............. 6,137,653 3,764,569 -- --
------------ ------------ ------------ ------------
Net realized gain/(loss) on
investments ................ 12,098,839 4,308,512 13,619 --
------------ ------------ ------------ ------------
Unrealized appreciation/
(depreciation) of investments:
End of year ................ 92,971,957 43,614,272 (92,272) --
Beginning of year .......... 45,567,543 21,374,190 (3,184,215) --
------------ ------------ ------------ ------------
Change in unrealized
appreciation/
(depreciation) ............. 47,404,414 22,240,082 3,091,943 --
------------ ------------ ------------ ------------
Net realized and unrealized
gain/(loss) from
investments .................. 59,503,253 26,548,594 3,105,562 --
------------ ------------ ------------ ------------
Net Increase (Decrease) in
Net Assets Resulting
From Operations ............... $ 65,612,881 $ 28,597,302 $ 4,726,436 $ 2,245,249
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Value Line
Strategic
Baillie Gifford Value Line Asset Smith Barney Fund
International Centurion Management 1995 2004
Fund Fund Trust Trust Trust
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Income:
Reinvested dividends ......... $ 213,616 $ 302,532 $ 312,555 $ -- $ --
Expenses:-- Note 3
Mortality and expense risk
charges ..................... 66,058 350,012 118,662 51,747 47,427
------------ ------------ ------------ ------------ ------------
Net Investment income/
(expense) ..................... 147,558 (47,480) 193,893 (51,747) (47,427)
------------ ------------ ------------ ------------ ------------
Realized and Unrealized Gain/
(Loss) From investments:
Realized gain/(loss)
from investments:
Net realized gain/(loss)
from sale of
investments ................ 46,147 198,063 440,995 4,276,887 441,532
Reinvested realized gain
distributions .............. 486,566 1,694,177 192,341 -- --
------------ ------------ ------------ ------------ ------------
Net realized gain/(loss) on
investments ................ 532,713 1,892,240 633,336 4,276,887 441,532
------------ ------------ ------------ ------------ ------------
Unrealized appreciation/
(depreciation) of investments:
End of year ................ 1,973,564 32,739,717 10,872,368 1 3,864,307
Beginning of year .......... 1,522,968 13,358,358 6,144,609 3,809,525 2,542,108
------------ ------------ ------------ ------------ ------------
Change in unrealized
appreciation/
(depreciation) ............. 450,596 19,381,359 4,727,759 (3,809,524) 1,322,199
------------ ------------ ------------ ------------ ------------
Net realized and unrealized
gain/(loss) from
investments .................. 983,309 21,273,599 5,361,095 467,363 1,763,731
------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in
Net Assets Resulting
From Operations ............... $ 1,130,867 $ 21,226,119 $ 5,554,988 $ 415,616 $ 1,716,304
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
38
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994 -- (Continued)
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income:
Income
Reinvested dividends .......... $ 5,058,795 $ 1,178,629 $ 1,854,709 $ 1,847,395
Expenses:
Mortality and expense risk
charges-- Note 3 ............. 1,404,40 423,587 164,423 244,807
------------ ------------ ------------ ------------
Net Investment income/
(expense) ...................... 3,654,388 755,042 1,690,286 1,602,588
------------ ------------ ------------ ------------
Realized and Unrealized Gain/
(Loss) From investments:
Realized gain/(loss)
from investments:
Net realized gain/(loss)
from sale of
investments ................. (116,036) 270,244 (61,100) --
Reinvested realized gain
distribution ................ 3,661,626 2,655,954 164,821 --
------------ ------------ ------------ ------------
Net realized gain/(loss) on
investments ................. 3,545,590 2,926,198 103,721 --
------------ ------------ ------------ ------------
Unrealized appreciation/
(depreciation) of investments:
End of year ................. 45,567,543 21,374,190 (3,184,215) --
Beginning of year ........... 57,940,332 26,593,795 (53,935) --
------------ ------------ ------------ ------------
Change in unrealized
appreciation/
(depreciation) .............. (12,372,789) (5,219,605) (3,130,280) --
Net realized and unrealized gain/
(loss) from investments ....... (8,827,199) (2,293,407) (3,026,559) --
------------ ------------ ------------ ------------
Net Increase in Net Assets
Resulting From Operations ....... $ (5,172,811) $ (1,538,365) $ (1,336,273) $ 1,602,588
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Value Line
Strategic
Baillie Gifford Value Line Asset Smith Barney Fund
International Centurion Management 1995 2004
Fund Fund Trust Trust Trust
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Income
Reinvested dividends .......... $ 135,878 $ 29,222 $ 12,962 $ -- $ --
Expenses:
Mortality and expense risk
charges-- Note 3 ............. 82,123 281,055 112,619 60,478 35,315
------------ ------------ ------------ ------------ ------------
Net Investment income/
(expense) ...................... 53,755 (251,833) (99,657) (60,478) (35,315)
------------ ------------ ------------ ------------ ------------
Realized and Unrealized Gain/
(Loss) From investments:
Realized gain/(loss)
from investments:
Net realized gain/(loss)
from sale of
investments ................. (116,103) (753,304) (115,704) 199,643 460,288
Reinvested realized gain
distribution ................ -- 789,002 51,849 -- --
------------ ------------ ------------ ------------ ------------
Net realized gain/(loss) on
investments ................. (116,103) 35,698 (63,855) 199,643 460,288
------------ ------------ ------------ ------------ ------------
Unrealized appreciation/
(depreciation) of investments:
End of year ................. 1,522,968 13,358,358 6,144,609 3,809,525 2,542,108
Beginning of year ........... 1,566,697 15,081,453 7,346,814 3,868,247 3,537,261
------------ ------------ ------------ ------------ ------------
Change in unrealized
appreciation/
(depreciation) .............. (43,729) (1,723,095) (1,202,205) (58,722) (995,153)
Net realized and unrealized gain/
(loss) from investments ....... (159,832) (1,687,397) (1,266,060) 140,921 (534,865)
------------ ------------ ------------ ------------ ------------
Net Increase in Net Assets
Resulting From Operations ....... $ (106,077) $ (1,939,230) $ (1,365,717) $ 80,443 $ (570,180)
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
39
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS -- (Continued)
Year Ended December 31, 1993
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income:
Income
Reinvested dividends ......... $ 5,607,075 $ 1,798,173 $ 1,884,181 $ 1,063,905
Expenses:
Mortality and expense risk
charges-- Note 3 ............ 1,458,715 451,449 181,513 204,446
------------ ------------ ------------ ------------
Net Investment income/
(expense) ..................... 4,148,360 1,346,724 1,702,668 859,459
------------ ------------ ------------ ------------
Realized and Unrealized Gain/
(Loss) From investments:
Realized gain/(loss)
from investments:
Net realized gain/(loss)
from sale of
investments ................ 2,217,280 885,592 264,684 --
Reinvested realized gain
distribution ............... 14,821,135 2,925,360 1,350,872 --
------------ ------------ ------------ ------------
Net realized gain/(loss) on
investments ................ 17,038,415 3,810,952 1,615,556 --
------------ ------------ ------------ ------------
Unrealized appreciation/
(depreciation) of investments:
End of year ................ 57,940,332 26,593,795 (53,935) --
Beginning of year .......... 47,753,809 16,528,978 (9,100) --
------------ ------------ ------------ ------------
Change in unrealized
appreciation/
(depreciation) ............. 10,186,523 10,064,817 (44,835) --
------------ ------------ ------------ ------------
Net realized and unrealized
gain/(loss) from
investments .................. 27,224,938 13,875,769 1,570,721 --
------------ ------------ ------------ ------------
Net Increase in Net Assets
Resulting From Operations ...... $ 31,373,298 $ 15,222,493 $ 3,273,389 $ 859,459
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Value Line Value Line
Strategic U.S. Shearson Lehman
Value Line Asset Government Brothers
Centurion Management Securities 1995 2004
Fund Fund Trust Trust Trust
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Income
Reinvested dividends ......... $ 137,597 $ 346,725 $ 376,494 $ -- $ --
Expenses:
Mortality and expense risk
charges-- Note 3 ............ 35,187 361,702 117,602 63,074 43,742
------------ ------------ ------------ ------------ ------------
Net Investment income/
(expense) ..................... 102,410 (14,977) 258,892 (63,074) (43,742)
------------ ------------ ------------ ------------ ------------
Realized and Unrealized Gain/
(Loss) From investments:
Realized gain/(loss)
from investments:
Net realized gain/(loss)
from sale of
investments ................ (19,958) 491,493 74,427 171,154 349,888
Reinvested realized gain
distribution ............... -- 9,798,761 746,142 -- --
------------ ------------ ------------ ------------ ------------
Net realized gain/(loss) on
investments ................ (19,958 10,290,254 820,569 171,154 349,888
------------ ------------ ------------ ------------ ------------
Unrealized appreciation/
(depreciation) of investments:
End of year ................ 1,566,697 15,081,453 7,346,814 3,868,247 3,537,261
Beginning of year .......... (275,311) 19,442,943 5,898,679 3,454,308 2,713,312
------------ ------------ ------------ ------------ ------------
Change in unrealized
appreciation/
(depreciation) ............. 1,842,008 (4,361,490) 1,448,135 413,939 823,949
------------ ------------ ------------ ------------ ------------
Net realized and unrealized
gain/(loss) from
investments .................. 1,822,050 5,928,764 2,268,704 585,093 1,173,837
------------ ------------ ------------ ------------ ------------
Net Increase in Net Assets
Resulting From Operations ...... $ 1,924,460 $ 5,913,787 $ 2,527,596 $ 522,019 $ 1,130,095
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN SEPARATE ACCOUNT B
COMBINED STATEMENT OF CHANGES IN NET ASSETS -- (Continued)
Year Ended December 31, 1995
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1995 Increase/(Decrease) from
Operations
Net Investment income/
(expense) .................... $ 6,109,628 $ 2,048,708 $ 1,620,874 $ 2,245,249
Net realized gain/(loss)
from sale of
investments .................. 5,961,186 543,943 13,619 --
Reinvested realized gain
distribution .............. 6,137,653 3,764,569 -- --
Change in unrealized
appreciation/(depreciation)
of investments: ............. 47,404,414 22,240,082 3,091,943 --
------------- ------------- ------------- -------------
Net increase/(decrease)
resulting from
operations ............... 65,612,881 28,597,302 4,726,436 2,245,249
------------- ------------- ------------- -------------
Policy Transactions
Transfer of net premium ....... 1,570,563 -- -- 1,570,563
Transfer of net policy loading
-- Note 3 ................. (1,807,580) (591,667) (210,121) (268,589)
Transfer on account of death .. (1,210,643) (293,016) (109,850) (161,839)
Transfer on account of other
terminations ............. (13,405,656) (3,635,329) (1,367,200) (2,637,495)
Transfer of policy loans ...... (6,267,392) (2,066,899) (575,033) (1,827,324)
Transfer of cost of insurance--
Note 3 ................... (3,943,588) (1,301,517) (430,935) (695,556)
Transfer between/within
separate accounts ........ (30,718) 10,000,468 (3,323,432) (4,905,192)
Transfers-- other ............. (958,339) (1,631) 34 7,133
------------- ------------- ------------- -------------
Net increase/(decrease) from
policy transactions ......... (26,053,353) 2,110,409 (6,016,537) (8,918,299)
------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net
Assets ........................ 39,559,528 30,707,711 (1,290,101) (6,673,050)
Net Assets at
December 31, 1994 ........... 266,247,832 81,969,013 30,854,278 51,130,786
------------- ------------- ------------- -------------
Net Assets at December 31,
1995-- Note 4 ................. $ 305,807,360 $ 112,676,724 $ 29,564,177 $ 44,457,736
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset Smith Barney Fund
International Centurion Management 1995 2004
Fund Fund Trust Trust Trust
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1995 Increase/(Decrease) from
Operations
Net Investment income/
(expense) .................... $ 147,558 $ (47,480) $ 193,893 $ (51,747) $ (47,427)
Net realized gain/(loss)
from sale of
investments .................. 46,147 198,063 440,995 4,276,887 441,532
Reinvested realized gain
distribution .............. 486,566 1,694,177 192,341 -- --
Change in unrealized
appreciation/(depreciation)
of investments: ............. 450,596 19,381,359 4,727,759 (3,809,524) 1,322,199
------------- ------------- ------------- ------------- -------------
Net increase/(decrease)
resulting from
operations ............... 1,130,867 21,226,119 5,554,988 415,616 1,716,304
------------- ------------- ------------- ------------- -------------
Policy Transactions
Transfer of net premium ....... -- -- -- -- --
Transfer of net policy loading
-- Note 3 ................. (88,076) (402,193) (156,479) (47,856) (42,599)
Transfer on account of death .. (29,411) (447,269) (129,354) -- (39,904)
Transfer on account of other
terminations ............. (473,765) (3,305,581) (1,369,269) (256,554)
Transfer of policy loans ...... (318,127) (1,219,306) (255,149) 5,345 (10,899)
Transfer of cost of insurance--
Note 3 ................... (148,709) (889,773) (321,807) (84,250) (71,041)
Transfer between/within
separate accounts ........ (3,370,606) 6,951,518 859,950 (7,949,994) 1,706,570
Transfers-- other ............. 629 4,225 (145,930) (301,047) (521,752)
------------- ------------- ------------- ------------- -------------
Net increase/(decrease) from
policy transactions ......... (4,428,065) 691,621 (1,518,038) (8,634,356) 659,912
------------- ------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net
Assets ........................ (3,297,198) 21,917,740 4,036,950 (8,218,740) 2,376,216
Net Assets at
December 31, 1994 ........... 15,141,621 52,856,222 20,962,628 8,218,740 5,114,544
------------- ------------- ------------- ------------- -------------
Net Assets at December 31,
1995-- Note 4 ................. $ 11,844,423 $ 74,773,962 $ 24,999,578 -- $ 7,490,760
============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
41
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN SEPARATE ACCOUNT B
COMBINED STATEMENT OF CHANGES IN NET ASSETS -- (Continued)
Year Ended December 31, 1994
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1994 Increase/(Decrease) from
Operations
Net Investment income/
(expense) ..................... $ 3,654,388 $ 755,042 $ 1,690,286 $ 1,602,588
Net realized gain/(loss)
from sale of
investments ................ (116,036) 270,244 (61,100) --
Reinvested realized gain
distribution ............... 3,661,626 2,655,954 164,821 --
------------- ------------- ------------- -------------
Change in unrealized
appreciation/(depreciation)
of investments: .............. (12,372,789) (5,219,605) (3,130,280) --
------------- ------------- ------------- -------------
Net increase/(decrease)
resulting from operations .... (5,172,811) (1,538,365) (1,336,273) 1,602,588
------------- ------------- ------------- -------------
Policy transactions
Transfer of net premium ........ 4,506,566 -- -- 4,506,566
Transfer of policy loading--
Note 3 ....................... (1,586,252) (536,523) (257,298) (58,776)
Transfer of account death ...... (1,786,367) (296,179) (240,689) (162,011)
Transfer on account of other
terminations ................. (6,998,604) (2,004,945) (922,898) (1,556,825)
Transfer of policy loans ....... (5,493,729) (1,279,015) (626,452) (1,988,252)
Transfer of cost of insurance --
Note 3 ....................... (3,629,368) (1,094,377) (478,007) (619,659)
Transfer between/within
separate accounts ............ 96,554 (722,430) 844,484 4,349,980
Transfers-- other .............. 4,611 (14,094) 4,060 14,084
------------- ------------- ------------- -------------
Net increase/(decrease) from
policy transactions .......... (14,886,589) (5,947,563) (1,676,800) 4,385,107
------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net
Assets ......................... (20,059,400) (7,485,928) (3,013,073) 5,987,695
Net Assets at
December 31, 1993 ............ 286,307,232 89,454,941 33,867,351 45,143,091
------------- ------------- ------------- -------------
Net Assets at December 31,
1994-- Note 4 ................. $ 266,247,832 $ 81,969,013 $ 30,854,278 $ 51,130,786
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset Smith Barney Fund
International Centurion Management 1995 2004
Fund Fund Trust Trust Trust
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1994 Increase/(Decrease) from
Operations
Net Investment income/
(expense) ..................... $ 53,755 $ (251,833) $ (99,657) $ (60,478) $ (35,315)
Net realized gain/(loss)
from sale of
investments ................ (116,103) (753,304) (115,704) 199,643 460,288
Reinvested realized gain
distribution ............... -- 789,002 51,849 -- --
------------- ------------- ------------- ------------- -------------
Change in unrealized
appreciation/(depreciation)
of investments: .............. (43,729) (1,723,095) (1,202,205) (58,722) (995,153)
------------- ------------- ------------- ------------- -------------
Net increase/(decrease)
resulting from operations .... (106,077) (1,939,230) (1,365,717) 80,443 (570,180)
------------- ------------- ------------- ------------- -------------
Policy transactions
Transfer of net premium ........ -- -- -- -- --
Transfer of policy loading--
Note 3 ....................... (103,315) (391,853) (152,842) (54,621) (31,024)
Transfer of account death ...... (46,426) (841,212) (149,325) (41,433) (9,092)
Transfer on account of other
terminations ................. (251,130) (1,526,189) (321,867) (318,398) (96,352)
Transfer of policy loans ....... 22,759 (957,015) (349,582) (206,378) (109,794)
Transfer of cost of insurance --
Note 3 ....................... (184,060) (781,132) (318,788) (93,285) (60,060)
Transfer between/within
separate accounts ............ 3,058,344 (6,659,326) (779,838) 403,833 (298,493)
Transfers-- other .............. 2,671 (5,240) 4,047 -- (917)
------------- ------------- ------------- ------------- -------------
Net increase/(decrease) from
policy transactions .......... 2,498,843 (11,161,967) (2,068,195) (310,282) (605,732)
------------- ------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net
Assets ......................... 2,392,766 (13,101,197) (3,433,912) (229,839) (1,175,912)
Net Assets at
December 31, 1993 ............ 12,748,855 65,957,419 24,396,540 8,448,579 6,290,456
------------- ------------- ------------- ------------- -------------
Net Assets at December 31,
1994-- Note 4 ................. $ 15,141,621 $ 52,856,222 $ 20,962,628 $ 8,218,740 $ 5,114,544
============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
42
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN SEPARATE ACCOUNT B
COMBINED STATEMENT OF CHANGES IN NET ASSETS -- (Continued)
Year Ended December 31, 1993
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1993 Increase/(Decrease) from
Operations
Net Investment income/
(expense) ...................... $ 4,148,360 $ 1,346,724 $ 1,702,668 $ 1,602,588
Net realized gain/(loss)
from sale of
investments ................. 2,217,280 885,592 264,684 --
Reinvested realized gain
distribution ................ 14,821,135 2,925,360 1,350,872 --
Change in unrealized
appreciation/(depreciation)
of investments: ............... 10,186,523 10,064,817 (44,835) --
------------- ------------- ------------- -------------
Net increase/(decrease) resulting
from operations ............... 31,373,289 15,222,493 3,273,389 859,459
------------- ------------- ------------- -------------
Policy transactions
Transfer of net premium ......... 2,985,779 -- -- 2,985,779
Transfer of policy loading--
Note 3 ........................ (1,768,707) (557,602) (293,013) (145,231)
Transfer of account death ....... (1,522,510) (505,572) (376,470) (119,401)
Transfer on account of other
terminations .................. (5,262,395) (874,286) (952,842) (1,705,006)
Transfer of policy loans ........ (5,4646,680) (1,498,743) (963,559) (1,098,665)
Transfer of cost of insurance --
Note 3 ........................ (3,513,803) (1,046,819) (493,457) (511,202)
Transfer between/within separate
accounts ...................... (426,958) 971,366 (2,624,585) (1,680,129)
Transfers-- other ............... 21,472 11,732 (165) 2,633
------------- ------------- ------------- -------------
Net increase/(decrease) from
policy transactions ........... (15,133,802) (3,499,924) (5,704,091) (2,271,222)
------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net
Assets .......................... 16,239,496 11,722,569 (2,430,702) (1,411,763)
Net Assets at
December 31, 1992 ............. 270,067,736 77,732,372 36,298,053 46,554,854
------------- ------------- ------------- -------------
Net Assets at December 31, 1993
--Note 4 ........................ $ 286,307,232 $ 89,454,941 $ 33,867,351 $ 45,143,091
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset Smith Barney Fund
International Centurion Management 1995 2004
Fund Fund Trust Trust Trust
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1993 Increase/(Decrease) from
Operations
Net Investment income/
(expense) ...................... $ 859,459 $ 102,410 $ (14,977) $ (63,074) $ (43,742)
Net realized gain/(loss)
from sale of
investments ................. (19,958) 491,493 74,427 171,154 349,888
Reinvested realized gain
distribution ................ -- 9,798,761 746,142 -- --
Change in unrealized
appreciation/(depreciation)
of investments: ............... 1,842,008 (4,361,490) 1,448,135 413,939 823,949
------------- ------------- ------------- ------------- -------------
Net increase/(decrease) resulting
from operations ............... 1,924,460 5,913,787 2,527,596 522,019 1,130,095
------------- ------------- ------------- ------------- -------------
Policy transactions
Transfer of net premium ......... -- -- -- -- --
Transfer of policy loading--
Note 3 ........................ (42,107) (472,966) (159,372) (60,626) (37,790)
Transfer of account death ....... -- (413,374) (67,460) (40,233) --
Transfer on account of other
terminations .................. (54,130) (1,071,028) (391,138) (86,143) (136,822)
Transfer of policy loans ........ (2,111) (1,233,797) (507,027) (258,934) (83,844)
Transfer of cost of insurance --
Note 3 ........................ (71,892) (932,288) (299,999) (92,515) (65,631)
Transfer between/within separate
accounts ...................... 8,119,365 (7,615,717) 2,465,876 75,056 (138,190)
Transfers-- other ............... 4,536 (1,249) 3,813 1,782 (1,610)
------------- ------------- ------------- ------------- -------------
Net increase/(decrease) from
policy transactions ........... 7,962,661 (11,740,419) 1,044,693 (461,613) (463,887)
------------- ------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net
Assets .......................... 9,887,121 (5,826,632) 3,572,289 60,406 666,208
Net Assets at
December 31, 1992 ............. 2,861,734 71,784,051 20,824,251 8,388,173 5,624,248
------------- ------------- ------------- ------------- -------------
Net Assets at December 31, 1993
--Note 4 ........................ $ 12,748,855 $ 65,957,419 $ 24,396,540 $ 8,448,579 $ 6,290,456
============= ============= ============= ============= =============
</TABLE>
43
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note 1 -- Organization
The Guardian Separate Account B (the Account) of The Guardian Insurance &
Annuity Company, Inc. (GIAC) is a unit investment trust registered under the
Investment Company Act of 1940, as amended. GIAC established the Account as a
separate investment account on November 16, 1984. The Account commenced
operations on June 28, 1985. The Account currently comprises eight investment
divisions which invest in the shares of certain mutual funds and unit investment
trusts. GIAC, a wholly owned subsidiary of The Guardian Life Insurance Company
of America (Guardian Life), issues the single premium variable life insurance
policies offered through the Account. GIAC provides for variable accumulations
and benefits under the policies by crediting the net premium payments or policy
loan repayments to one or more investment divisions established within the
Account or to The Guardian Real Estate Account (GREA), as selected by the
policyowner. GREA is another separate investment account established by GIAC.
The policyowner also has the ability to transfer his or her policy value among
the investment divisions within the Account and GREA. Six of the investment
divisions of the Account invest in shares of one of the following mutual funds:
The Guardian Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc. (GBF), The
Guardian Cash Fund, Inc. (GCF), Baillie Gifford International Fund (BGIF), Value
Line Centurion Fund, Inc. and Value Line Strategic Asset Management Trust
(collectively, the Funds and individually, a Fund). The Account's two other
investment divisions purchase units in the Smith Barney Fund of Stripped
("Zero") U.S. Treasury Securities, Series A (SB Fund) and are designated as the
1995 Trust and the 2004 Trust (collectively, the Trusts and individually, a
Trust).
GSF, GBF and GCF each has an investment advisory agreement with Guardian
Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF has an
investment advisory agreement with Guardian Baillie Gifford Ltd., a joint
venture company formed by GIAC and Baillie Gifford Overseas Ltd.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
Changes in net assets maintained in the Account provide the basis for the
periodic determination of benefits under the policies. The net assets are
sufficient to fund the amount required under state insurance law to provide for
death benefits (without regard to the policy's minimum death benefit guarantee)
and other policy benefits. Additional assets are held in GIAC's general account
to cover the contingency that a policy's guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee.
Note 2 -- Significant Accounting Policies
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Proceeds from the sale of single premium variable life insurance policies
are invested by the Account's investment divisions in shares of the
corresponding Funds or Trusts at net asset value. All distributions made by a
Fund are reinvested in shares of the same Fund.
44
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (Continued)
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of their close of business on the
valuation date.
(c) The market value of the investments in the Trusts is determined by
Standard & Poor's Corporation (the Evaluator) on the basis of current offering
bid prices for the securities, if available, current prices for comparable
securities, the value of the securities as determined by appraisal, or any
combination of the foregoing.
(d) Investment transactions are accounted for on the trade date and income is
recorded on the ex-dividend date.
(e) The cost of investments sold is determined on a last in, first out (LIFO)
basis.
During the years ended December 31, 1995 and December 31, 1994,
purchases of shares of the Funds by the Account aggregated $87,204,118 and
$92,975,188, respectively, and purchases of units of the Trusts by the Account
aggregated $2,877,798 and $1,612,687, respectively. Aggregate Account sales of
shares of the Funds during the years ended December 31, 1995 and December 31,
1994 amount ed to $95,365,642 and $101,419,559, respectively and sales of units
of the Trusts amounted to $10,922,094 and $2,628,017, respectively.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
Note 3 -- Administrative and Mortality and Expense Risk Charges
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts from each policy a daily charge from
the net assets of the Account which, on an annual basis, is equal to a rate of
.50% of a policy's account value. GIAC pays all transaction charges to Smith
Barney Inc. on the sale of Trust units to the Account and deducts a daily asset
charge against the assets of each Trust for reimbursement of these transaction
charges. The asset charge is currently equivalent to an effective annual rate of
.25% of the daily unit value of each Trust.
GIAC deducts certain charges from the single premium which are known as
"policy loading". The policy loading includes sales and administrative expenses,
state premium taxes and a risk charge for the guaranteed minimum death benefit.
The gross single premium paid by a policyowner is allocated to the Account or
The Guardian Real Estate Account on the policy date and becomes the policy's
account value. Thereafter, allocated policy loading is subtracted from a
policy's account value in equal yearly installments at the beginning of the
second through the eleventh policy years.
In addition, GIAC also makes a monthly charge for the cost of life
insurance, based on the face value of the policyowner's insurance in force, as
compensation for the anticipated cost of paying death benefits.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
In the event of a material change in applicable state or local tax laws, GIAC
reserves the right to charge the Account for such taxes attributable to the
Account.
45
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 4 -- Net Assets, December 31, 1995
At December 31, 1995, net assets of the Account were as follows:
Accumulation of Annual Premium Variable Life Insurance
Policyowners' Accounts $301,239,999
Owned by GIAC 4,567,361
-----------
$305,807,360
===========
The amount retained by GIAC in the Account comprises amounts which GIAC
allocated to the Account to facilitate the commencement of its operations,
unamortized allocated policy loading (see Note 3), and amounts accruing to GIAC
from the operations of the Account and retained therein. Amounts retained by
GIAC in the Account in excess of unamortized allocated policy loading of
$4,567,361 at December 31, 1995 may be transferred by GIAC to its general
account.
In some instances the calculation of total assets may not agree due to
rounding.
46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of The
Guardian Insurance & Annuity Company, Inc.
and Policyowners of The Guardian Separate Account B, "Value Plus"
In our opinion, the accompanying statement of assets and liabilities and the
related combined statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the investment
divisions relating to Guardian Stock Fund, Guardian Bond Fund, Guardian Cash
Fund, Baillie Gifford International Fund, Value Line Centurion Fund, Value Line
Strategic Asset Management Trust, Smith Barney Fund 1995 Trust and Smith Barney
Fund 2004 Trust (constituting The Guardian Separate Account B, "Value Plus",
hereafter referred to as the "Separate Account") at December 31, 1995, and the
results of each of their operations and changes in each of their net assets for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the management
of The Guardian Insurance & Annuity Company, Inc.; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
February 23, 1996
47
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS
===============================================================================================================
December 31,
----------------------------------
1995 1994
---- ----
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1995-- $415,119,363; 1994-- $332,580,514)................ $ 405,213,799 $ 349,574,401
Affiliated money market fund, at market, which approximates cost.... 2,633,939 2,492,635
Investment in subsidiary............................................ 7,604,442 7,305,908
Policy loans-- variable life insurance.............................. 63,842,200 59,319,920
Investment in joint venture......................................... 44,418 51,221
Cash and short-term investments..................................... 17,983,654 4,442,493
Accrued investment income receivable................................ 9,771,251 8,339,330
Due from parent and affiliates...................................... 2,982,854 1,989,409
Other assets........................................................ 9,932,726 7,591,680
Receivable from separate accounts................................... 3,543,010 4,359,809
Variable annuity and EISP/CIP separate account assets............... 4,174,493,377 3,132,332,691
Variable life separate account assets............................... 311,173,536 269,585,495
------------- -------------
TOTAL ADMITTED ASSETS............................................ $5,009,219,206 $3,847,384,992
============= =============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves........................................... $ 300,059,252 $ 239,394,355
Fixed immediate reserves.......................................... 4,966,569 5,627,157
Life reserves..................................................... 22,502,664 21,353,994
Minimum death benefit guarantees.................................. 1,171,951 1,549,213
Policy loan collateral fund reserve............................... 61,798,105 57,224,423
Accrued expenses, taxes & commissions.................................. 1,250,797 867,435
Due to parent and affiliates........................................... 16,288,804 11,781,592
Other liabilities (including deferred tax)............................. 13,715,162 9,187,431
Asset valuation reserve................................................ 9,341,353 5,229,909
Variable annuity and EISP/CIP separate account liabilities............. 4,129,376,222 3,094,929,496
Variable life separate account liabilities............................. 306,870,400 262,659,454
------------- -------------
TOTAL LIABILITIES................................................. 4,867,341,279 3,709,804,459
============= =============
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........................................ 2,479,635 (1,817,759)
------------- -------------
141,877,927 137,580,533
------------- -------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS...................... $5,009,219,206 $3,847,384,992
============= =============
</TABLE>
See notes to financial statements.
48
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
========================================================================================================
Year Ended December 31,
---------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Premiums and annuity considerations:
Variable annuity ................................... $ 566,644,345 $ 668,146,802 $ 709,523,708
Life-- variable and level term ..................... 12,647,143 29,135,648 4,789,739
Fixed annuity ...................................... 63,455,538 58,851,539 55,272,748
Net investment income ................................ 36,293,598 27,909,606 22,726,013
Amortization of IMR .................................. 257,380 542,157 378,621
Service fees ......................................... 50,593,228 38,805,312 30,388,678
Variable life-- cost of insurance .................... 4,232,564 3,828,702 3,628,039
Net benefit of reinsurance ceded ..................... (18,138,690) 2,448,774 7,650,605
Other income ......................................... 8,187,301 7,200,339 4,762,342
------------- ------------- -------------
724,172,407 836,868,879 839,120,493
------------- ------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Death benefits ..................................... 7,671,355 3,727,449 2,667,399
Annuity benefits ................................... 330,248,710 233,591,876 196,231,910
Surrender benefits ................................. 18,434,505 9,882,392 8,188,767
Increase in reserves ............................... 65,017,032 82,752,551 50,659,936
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ...................... 252,764,129 448,425,833 531,986,941
Variable life ...................................... (17,784,281) (8,822,426) (8,746,188)
Commissions .......................................... 34,364,742 45,602,891 38,089,532
General insurance expenses ........................... 25,925,336 15,096,689 14,702,540
Taxes, licenses and fees ............................. 2,477,492 2,731,840 1,510,060
------------- ------------- -------------
719,119,020 832,989,095 835,290,897
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME
TAXES AND REALIZED GAINS
FROM INVESTMENTS .............................. 5,053,387 3,879,784 3,829,596
Provision for federal income taxes (benefits) ........ 439,667 601,468 1,889,716
------------- ------------- -------------
INCOME (LOSS) BEFORE REALIZED
GAINS FROM INVESTMENTS ........................ 4,613,720 3,278,316 1,939,880
Realized gains from investments, net of federal income
taxes, net of transfer to IMR ...................... 342,455 (2,232) 131,711
------------- ------------- -------------
NET INCOME ...................................... $ 4,956,175 $ 3,276,084 $ 2,071,591
============= ============= =============
</TABLE>
See notes to financial statements.
49
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
===============================================================================================================
Special and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 .................. $ 2,000,000 $ 137,398,292 $ (6,407,408) $ 132,990,884
------------- ------------- ------------- -------------
Net income from operations ..................... 2,071,591 2,071,591
Increase in unrealized appreciation of Company's
investment in separate accounts, net of
applicable taxes ............................ 3,164,752 3,164,752
Increase in unrealized appreciation of
Company's investment in joint venture ....... 178,539 178,539
Increase in unrealized appreciation of
Company's investment in subsidiary .......... 56,002 56,002
Decrease in non-admitted assets ................ 53,396 53,396
Net increase in asset valuation reserve ........ (8,291) (8,291)
Provision for Guaranty Association
Assessments ................................. (92,211) (92,211)
------------- ------------- ------------- -------------
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
Increase in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes ..................... (527,471) (527,471)
Increase 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
Disallowed interest maintenance reserve ........ (1,124,268) (1,124,268)
Decrease in non-admitted assets ................ 5,818 5,818
Net decrease 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
Increase 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
Disallowed interest maintenance reserve ........ 143,080 143,080
Increase in non-admitted assets ................ (7,078) (7,078)
Net decrease 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
============= ============= ============= =============
</TABLE>
See notes to financial statements.
50
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW
==========================================================================================================
Year Ended December 31,
---------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premium and annuity considerations ..................... $ 634,983,490 $ 732,848,313 $ 770,326,214
Investment income ...................................... 35,916,075 26,625,996 24,134,387
Service fees ........................................... 47,345,894 35,502,165 26,155,952
Variable life cost of insurance ........................ 4,196,060 3,825,865 3,612,218
Net benefit of reinsurance ceded ....................... (16,860,850) 15,996,575 4,068,302
Claims and annuity benefits ............................ (351,544,810) (247,055,539) (206,970,151)
Commissions ............................................ (32,903,591) (37,186,792) (38,002,664)
General insurance expenses ............................. (21,641,468) (15,895,233) (13,863,833)
Taxes, licences and fees ............................... (1,883,881) (2,896,965) (1,028,249)
Net transfers to separate accounts ..................... (227,981,221) (436,829,701) (521,601,186)
Federal income tax (excluding tax on capital gains) .... (1,737,654) (1,217,735) 1,372,898
Increase in policy loans ............................... (4,522,280) (6,527,387) (4,691,084)
Other sources (applications) ........................... 8,193,634 10,477,284 6,381,750
------------- ------------- -------------
NET CASH PROVIDED BY INSURANCE
ACTIVITIES ...................................... 71,559,398 77,666,846 49,894,554
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities .... 62,404,716 150,649,968 107,412,956
Purchases of investment securities ..................... (118,543,796) (231,132,415) (153,772,748)
Net proceeds from short-term investments ............... -- -- 2,459,000
Investment in joint venture ............................ -- -- --
(Increase) decrease in investments in separate account . (100,000) (950,000) (1,800,000)
Federal income tax on capital gains .................... 1,173,020 (1,538,101) (846,813)
Amount due to/(from) broker ............................ (2,952,177) (1,926,825) 4,590,573
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES ............. (58,018,237) (84,897,373) (41,957,032)
------------- ------------- -------------
Cash flows from financing activities:
Capital contributed by parent .......................... -- -- --
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES ........................................... -- -- --
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH ...................... 13,541,161 (7,230,527) 7,937,522
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR ................................. 4,442,493 11,673,020 3,735,499
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD ..................................... $ 17,983,654 $ 4,442,493 $ 11,673,021
============= ============= =============
</TABLE>
See notes to financial statements.
51
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
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 (Guardian Life). 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 adviser under the Investment Adviser's Act
of 1940. GISC is the distributor and underwriter for GIAC's variable products,
and is the investment adviser to certain mutual funds sponsored by GIAC which
are investment options for the variable products.
Insurance Separate Accounts: The Company has established eleven insurance
separate accounts primarily to sup port 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 contract holders. In addition, cer tain
variable annu ity and variable life insurance contract holders may invest in The
Guardian Real Estate Ac count. Participating interests in the real estate
account are registered under the Securities Act of 1933. Of these separate
accounts the Company maintains two sepa rate accounts whose sole purpose is to
fund certain employee benefits plans of Guardian Life.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabili ties 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 pri marily at the market value of the underlying investments
and corresponding contract holders obligations.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on the basis of ac counting practices prescribed or permitted
by the Insurance Department of the State of Delaware. Such practices are con
sidered generally accepted accounting principles for mutual life insurance
companies and their wholly owned stock life insurance subsidiaries domiciled in
Delaware.
In 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 gen erally accepted accounting principles for mutual life insurance
companies. Under the Interpretation, financial statements of mutual life
insurance companies for periods beginning after December 15, 1995, which are
prepared on the basis of sta tutory accounting, will no longer be characterized
as in conformity with generally accepted accounting principles. At that time,
financial statements of mutual life insurance
52
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
companies would have to apply all applicable authoritative GAAP accounting
pronouncements in order to describe the financial statements as prepared in
"conformity with generally accepted accounting principles."
Management has not yet finalized the effect on its December 31, 1995
financial statements of applying the new Inter pretation nor whether it will
continue to present its general purpose financial statements in conformity with
the sta tutory basis of accounting or adopt the accounting changes required in
order to present its financial statements in con formity with generally accepted
accounting principles. However, management believes that adopting the accounting
changes required to present its financial statements in accordance with
generally accepted accounting principles would re sult in higher reported
equity. The effect of the changes would be reported retroactively through
restatement of all previously issued financial statements beginning with the
earliest year presented.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures estab lished by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments car
ried at market are recorded directly to unassigned surplus. Realized gains and
losses on disposition of investments are determined by the specific
identification method.
Bonds: Bonds are valued principally at amortized cost.
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
re ceived from GISC are recorded as investment income and amounted to $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 invest ments having maturities at the date of
purchase of six months or less. Market values for such investments approximate
carrying value.
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: The NAIC requires adoption of an asset valuation
reserve (AVR) and interest maintenance reserve (IMR). The AVR establishes
reserves for certain categories of invested assets. The purpose of this reserve
is to sta bilize policyholders' surplus from credit related gains and losses on
investments. Changes in AVR are recorded directly to un assigned surplus. The
IMR applies to fixed income investments and establishes a reserve for realized
capital gains and losses, net of tax, which result from changes in interest
rates. Such net realized gains and losses are deferred and amortized into
investment income over the life of the investments sold. When, in aggregate,
realized losses exceed realized gains, the net realized loss is reclassified as
a non-admitted asset with a corresponding charge to surplus.
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 and a fixed rate option that is offered to
variable annu ity contractowners. The fixed annuity contracts are no longer
offered by the Company. The estimated fair value of con tract holder 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
1995 and 1994 was 5.75% and 5.75%, respectively. The interest rates credited on
the
53
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
fixed rate option offered to certain variable annuity contractowners ranged from
5.00% to 5.25% during 1995. For the fixed rate option currently issued, the
issue and renewal interest rates credited varies from month to month and ranged
from 5.50% to 5.20% in 1995. Fixed immediate reserves are a liability with in
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 benefits 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.
The preparation of financial statements in conformity with statutory
accounting practices requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
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,
1995 and 1994 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $84,575 and $77,498, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on vari able life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also includes service fees from the separate accounts consisting
of mortality and expense charges, annual administration fees, charges for the
cost of term insurance related to variable life policies and penalties for early
with drawals. Service fees were not charged on separate account assets of $117.7
million and $105.5 million at December 31, 1995 and 1994, respectively, which
represent investments in Guardian Life's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently tax able, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the appli
cable 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 1995 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
Guardian Life. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In
54
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
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.
The Company records directly to unassigned surplus federal income taxes
attributable to the taxable portion of un realized appreciation on its seed
capital in the separate accounts. These income taxes will be recognized in
operations upon withdrawal of these capital contributions. The taxable portion
of unrealized appreciation amounted to $1,209,000, $590,000 and $871,000 at
December 31, 1995, 1994 and 1993, respectively.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1995, 1994 and 1993 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 1,768,688 $ 1,357,924 $ 1,340,359
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... 337,668 141,295 (277,137)
DAC Tax ........................................ 666,260 1,575,953 1,819,878
Dividend from subsidiary ....................... (2,345,000) (1,715,000) (1,015,000)
Other-- net .................................... 12,051 (758,704) 21,616
----------- ----------- -----------
Provision for Federal Income Taxes (Benefits) ..... $ 439,667 $ 601,468 $ 1,889,716
=========== =========== ===========
</TABLE>
The provision for federal income taxes includes deferred taxes of $304,923
in 1995, $99,120 in 1994 and $283,571 in 1993 applicable to the difference
between the tax basis and the financial statement basis of recording investment
in come relating to accrued market discount.
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Fixed maturities .................. $25,795,915 $19,949,553 $18,104,573
Affiliated money market funds ..... 130,729 84,083 51,072
Subsidiary ........................ 6,700,000 4,900,000 2,900,000
Policy loans ...................... 2,847,532 2,547,670 2,296,794
Short-term investments ............ 1,181,215 622,391 269,175
Joint venture dividend ............ 684,306 789,867 --
----------- ----------- -----------
37,339,697 28,893,564 23,621,614
Less investment expenses .......... 1,046,099 983,959 895,601
----------- ----------- -----------
Net Investment Income ............. $36,293,598 $27,909,605 $22,726,013
=========== =========== ===========
55
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
Net realized gains, less applicable federal income taxes and transfer to
IMR, are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Realized capital gains (losses) .......... $ 1,323,447 $(3,994,716) $ 3,170,154
----------- ----------- -----------
Federal income tax expense (benefit):
Current .................................. 622,821 (1,110,135) 1,253,371
Deferred ................................. (42,290) (248,068) (123,690)
----------- ----------- -----------
Total Federal income tax expense (benefit) 580,531 (1,358,203) 1,129,681
----------- ----------- -----------
Transfer to IMR ............................. 400,461 (2,634,280) 1,908,762
----------- ----------- -----------
Net Realized Gains (Losses) ................. $ 342,455 $ (2,233) $ 131,711
=========== =========== ===========
</TABLE>
The increase in unrealized appreciation (depreciation) on fixed maturity
securities was $17,129,267, $(23,246,030) and $120,062 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The market values of bonds are based on quoted prices as available. For
certain private placement debt securities where quoted market prices are not
available, fair value is estimated by management using adjusted market prices
for like securities.
The cost and estimated market values of investments by major investment
category at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------
Estimated
Unrealized Unrealized Market
Cost Gain Loss 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 7,379,556 717,644 311,064,522
Common stocks ............................ 12,032,231 -- 1,793,850 10,238,381
------------ ------------ ------------ ------------
$417,246,030 $ 10,624,805 $ 2,513,093 $425,357,742
============ ============ ============ ============
</TABLE>
56
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------
Estimated
Unrealized Unrealized Market
Cost Gain Loss Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations of
U.S. government corporations and
agencies .............................. $ 45,385,889 $ 140,979 $ 2,176,046 $ 43,350,822
Obligations of states and political
subdivisions .......................... 15,383,160 37,245 241,430 15,178,975
Debt securities issued by foreign
governments ........................... 8,100,499 -- 503,504 7,596,995
Corporate debt securities ................ 280,704,853 44,168 14,295,299 266,453,722
Common stocks ............................ 11,890,926 -- 2,092,384 9,798,542
------------ ------------ ------------ ------------
$361,465,327 $ 222,392 $ 19,308,663 $342,379,056
============ ============ ============ ============
</TABLE>
At December 31, 1995, the amortized cost and estimated market value of
debt securities, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
Estimated
Amortized Market
Cost Value
------------- -------------
Due in one year or less.................... $ 56,986,877 $ 57,324,698
Due after one year through five years...... 238,553,324 242,364,605
Due after five years through ten years..... 41,900,535 44,642,381
Due after ten years........................ 34,405,999 36,306,163
------------- -------------
371,846,735 380,637,847
Sinking fund bonds
(including Collateralized
Mortgage Obligations)................... 33,367,064 34,481,514
------------- -------------
$ 405,213,799 $ 415,119,361
============= =============
During 1995, proceeds from sales of investments in debt securities were
$62,404,716 and gross gains of $993,944 and losses of $377,851 were realized on
these sales.
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with Guardian Life and outside parties to provide for
reinsurance of selected variable annuity contracts and group life and individual
life policies. Under the terms of these agreements, reserves related to the
reinsured business and corresponding assets are held by the Company.
The effect of these agreements on the components of the gain from
operations have been combined in the accompanying statements of operations. The
components of this benefit (loss) are as follows:
57
<PAGE>
<TABLE>
<CAPTION>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
Year Ended December 31
(Amounts in 000's)
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Premiums and annuity considerations ............... $ (37,789) $(147,055) $(286,831)
Deposit - type funds .............................. (3,423) (10,577) (15,966)
Commissions and reinsurance expense allowances .... 10,058 19,542 19,885
Policy and contract claims ........................ 55,109 60,720 52,753
Surrender benefits and other fund withdrawals ..... 774 -- --
Reserve adjustments on reinsurance ceded .......... (32,193) 84,062 241,226
Increase in aggregate reserve for life and accident
and health policies ............................. 11,914 16,350 --
--------- --------- ---------
Net income from reinsurance ceded ....... $ 4,450 $ 23,042 $ 11,067
========= ========= =========
</TABLE>
The Company has entered into a modified coinsurance agreement with
Guardian Life. The net benefit (loss) of reinsurance ceded to Guardian Life
under this agreement totaled ($18,138,690), $2,448,774 and $7,650,605 in 1995,
1994 and 1993 respectively.
The reinsurance contracts do not relieve the Company of its primary
obligation for policyowner benefits.
NOTE 6 -- Reinsurance Assumed
The Company entered into a coinsurance agreement with a non-affiliated
under writer. The Company assumed 100% of certain life and disability income
policies. Premiums include $7,153,623 and $21,545,974 in 1995 and 1994,
respectively, related to policies covered under this agreement. NOTE 7 --
Related Party Transactions
A portion of the Company's business is produced by the registered
representatives of the Guardian Investor Ser vi ces Corporation (GISC), a wholly
owned subsidiary of the Company. During 1995, 1994 and 1993, premium and annu i
ty considerations produced by GISC amounted to $400,148,692, $482,872,000 and
$494,873,000, respectively. The re lated commissions paid to GISC amounted to
$1,409,708, $1,709,799 and $1,738,613 for 1995, 1994 and 1993, respectively.
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. The Company's most
recent contributions to GREA were made in December 1993, July 1994 and October
1994 when $1,800,000, $400,000 and $550,000 respectively were invested. At
December 31, 1995 GIAC maintained 37% ownership of GREA.
A portion of the Company's separate account assets are invested in
affiliated mutual funds. These funds con sist of The Guardian Park Avenue Fund,
The Guardian Bond Fund, The Guardian Stock Fund, and The Guardian Cash Fund.
Each of these funds has an investment advisory agreement with GISC. The
investments as of December 31, 1995 and 1994 are as follows:
58
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
1995 1994
---- ----
The Guardian Park Avenue Fund..... $ 214,919,292 $ 174,246,222
The Guardian Bond Fund............ 374,461,581 308,983,625
The Guardian Stock Fund........... 1,615,270,799 1,038,929,284
The Guardian Cash Fund............ 356,820,089 386,985,749
-------------- --------------
$2,561,471,761 $1,909,144,880
============== ==============
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
regis tered in both the United Kingdom and the United States to act as an
investment adviser for the Baillie Gifford Inter national Fund (the
International Fund) and the Baillie Gifford Emerging Markets Fund (the Emerging
Markets Fund). 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 was $334,281,959 and
$309,678,696 as of December 31, 1995 and 1994, respectively.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1995 and 1994 this
amounted to $2,633,939 and $2,492,635, respectively.
The Company is billed quarterly by Guardian Life for all compensation and
related employee benefits for those em ployees of Guardian Life who are engaged
in the Company's business and for the Company's use of Guardian Life's cen
tralized services and agency force. The amounts charged for these services
amounted to $23,613,359 in 1995, $13,225,062 in 1994 and $12,702,470 in 1993,
and, in the opinion of management, were considered appropriate for the services
rendered.
NOTE 8 -- Separate Accounts
The following represents a reconciliation of net transfers from GIAC to
the separate accounts: Transfers as reported in the Summary of Operations of the
Separate Account Statement:
1995 1994
---- ----
Transfers to separate accounts ............ $ 582,715,569 $ 688,657,147
Transfers from separate accounts .......... (398,346,503) (288,606,548)
------------- -------------
Net transfers to (from) separate accounts . 184,369,066 400,050,599
------------- -------------
Reconciling Adjustments:
Mortality & expense guarantees-- Annuity .. 41,474,872 31,629,838
Mortality & expense guarantees-- VLI ...... 1,571,955 1,341,318
Administrative fees-- VA only ............. 3,331,391 2,752,950
Cost of collection-- VLI .................. 4,232,564 3,828,702
------------- -------------
Total adjustments ......................... 50,610,782 39,552,808
------------- -------------
Transfers as reported in the Summary of
Operations of GIAC ...................... $ 234,979,848 $ 439,603,407
============= =============
59
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 -- Continued
NOTE 9-- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
Year Ending 1995 Year Ending 1994
------------------------ ------------------------
Amount % Amount %
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ......... -- --
at book value less current surrender
charge of 5% or more .............. -- --
at market value ...................... -- --
total with adjustment or at
market value ...................... -- --
at book value without adjustment
(minimal or no charge or
adjustment) ........................ $300,107,673 78.08 $239,437,798 74.56
Not subject to discretionary withdrawal 84,263,477 21.92 81,703,584 25.44
------------ -------- ------------ --------
Total (gross) .......................... 384,371,150 100.00 321,141,382 100.00
Reinsurance ceded ...................... -- --
------------ -------- ------------ --------
Total .................................. $384,371,150 100.00% $321,141,382 100.00%
============ ======== ============ ========
</TABLE>
This does not include $4,046,768,087 of non-guaranteed annuity reserves
held in separate accounts, and $1,500,869 in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
In our opinion, the accompanying balance sheets and related statements of
operations, of changes in common stock and surplus and of cash flows present
fairly, in all material respects, the financial position of The Guardian
Insurance & Annuity Company, Inc. at December 31, 1995 and 1994, and the results
of its operations and its cash flows for the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles
(practices prescribed or permitted by insurance regulatory authorities, see Note
2). These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
February 9, 1996
61
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate the way in which death benefits and cash
values under the Policy change with the investment experience of the Account's
investment divisions. The tables assume that no part of the account value is
allocated to the Real Estate Account. The tables are based on the following
additional assumptions:
1. The illustration on page 64 is for a Policy issued to a male age 5 in the
standard underwriting class with a single premium of $5,000 and a Guaranteed
Insurance Amount of $46,116.
2. The illustration on page 65 is for a Policy issued to a male age 25 in
the standard underwriting class with a single premium of $20,000 and a
Guaranteed Insurance Amount of $98,848.
3. The illustration on page 66 is for a Policy issued to a male age 40 in
the standard underwriting class with a single premium of $25,000 and a
Guaranteed Insurance Amount of $76,470.
4. The illustration on page 67 is for a Policy issued to a female age 55 in
the standard underwriting class with a single premium of $50,000 and a
Guaranteed Insurance Amount of $113,608.
The tables show how the death benefit and cash value for each illustration
may vary over an extended period of time assuming hypothetical rates of return
(i.e., investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross annual rates of 0%, 6% and 12%. The death benefit
and cash value for a Policy would be different from those shown if the actual
rates of return averaged 0%, 6% and 12% over a period of years, but fluctuated
above or below those averages during individual Policy months or years. Death
benefits and cash values would also differ if loans were outstanding at any time
during the periods illustrated.
The amounts illustrated in the tables for the death benefit and cash value
are calculated as of the end of each Policy year. These amounts take into
account the deductions made from the single premium and the cost of life
insurance and reflect a daily charge assessed against the Account for mortality
and expense risks equivalent to an effective annual charge of .50%. (See
"Charges Deducted from the Premium" and "Charges Under the Policy.") These
amounts also take into account the current mortality adjustment factors and
assume their current level throughout the periods illustrated. (This adjustment,
however, is subject to increase or decrease after the first Policy year, as more
fully described under "Underwriting.") The illustrations assume that the
Policy's account value is allocated equally among the seven investment divisions
of the Account and that Policyowners are not limited to selecting four or fewer
investment options. The illustrated amounts also reflect (i) the average of the
investment advisory fees charged against the Funds (equivalent to an annual rate
of 0.55% of the average daily net assets) and the average of the operating
expenses expected to be incurred by the Funds (at an annual rate of 0.19% of the
average daily net assets) and (ii) the average daily asset charge against the
Trust (currently equivalent to an effective annual rate of 0.25%). (This latter
charge, however, may be increased or decreased in the future but in no event
will it exceed an annual effective rate of 0.50%.) Based on the average of these
investment division fees, expenses and charges, the amounts illustrated herein
reflect an aggregate deduction of 0.65% each Policy year.
The illustrated gross annual investment rates of 0%, 6%, and 12% correspond
to approximate net annual rates of -1.15%, 4.85% and 10.85%, respectively, after
deduction of the charges mentioned above.
The hypothetical returns shown in the tables do not reflect any charges for
federal income taxes against the Account, since GIAC is not currently making
such charges. However, such charges may be made in the future and, in that
event, the gross annual rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the death
benefits and cash values illustrated (see "Possible Charge for GIAC Income
Taxes").
62
<PAGE>
The second column of each table shows the amount which would accumulate if
an amount equal to the single premium were invested to earn interest (after
taxes) at 5% compounded annually.
GIAC will furnish upon request a comparable illustration reflecting the
proposed insured's age, face amount and premium amount requested. The
illustration will assume that the proposed insured is classified either
preferred or standard.
63
<PAGE>
<TABLE>
<CAPTION>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$5,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $46,116
DEATH BENEFIT* CASH VALUE*
Value of Premium Assuming Hypothetical Gross (after Assuming Hypothetical Gross (after
End of Accumulated at Interest tax) Annual Investment Return of tax) Annual Investment Return of
Policy Year of 5% Per Year 0%** 6% 12% 0% 6% 12%
- --------- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 $46,116 $46,739 $ 49,707 $4,393 $ 4,691 $ 4,989
2 5,513 46,116 47,337 53,464 4,305 4,904 5,539
3 5,788 46,116 47,909 57,402 4,222 5,127 6,143
4 6,078 46,116 48,458 61,536 4,143 5,360 6,807
5 6,381 46,116 48,984 65,882 4,068 5,602 7,534
6 6,700 46,116 49,489 70,458 3,996 5,854 8,334
7 7,036 46,116 49,975 75,282 3,925 6,113 9,209
8 7,387 46,116 50,443 80,375 3,855 6,378 10,163
9 7,757 46,116 50,893 85,757 3,784 6,648 11,202
10 8,144 46,116 51,328 91,450 3,712 6,921 12,331
15 10,395 46,116 53,461 125,836 3,339 8,361 19,681
20 13,266 46,116 55,684 173,151 3,008 10,115 31,453
25 16,932 46,116 57,998 238,241 2,740 12,373 50,826
30 21,610 46,116 60,409 327,793 2,508 15,207 82,515
60 93,396 46,116 77,133 2,225,196 1,307 46,512 1,341,815
</TABLE>
* Assumes no Policy loan has been made.
** The death benefit can never be less than the Guaranteed Insurance Amount.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE
INVESTMENT RESULTS OF THE INVESTMENT OPTIONS TO WHICH AN OWNER ALLOCATES ACCOUNT
VALUE. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY GIAC OR THE FUNDS OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
64
<PAGE>
<TABLE>
<CAPTION>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$20,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $98,848
DEATH BENEFIT* CASH VALUE*
Value of Premium Assuming Hypothetical Gross (after Assuming Hypothetical Gross (after
End of Accumulated at Interest tax) Annual Investment Return of tax) Annual Investment Return of
Policy Year of 5% Per Year 0%** 6% 12% 0% 6% 12%
- --------- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 21,000 $98,848 $100,184 $ 106,542 $17,587 $18,778 $ 19,970
2 22,050 98,848 101,462 114,592 17,235 19,634 22,175
3 23,153 98,848 102,688 123,029 16,899 20,522 24,587
4 24,310 98,848 103,863 131,887 16,577 21,443 27,229
5 25,526 98,848 104,990 141,200 16,267 22,399 30,124
6 26,802 98,848 106,073 151,007 15,967 23,388 33,296
7 28,142 98,848 107,114 161,347 15,677 24,411 36,771
8 29,549 98,848 108,115 172,261 15,395 25,470 40,581
9 31,027 98,848 109,081 183,795 15,121 26,563 44,758
10 32,578 98,848 110,012 195,995 14,854 27,693 49,338
15 41,579 98,848 114,584 269,668 13,574 33,985 79,981
20 53,066 98,848 119,347 371,047 12,335 41,472 128,935
25 67,727 98,848 124,308 510,555 11,134 50,270 206,469
30 86,439 98,848 129,476 702,546 9,973 60,471 328,117
40 140,800 98,848 140,470 1,330,494 7,744 84,705 802,301
</TABLE>
* Assumes no Policy loan has been made.
** The death benefit can never be less than the Guaranteed Insurance Amount.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE
INVESTMENT RESULTS OF THE INVESTMENT OPTIONS TO WHICH AN OWNER ALLOCATES ACCOUNT
VALUE. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY GIAC OR THE FUNDS OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
65
<PAGE>
<TABLE>
<CAPTION>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$25,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $76,470
DEATH BENEFIT* CASH VALUE*
Value of Premium Assuming Hypothetical Gross (after Assuming Hypothetical Gross (after
End of Accumulated at Interest tax) Annual Investment Return of tax) Annual Investment Return of
Policy Year of 5% Per Year 0%** 6% 12% 0% 6% 12%
- --------- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $26,250 $76,470 $77,461 $ 82,329 $22,236 $23,726 $ 25,217
2 27,563 76,470 78,414 88,468 21,796 24,798 27,977
3 28,941 76,470 79,330 94,914 21,361 25,894 30,981
4 30,388 76,470 80,212 101,691 20,932 27,018 34,253
5 31,907 76,470 81,061 108,826 20,508 28,168 37,816
6 33,502 76,470 81,881 116,349 20,089 29,344 41,696
7 35,178 76,470 82,672 124,290 19,676 30,548 45,926
8 36,936 76,470 83,436 132,680 19,269 31,780 50,536
9 38,783 76,470 84,176 141,553 18,869 33,041 55,564
10 40,722 76,470 84,892 150,946 18,473 34,330 61,043
15 51,973 76,470 88,421 207,709 16,547 41,296 97,008
20 66,332 76,470 92,098 285,832 14,663 49,148 152,534
25 84,659 76,470 95,929 393,362 12,849 57,846 237,201
</TABLE>
* Assumes no Policy loan has been made.
** The death benefit can never be less than the Guaranteed Insurance Amount.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE
INVESTMENT RESULTS OF THE INVESTMENT OPTIONS TO WHICH AN OWNER ALLOCATES ACCOUNT
VALUE. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY GIAC OR THE FUNDS OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
66
<PAGE>
<TABLE>
<CAPTION>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$50,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $113,608
DEATH BENEFIT* CASH VALUE*
Value of Premium Assuming Hypothetical Gross (after Assuming Hypothetical Gross (after
End of Accumulated at Interest tax) Annual Investment Return of tax) Annual Investment Return of
Policy Year of 5% Per Year 0%** 6% 12% 0% 6% 12%
- --------- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $113,608 $115,048 $122,240 $44,584 $ 47,556 $ 50,529
2 55,125 113,608 116,436 131,299 43,562 49,531 55,853
3 57,881 113,608 117,775 140,818 42,564 51,553 61,640
4 60,775 113,608 119,066 150,835 41,592 53,630 67,939
5 63,814 113,608 120,313 161,391 40,645 55,760 74,798
6 67,005 113,608 121,519 172,526 39,722 57,946 82,269
7 70,355 113,608 122,685 184,285 38,818 60,185 90,403
8 73,873 113,608 123,814 196,715 37,931 62,469 99,251
9 77,566 113,608 124,909 209,867 37,053 64,790 108,858
10 81,445 113,608 125,970 223,793 36,182 67,142 119,282
15 103,946 113,608 131,209 307,971 31,958 79,649 186,951
20 132,665 113,608 136,666 423,834 27,961 93,601 290,280
25 169,318 113,608 142,352 583,344 24,006 107,944 442,344
</TABLE>
* Assumes no Policy loan has been made.
** The death benefit can never be less than the Guaranteed Insurance Amount.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE
INVESTMENT RESULTS OF THE INVESTMENT OPTIONS TO WHICH AN OWNER ALLOCATES ACCOUNT
VALUE. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY GIAC OR THE FUNDS OR THE TRUST
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
67
<PAGE>
OTHER IMPORTANT POLICY PROVISIONS
Policy Date
The Policy date is stated on page 3 of the Policy. Policy years, Policy
months, Policy anniversaries and monthly Policy dates are measured from the
Policy date.
Monthly Policy Date
The same day of each month as the Policy date or the last day of a calendar
month, if earlier (e.g., if the Policy date was the 30th day of a month, the
February monthly Policy date would fall on the 28th or the 29th).
Payment Options
The proceeds of this Policy will be paid in one lump sum unless otherwise
provided. All or part of this sum may be applied under any payment option, or in
any other manner GIAC approves.
Election of Payment Options
During the insured's lifetime, the Policyowner may choose any option for
payment of the death proceeds. If no election is in force when death or other
proceeds become payable, the payee may make an election subject to the following
conditions: (a) for death proceeds, election must be made within one year after
the insured's death; and (b) for other proceeds, election must be made within 60
days after the proceeds become payable.
Any payment option election must be in a written form satisfactory to GIAC.
Options Available
OPTION 1 -- Proceeds Left at Interest. GIAC will hold the proceeds, making
monthly interest payments. The yearly interest rate will be at least 3%. Any
additional interest will be determined yearly at GIAC's discretion and added to
the monthly payment.
OPTION 2 -- Payments of a Specified Amount. GIAC will make monthly payments
of a specified amount until the proceeds and interest are fully paid. The total
amount paid each year must be at least 10% of the original proceeds. Interest
will be added to the proceeds each year. The yearly interest rate will be at
least 3%. Any additional interest will be determined yearly at GIAC's
discretion.
OPTION 3 -- Payments for a Specified Period. GIAC will make monthly
payments for the number of years elected. The guaranteed payments shown in the
Option 3 table in the Policy include interest at 3% a year. Any additional
interest will be determined yearly at GIAC's discretion.
OPTION 4 -- Life Income with 10 Years Guaranteed. GIAC will make monthly
payments for 10 years and for the remaining lifetime of the person on whose life
the option is based. The minimum monthly payment will be based on the applicable
amount in the Option 4 table shown in the Policy.
OPTION 5 -- Refund Life Income. GIAC will make monthly payments until the
total amount paid equals the proceeds settled, and for the remaining lifetime of
the person on whose life the option is based. The minimum monthly payment will
be based on the applicable amount in the Option 5 table shown in the Policy.
OPTION 6 -- Joint and Survivor Income with 10 Years Guaranteed. GIAC will
make monthly payments for 10 years and for the remaining lifetime of either of
the two persons on whose lives the option is based. The monthly payment will be
at least the applicable amount shown in the Option 6 table in the Policy.
68
<PAGE>
Owner
The Policyowner is named in the application, or in any later change shown
in GIAC's records. While the insured is living, and subject to any assignment
shown on GIAC's records, the owner alone has the right to receive all benefits
and exercise all rights this Policy grants or GIAC allows.
Successor Owner. A numbered sequence may be used to name successor owners.
If the Policyowner dies, ownership passes to the next designated successor owner
then living. If none is then living, ownership passes to the last Policyowner's
estate. No successor owner is permitted when the insured and the Policyowner are
the same person.
Joint Owner. If more than one person is named with no number or the same
number, they are considered by GIAC to be joint owners. Any Policy transaction
requires the signatures of all persons named jointly. Unless otherwise provided,
if a joint owner dies, ownership passes to the surviving joint owner(s). When
the last joint owner dies, ownership passes to that person's estate, unless
otherwise provided.
Beneficiary
The beneficiary is named in the application, or in any later change shown
in GIAC's records. GIAC will pay the death proceeds to the beneficiary. Unless
otherwise provided, in order to receive proceeds at the insured's death, a
beneficiary must be living on the earlier of: (a) the date proof of the
insured's death is received at GIAC's Customer Service Office; or (b) the 15th
day after the insured's death.
Unless otherwise provided, if no designated beneficiary is living on such
earlier date, the owner or owner's estate is the beneficiary.
Contingent Beneficiary. A numbered sequence may be used to name contingent
beneficiaries. The beneficiary is the living person(s) designated by the lowest
number in the sequence.
Concurrent Beneficiary. If more than one person is named with no number or
the same number, they are concurrent beneficiaries. These persons, or the
survivor(s), share equally, unless otherwise provided. If a beneficiary of an
unequal share does not survive the insured, that beneficiary's share passes to
the owner or the owner's estate, unless otherwise provided.
Change of Policyowner or Beneficiary
The Policyowner may change the Policyowner or beneficiary by written
request satisfactory to GIAC. The change will take effect on the date the
request is signed, whether or not the insured is living when GIAC receives the
request at its Customer Service Office. However, the change will not apply to
any payments made or actions taken by GIAC before the request is received.
Error in Age or Sex
If the age or sex of the insured has been misstated, any benefit under this
Policy will be that which the premium would have purchased for the correct age
or sex.
Deferment
Benefit payments and transfers based on account value in the Account will
ordinarily be fully processed within seven days of receipt of the owner's
request. However, GIAC can delay the payment of death benefit proceeds if the
Policy is being contested and may postpone the calculation or payment of a
benefit or transfer of amounts based on the Account's investment performance if:
(a) the New York Stock Exchange is closed for trading or trading has
69
<PAGE>
been suspended; or (b) the SEC restricts trading or determines that a state of
emergency exists which may make payment or transfer impracticable.
Although GIAC reserves the right to defer the payment of Policy benefits
(other than the guaranteed death benefit) that are funded by the Real Estate
Account for up to six months, GIAC will ordinarily pay such benefits within
seven days of receipt of proper written request.
Payments to GIAC
All sums payable to GIAC are payable at its Customer Service Office, P.O.
Box 26210, Lehigh Valley, Pennsylvania 18002-6210. Registered, certified or
express mail should be sent to such office at 3900 Burgess Place, Bethlehem,
Pennsylvania 18017.
Assignment
No assignment will bind GIAC unless the original, or a copy, is filed at
its Customer Service Office. Afterward, the rights of any Policyowner or
beneficiary will be subject to the assignment. The entire Policy, including any
attached rider, will be subject to the assignment. GIAC will rely solely on the
assignee's statement as to the amount of the assignee's interest. GIAC will not
be responsible for the validity of any assignment. Unless otherwise provided,
the assignee may exercise all rights this Policy grants except: (a) the right to
change the Policyowner or beneficiary; and (b) the right to elect a payment
option.
Incontestability
This Policy will be incontestable after it has been in force during the
insured's lifetime for two years from its issue date.
Suicide Exclusion
If the insured commits suicide, while sane or insane, within two years from
the issue date, GIAC's liability will be limited to the premium paid.
Exchange of Another Life Insurance Contract for a Policy
A Policy applicant who owns another life insurance contract may wish to
exchange that contract (the "Original Contract") for a Policy. If the Original
Contract has not been treated as a modified endowment contract, the Policy
received in exchange for it may not be treated as a modified endowment contract
if a portion of the Original Contract's cash value (the "Rider Premium") is
applied to purchase a seven-year fixed-benefit level term insurance rider (the
"Term Rider") to the Policy.
If the Original Contract is a modified endowment contract, GIAC will not
issue a Term Rider with the Policy received in exchange for it. Without a Term
Rider, a Policy received in exchange for an Original Contract may be treated as
a modified endowment contract even though the Original Contract was not a
modified endowment contract prior to the exchange (see "Federal Tax
Considerations").
The Term Rider will be affixed to the Policy that is received in exchange
for the Original Contract, and its seven-year term will correspond to the first
seven (7) Policy years. The Term Rider Premium amount cannot be allocated to the
Account's investment divisions or the Real Estate Account since it is entirely
used to fund the level amount of insurance provided by the Term Rider. While it
is in force, the Term Rider has no effect on the Variable Insurance Amount under
a Policy.
70
<PAGE>
The Term Rider assures that the death benefit proceeds payable by GIAC will
at least equal the guaranteed death benefit provided by the Original Contract by
providing an additional guaranteed amount of insurance for the first seven (7)
Policy years. After the seventh Policy year, however, the Term Rider
automatically expires, and the guaranteed death benefit will decrease by the
face amount of the Term Rider to the Guaranteed Insurance Amount provided by the
Policy without the Term Rider. The magnitude of the decrease may be significant
and will vary depending on the age and sex of the insured. The Policy's Variable
Insurance Amount may or may not offset this reduction in coverage.
The Policy's cash value attributable to the Term Rider will equal the
present value of the future benefits that may be provided under the Term Rider
in the event of the insured's death while the Term Rider is in force. The cash
value attributable to the Term Rider will diminish to zero by the end of the
seventh Policy year. At that point there is no future benefit to be paid under
the Term Rider, as the coverage it provided will have expired. If the Policy is
surrendered before the end of the seventh Policy year, the then remaining cash
value attributable to the Term Rider will be included in the surrender proceeds
payable under the Policy. The Term Rider cannot be surrendered independently of
the Policy, and no partial withdrawals are permitted from the Term Rider. The
cash value attributable to the Term Rider will not be considered when
calculating the Policy's maximum loan value (see "Policy Loan").
THE TERM RIDER WILL ONLY BE ISSUED TO AN APPLICANT WHO WISHES TO ACQUIRE A
POLICY BY EXCHANGING A LIFE INSURANCE CONTRACT WHICH IS NOT A MODIFIED ENDOWMENT
CONTRACT. THE TERM RIDER MAY NOT BE AVAILABLE IN ALL STATES. A PROSPECTIVE
APPLICANT SHOULD CONSULT A COMPETENT TAX ADVISER BEFORE AUTHORIZING THE EXCHANGE
OF HIS OR HER CURRENT LIFE INSURANCE CONTRACT FOR A POLICY WITH A TERM RIDER.
71
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484
Under Article VIII of GIAC's By-Laws, as supplemented by Section 3.2 of
GIAC's Certificate of Incorporation, any past or present director or officer of
GIAC (including persons who serve at GIAC's request or for its benefit as
directors or officers of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise [hereinafter referred to
as a "Covered Person"]) is indemnified to the fullest extent permitted by law
against liability and all expenses reasonably incurred by such Covered Person in
connection with any action, suit or proceeding to which such Covered Person may
be a party or otherwise involved by reason of being or having been a Covered
Person. However, this provision does not protect a Covered Person against any
liability to either GIAC or its stockholder to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office. This provision does protect a director of GIAC against
any liability to GIAC or its stockholder for monetary damages or for breach of
fiduciary duty as a director of GIAC, except for liability (i) for any breach of
the director's duty of loyalty to GIAC or its stockholder, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 71 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
The signatures.
II-1
<PAGE>
Written opinions and/or consents of the following persons:
Richard T. Potter, Jr., Esq.
Charles G. Fisher, F.S.A.
Price Waterhouse LLP
The following exhibits:
1.A (1) Resolution of the Board of Directors of The Guardian Insurance
& Annuity Company, Inc. establishing The Guardian Separate
Account B.(1)
(2) Not Applicable.
(3) Distribution Contracts:
(a) Distribution and Service Agreement between The Guardian
Insurance & Annuity Company, Inc. and Guardian Investor
Services Corporation.(5)
(b) (i) Form of Sales Operations and General Agent
Agreement.(2)
(ii) Form of Broker-Dealer Supervisory and Service
Agreement.(2)
(iii) Form of Registered Representative's Agreement.2
(c) Schedule of Sales Commissions.(2)
(4) Not Applicable.
(5) Specimen of Single Premium Variable Life Insurance Policy
(Form 89-SPVL).(6)
(6) (a) Certificate of Incorporation of The Guardian Insurance &
Annuity Company, Inc.(3)
(b) By-laws of The Guardian Insurance & Annuity Company,
Inc.(3)
(7) Not Applicable.
(8) Amended and Restated Agreement for Services and Reimbursement
Therefor, between The Guardian Life Insurance Company of
America and The Guardian Insurance & Annuity Company, Inc.(9)
(9) (a) Agreement Regarding Operation of the Shearson Lehman
Brothers Fund of Stripped ("Zero") U.S. Treasury
Securities.(2)
(b) Reinsurance Agreements between The Guardian Insurance &
Annuity Company, Inc. and each of the following
entities:
(i) The Guardian Life Insurance Company of America.3
(ii) The Lincoln National Life Insurance Company.3
(iii) General Reassurance Corporation.3
(10) Application Form for Single Premium Variable Life Insurance
Policy.(5)
(11) Memorandum on the Policy Issuance, Transfer and Redemption
Procedures and on the Method of Computing Cash Adjustment upon
Exchange of the Policy [Pursuant to Rule 6e-2(b)(12)(ii) and
Rule 6e-2(b)(13)(v)(B)].(4)
2. See Exhibit 1.A(5).
3.A. Opinion and Consent of Richard T. Potter, Jr., Esq.(7)
B. Consent of Richard T. Potter, Jr., Esq.
4. None.
5. Not Applicable.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
II-2
<PAGE>
7. Consent of Price Waterhouse LLP.
8.A. Powers of Attorney executed by a majority of the Board of Directors
and certain principal officers of The Guardian Insurance & Annuity
Company, Inc.(6)
B. Power of Attorney executed by Frank J. Jones, Senior Vice President,
Chief Investment Officer and Director of The Guardian Insurance &
Annuity Company, Inc.(8)
- ----------------
(1) Incorporated by reference to the Registration Statement on Form S-6 filed
by Registrant on May 15, 1985 (Reg. No. 2-97765).
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 filed by Registrant on September 13,
1985 (Reg. No. 2-97765).
(3) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form S-6 filed by Registrant on April 28, 1987
(Reg. No. 2-97765).
(4) Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form S-6 filed by Registrant on July 14, 1988
(Reg. No. 2-97765).
(5) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form S-6 filed by Registrant on May 1, 1989
(Reg. No. 2-97765).
(6) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form S-6 filed by Registrant on March 1, 1991
(Reg. No. 2-97765).
(7) Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement on Form S-6 filed by Registrant on April 27, 1992
(Reg. No. 2-97765).
(8) Incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement on Form S-6 filed by Registrant on April 28, 1993
(Reg. No. 2-97765).
(9) Incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement on Form S-6 filed by Registrant on March 2, 1995
(Reg. No. 2-97765).
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
The Guardian Separate Account B, certifies that it meets all of the requirements
for effectiveness of this Amendment pursuant to Rule 485(b) and has duly caused
this Post-Effective Amendment No. 18 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York, on the 25th day of April, 1996.
THE GUARDIAN SEPARATE ACCOUNT B
(Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Depositor)
By /s/ THOMAS R. HICKEY, JR.
------------------------------
THOMAS R. HICKEY, JR.
VICE PRESIDENT, OPERATIONS
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following directors and principal officers of The Guardian Insurance &
Annuity Company, Inc. in the capacities and on the dates indicated.
JOSEPH D. SARGENT* President, Chief Executive
Joseph D. Sargent Officer and Director
Principal Executive Officer
FRANK J. JONES* Senior Vice President and
Frank J. Jones Chief Investment Officer
Principal Financial Officer
FRANK L. PEPE* Vice President and Controller
Frank L. Pepe
Principal Accounting Officer
JOHN M. SMITH* Executive Vice President and
John M. Smith Director
EDWARD K. KANE* Senior Vice President,
Edward K. Kane General Counsel and Director
PHILIP H. DUTTER* Director
Philip H. Dutter
ARTHUR V. FERRARA* Director
Arthur V. Ferrara
LEO R. FUTIA* Director
Leo R. Futia
Peter L. Hutchings Director
WILLIAM C. WARREN* Director
William C. Warren
*By: /s/ Thomas R. Hickey, Jr. Date: April 25, 1996
-------------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
Pursuant to a Power of Attorney
II-5
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT B
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3(B) Consent of Richard T. Potter, Jr., Esq.
6 Opinion and Consent of Charles G. Fisher, F.S.A.
7 Consent of Price Waterhouse LLP
27 Financial Data Schedule
II-6
CONSENT OF COUNSEL
I hereby consent both to the reference to my name under the heading "Legal
Matters" in this Post-Effective Amendment to the Registration Statement on Form
S-6 filed with the Securities and Exchange Commission by The Guardian Insurance
& Annuity Company, Inc. on behalf of The Guardian Separate Account B and to the
filing of this consent as an exhibit to said Amendment.
/s/ RICHARD T. POTTER, JR.
--------------------------
RICHARD T. POTTER, JR.
COUNSEL
New York, New York
April 25, 1996
[letterhead]
April 25, 1996
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
Sir or Madam:
In my capacity as Vice President and Actuary of The Guardian Insurance &
Annuity Company, Inc. ("GIAC"), I have provided actuarial advice concerning the
following: (a) the preparation of Post-Effective Amendment No. 18 to the
Registration Statement for The Guardian Separate Account B filed on Form S-6
with the Securities and Exchange Commission under the Securities Act of 1933
(the "Post-Effective Amendment") relating to the offer and sale of single
premium variable life insurance policies issued by GIAC (the "Policies"); and
(b) the preparation of policy forms for the Policies described in the
Post-Effective Amendment.
It is my professional opinion that:
1. For policies in the preferred, standard or substandard
classifications, the "sales load", as defined in paragraph (c)(4) of
Rule 6e-2 under the Investment Company Act of 1940, is less than 6%
of the gross single premium and, hence, complies with such Rule.
2. The illustrations of death benefits, cash values and accumulated
premiums, and the assumptions upon which they are based, as set
forth in the section of the prospectus entitled "Illustrations of
Death Benefits and Cash Values" contained in the Post-Effective
Amendment are consistent with the provisions of the Policies. The
rate structure of the Policies has not been designed so as to make
the relationship between premiums and benefits, as shown in the
illustrations, appear to be correspondingly more favorable to
prospective purchasers of Policies aged 5, 15, 40 or 55 in the
standard underwriting class than to prospective purchasers of
Policies at other ages or in other underwriting classes.
3. The examples set forth in the section of the prospectus entitled
"The Policy" are based on the assumptions stated in the
illustrations and are consistent with the provisions of the Policy.
I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the prospectus.
Very truly yours,
Charles G. Fisher, F.S.A.
Vice President and Actuary
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 18 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated February 23, 1996, relating to the
financial statements of The Guardian Separate Account B and our report dated
February 9, 1996, relating to the financial statements of The Guardian Insurance
& Annuity Company, Inc. which appear in such Registration Statement.
PRICE WATERHOUSE LLP
New York, NY
April 25, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains financial information extracted from the "Annual
Report to Shareholders" dated December 31, 1995, and is qualified in its
entirety to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 213,200,979
<INVESTMENTS-AT-VALUE> 306,172,936
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 306,172,936
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 365,576
<TOTAL-LIABILITIES> 365,576
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6,109,627
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,098,839
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 92,971,957
<NET-ASSETS> 305,807,360
<DIVIDEND-INCOME> 7,659,873
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,550,245
<NET-INVESTMENT-INCOME> 6,109,627
<REALIZED-GAINS-CURRENT> 12,098,839
<APPREC-INCREASE-CURRENT> 47,404,414
<NET-CHANGE-FROM-OPS> 65,612,880
<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> 1,550,245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,550,245
<AVERAGE-NET-ASSETS> 286,027,596
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 59,503,252
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
