As filed with the Securities and Exchange Commission on April __, 2000
Registration Nos. 811-4303; 2-97765
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 23
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
------------
THE GUARDIAN SEPARATE ACCOUNT B
(Exact name of trust)
------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
7 Hanover Square, New York, New York 10004
(Complete address of depositor's principal executive offices)
------------
RICHARD T. POTTER, JR., ESQ.
The Guardian Insurance & Annuity Company, Inc.
7 Hanover Square
New York, New York 10004
(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
------------
It is proposed that this filing will become effective (check appropriate
box):
|_| immediately upon filing pursuant to paragraph (b), or
|X| on May 1, 2000 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.
------------
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 March 24, 2000.
================================================================================
<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............................ Who issues your Value Plus policy?; The Separate
Account
4............................ Distribution agreement and other
selling arrangements
5............................ Who issues your Value Plus Policy?
6(a)......................... The Separate Account
6(b),7....................... Not Applicable
8............................ Financial statements
9,10(a),(b).................. Not Applicable
10(c)........................ Can you cancel your policy once you've bought
it?; Your right to cancel your policy
("free-look" period); What are the values under
your policy?; Premium allocation and policy
values
10(d)........................ Can you exchange your policy for fixed life
insurance? Exchanging your policy for fixed
life insurance; What are your investment
options?; Premium allocation and policy values
10(e)........................ Not Applicable
10(f)........................ Voting rights
10(g),(h).................... Substitution of investments
10(i),44(a),51(g)............ How is your single premium calculated?; What are
the values under your policy?; The premium;
Underwriting; What is a single premium variable
life insurance policy and how does it work?;
Death benefit; Variable insurance amount;
Premium information, premium allocation and
policy values; Other important policy
provisions
11........................... What are your investment options?
12........................... The Funds; The Trust
13(a),(b),(c),51(g).......... What charges do you have to pay?; Charges under
the policy
13(d),(g).................... Not Applicable
(e),(f)...................... Charges under the policy
14........................... Who can buy a Value Plus policy?; Underwriting
15........................... What are your investment options?; Premium
information, premium allocation and policy
values
16........................... What are your investment options?; Premium
information, premium allocation and policy
values
17........................... Death benefit; Payment options
18........................... Who issues your Value Plus Policy?
19........................... Communications from GIAC
20........................... Not Applicable
<PAGE>
N-8B-2 Item Heading in Prospectus
----------- ---------------------
21(a,(b)).................... Do you have access to the money you've invested
in your policy?; Policy loans
21(c),22,23.................. Not Applicable
24........................... Other important policy provisions
25,27,29,48.................. Who issues your Value Plus policy?
26........................... Not Applicable
28........................... GIAC's management
30,31,32,33,34,35,36,37...... Not Applicable
38,39,41(a).................. Distribution agreement and other selling
arrangements
40........................... The Funds; The Trust
41(b),(c),42,43.............. Not Applicable
44(b)........................ Not Applicable
44(c)........................ Premium information, premium allocation and
policy values
45........................... Not Applicable
46(a),47..................... The Funds; The Trust
46(b)........................ Not Applicable
49,50........................ Not Applicable
51(b)........................ What is a single premium variable life insurance
policy and how does it work?
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, 2000
Single Premium Variable Life Insurance Policy
Value Plus is a single premium variable life insurance policy offered by The
Guardian Insurance & Annuity Company, Inc. (GIAC), a wholly-owned subsidiary of
The Guardian Life Insurance Company of America (Guardian Life) through its
Separate Account B (the Separate Account). Value Plus is designed to provide
lifetime insurance coverage on the insured named in the policy. The death
benefit and cash values under a policy will vary based on the performance of the
investment divisions comprising the Separate Account, which invests in certain
mutual funds and a unit investment trust. The Separate Account's investment
divisions are collectively referred to in this prospectus as the investment
options. Our offices are located at 7 Hanover Square, New York, New York 10004.
This prospectus provides information that you should know about the policy
before investing, and you should retain it for future reference. It must be
accompanied by the current prospectuses for:
The Guardian Stock Fund, Inc.
The Guardian Bond Fund, Inc.
The Guardian Cash Fund, Inc.
Baillie Gifford International Fund, series of GIAC Funds, Inc.
Value Line Centurion Fund, Inc.
Value Line Strategic Asset Management Trust
The Shearson Lehman Brothers Fund of Stripped ("Zero") U.S. Treasury Securities
Fund, Series A
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 you choose.
A policy's cash value may increase or decrease on any day, depending on
investment performance. You bear the risk of investment losses since 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. A prospective purchaser
should evaluate the need for life insurance and the policy's long-term
investment potential before buying a policy. Therefore, you should purchase a
policy only if you intend to keep it for a long period of time. In addition, it
may not be advantageous to replace existing life insurance coverage by
purchasing a Value Plus policy.
Value Plus Prospectus
Page 1 of 89
<PAGE>
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.
Employers and employee organizations should carefully consider whether it is
appropriate to purchase a Value Plus policy for any employment-related insurance
or benefit program.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Commission or
any state securities commission passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
The policy is not a deposit or obligation of or guaranteed or endorsed by, any
bank or depository institution, is not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency, and
involves investment risk, including possible loss of principal amount invested.
Value Plus Prospectus
Page 2 of 89
<PAGE>
Table of contents
Summary
What is a single premium variable life insurance policy and how does
it work? 4
Who can buy a Value Plus policy? 4
How is your single premium calculated? 4
What are your investment options? 4
What are the values under your policy? 4
Do you have access to the money you've invested in your policy? 5
Can you surrender your policy? 5
What charges do you have to pay? 5
How is your policy affected by taxes? 6
Can you cancel your policy once you've bought it? 6
Can you exchange your policy for fixed life insurance? 6
What happens if you exchange another life insurance contract for a
Value Plus policy? 6
How can you communicate with us? 6
Who issues your Value Plus policy? 7
About your Value Plus policy 8
The policyowner 8
The beneficiary 8
Death benefit 10
Variable insurance amount 10
If distinctions based on sex are prohibited 14
Premium information, premium allocation and policy values 15
The premium 15
Underwriting 15
Premium allocation and policy values 16
Your investment options 19
The Separate Account 19
The Funds 20
The Trust 22
Substitution of investments 23
Charges under the policy 24
Policy loading charges 24
Other charges 25
Income tax charge 26
Guarantee of certain charges 26
Special features of your policy 28
Policy loans 28
Surrendering your policy 29
Transfers between the investment options 30
Exchanging your policy for fixed life insurance 31
Payment options 31
Tax considerations 33
Tax status of the policy 33
Tax treatment of policy benefits 33
Status of the policy as a modified endowment contract 34
Exchanging a policy 35
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<PAGE>
Estate and generation skipping transfer taxes 35
Other tax consequences 36
Possible tax law changes 36
Income tax withholding 36
Rights and responsibilities 37
Assigning the rights to your policy 37
Voting rights 37
Your right to cancel your policy ("free-look" period) 38
Other important policy provisions 39
Error in age or sex 39
Postponement 39
Payments made by the policyowner to GIAC 39
Incontestability 39
Suicide exclusion 39
Exchange of another life insurance contract for a Value Plus policy 39
Other information 41
Distribution agreement and other selling arrangements 41
Communications from GIAC 41
Legal considerations for employers 42
State regulation 42
Legal proceedings 42
Legal matters 42
Registration statement 43
Financial and Actuarial Experts 44
Financial statements 44
GIAC's management 44
Financial Statements of The Guardian Separate Account B 50
Consolidated Financial Statements of The Guardian Insurance & Annuity
Company, Inc. 66
Appendix A: Illustrations of death benefits and cash values
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.
Value Plus Prospectus
Page 4 of 89
<PAGE>
Summary
In this document, we, us and our refer to The Guardian Insurance & Annuity
Company, Inc., and you and your refer to the policyowner.
This summary outlines the principal features of your Value Plus single premium
variable life insurance policy. It is qualified by the detailed explanation
which follows and the terms of your Value Plus policy.
We deliver this prospectus with a copy of the prospectuses for each of the Funds
and the Trust corresponding to the investment options in which you may invest
your Value Plus premium.
Please read this prospectus and the Fund and Trust prospectuses carefully before
investing.
What is a single premium variable life insurance policy and how does it work?
Like other life insurance policies, a single premium variable life insurance
policy provides a death benefit that is payable to the beneficiary when the
insured dies. Single premium means that you make only one premium payment when
you buy the policy, and no further premiums are required or permitted.
The insurance coverage has two parts:
1. a guaranteed insurance amount - this is the guaranteed minimum death
benefit, also known as the face amount. The guaranteed insurance amount is
the amount specified in your policy when you buy it.
2. a variable insurance amount - this is the death benefit amount that is
payable in addition to the guaranteed insurance amount. The variable
insurance amount is zero during the first policy month. From the second
month on, the variable insurance amount will increase or decrease
depending on the performance of the investment options you have chosen. We
calculate the variable insurance amount each month on the monthly policy
date.
Value Plus Prospectus
Page 5 of 89
<PAGE>
As a variable life insurance policyowner, you bear the risk of investment losses
since no minimum cash value is guaranteed. You also bear the risk that the
variable insurance amount and, as a result, the amount of death benefit that
exceeds the guaranteed insurance amount, can change on each monthly policy date.
Please note that there is no assurance that the variable insurance amount will
be positive. However, the death benefit payable will never be less than the
guaranteed insurance amount (reduced by any outstanding policy debt).
Who can buy a Value Plus policy?
We offer Value Plus to individuals who live in a state or jurisdiction where we
offer the policy. The insured may be up to 75 years old and must meet our
insurance requirements. If the insured is over 75, we will consider your
application and may issue a policy. You and the insured may be the same or
different people.
How is your single premium calculated?
We calculate your single premium based on:
o the guaranteed insurance amount you have requested
o the insured's age, sex and rating class, which is a rating based on
factors such as the insured's state of health, whether he or she is a
smoker or non-smoker, and occupation. Where required by law, we will use
sex-neutral actuarial tables.
The minimum single premium is $5,000.
What are your investment options?
You can decide which investment options you would like to invest your single
premium in. GIAC has established a separate account, known as Separate Account
B, through which we invest your premium in the investment options.
The Separate Account has seven investment divisions, corresponding to the six
Funds and one Trust available to you as investment options. You may invest in up
to four of these options at any one time:
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Page 6 of 89
<PAGE>
- -------------------------------------------------------------------
Name of division Division invests in
- -------------------------------------------------------------------
Stock Fund The Guardian Stock Fund, Inc.
- -------------------------------------------------------------------
Bond Fund The Guardian Bond Fund, Inc.
- -------------------------------------------------------------------
Cash Fund The Guardian Cash Fund, Inc.
- -------------------------------------------------------------------
International Fund Baillie Gifford International Fund
series of GIAC Funds, Inc.
- -------------------------------------------------------------------
Centurion Fund Value Line Centurion Fund
- -------------------------------------------------------------------
Strategic Trust Value Line Strategic Asset Management Trust
- -------------------------------------------------------------------
Trust The Shearson Lehman Brothers Fund of
Stripped ("Zero") U.S. Treasury Securities
Fund, Series A
- -------------------------------------------------------------------
What are the values under your policy?
Account value
On the policy date, we transfer your premium to the Separate Account, and
allocate it to The Guardian Cash Fund. The premium then becomes your policy's
account value. The policy date is either
o the date of your completed application, or
o the date we receive your premium, if it is more than five business days
after we receive your completed application.
On the investment date, we allocate the account value to up to four investment
options you have selected. The investment date is 45 days after you complete the
application, or 10 days after the policy is issued, whichever is later.
Cash value
On the policy date, the cash value of your policy equals the net premium. The
net premium is the amount that remains after we take policy loading charges into
account. The net premium is also used to determine the guaranteed insurance
amount.
Value Plus Prospectus
Page 7 of 89
<PAGE>
There is no minimum guaranteed cash value. After the policy date, the cash value
may increase or decrease, depending on your policy's excess investment return.
The excess investment return is a dollar amount of the policy's account value
reflecting the increase or decrease in the value of the investment options,
after providing for charges under the policy. During the first 10 policy years,
the account value exceeds the cash value by the amount of the unrecovered policy
loading charges. This means that the actual returns on these unrecovered charges
can affect the excess investment return, either negatively or positively.
The excess investment return is calculated using a formula based on the actual
rate of return of your investment options, and can be positive or negative. The
actual rate of return reflects the increases or decreases in the investment
options you have selected, interest credited to you on any policy loans and any
charges against the assets in each division. 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.
For complete information on the excess investment return and actual rate of
return, please refer to the sections called "How the variable insurance amount
affects the death benefit" and "The policy's excess investment return."
Do you have access to the money you've invested in your policy?
You may take out a policy loan to borrow up to 90% of your policy's cash value
(less any outstanding loans and loan interest). The minimum loan amount is $500.
You may repay all or a 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.
We charge interest on outstanding loans at an annual rate of 4.75%. If interest
is not paid when due, we will add it to the outstanding loan balance.
While a loan is outstanding, we hold that portion of the policy's cash value
that equals the loan amount in our general account. We do not take this amount
into account when we
Value Plus Prospectus
Page 8 of 89
<PAGE>
calculate your policy's excess investment return. As a result, the policy's
variable insurance amount and cash value can be permanently affected by a loan,
whether or not you repay it.
If there is an outstanding loan on the policy when the insured dies, or when you
surrender the policy, we will subtract the amount of the loan, plus interest,
from the death benefit or the cash value before making any payments.
Loans from policies that are modified endowment contracts and past due loan
interest that is added to such loans are treated as taxable distributions and
may be taxable as ordinary income (see the section called Tax considerations).
Can you surrender your policy?
You may, at any time while the insured is living, surrender or cancel your
policy for the net cash value. The net cash value is the cash value less any
unrecovered policy loading charges (see the section called Charges under the
policy) and policy debt. Policy debt is made up of all unpaid policy loans plus
the accumulated and unpaid interest on those loans. After you surrender your
policy you no longer have insurance coverage and your policy cannot be
reinstated. You may have to pay federal income taxes if you surrender your
policy.
What charges do you have to pay?
There are various charges associated with maintaining your Value Plus policy.
Each of these charges is outlined below and in detail under the section called
Charges under the policy.
Policy loading charges
We deduct four policy loading charges from your single premium. The resulting
amount is the policy's net premium. Initially, we add the amount of the policy
loading charges to the policy's account value. We will recover these charges
equally over a period of 10 years, starting in year two and continuing through
to year 11. We deduct the yearly portion due from the account value at the
beginning of each policy year. The policy loading charges are:
o a sales charge equal to 4% of the single premium
o an administrative charge, which will not be more than $500
o a state premium tax charge equal to 2.25% of the single premium
Value Plus Prospectus
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<PAGE>
o a risk charge of 1.0% or 1.5%, depending on the insured's rating class.
Other charges
We deduct other charges from your policy. These charges are deducted over the
life of the policy, as follows:
o a cost of life insurance charge - based on the insured's age, sex and
rating class. This charge is calculated daily and deducted monthly from
your account value.
o mortality and expense risks charges - deducted daily from the Separate
Account at an effective annual rate of .50% of the value of the assets in
the Separate Account.
o Trust transaction charges - deducted from the Trust's assets at an
effective annual current rate of 0.25% to reimburse us for transaction
charges incurred for the Trust. As a result, you pay this charge, which
may be increased in the future up to an effective annual rate of .50%,
indirectly.
o investment advisory fees and other expenses - deducted daily from the
value of the assets of each of the Funds in which you invest through the
Separate Account. As a result, you pay these fees and expenses indirectly.
We also have the right to charge the Separate Account to cover any taxes that
are applicable to the Separate Account or the policies. We don't currently
impose this charge.
How is your policy affected by taxes?
The death benefit under a policy will generally not be part of the beneficiary's
taxable income for federal income tax purposes. Policy loans, surrenders or
other benefits paid while the insured is alive may be completely or partially
taxable. Up to age 59 1/2, any taxable distributions will generally be subject
to a 10% penalty tax. Increases in the cash value of the policy are not taxable
as long as they remain in the policy.
Can you cancel your policy once you've bought it?
We will refund your entire premium if you return the policy within 10 days after
you receive it, or 45 days after you sign the application for the policy,
whichever is later. This is called the "free-look" period. Longer periods apply
in certain states.
Value Plus Prospectus
Page 10 of 89
<PAGE>
Can you exchange your policy for fixed life insurance?
During the first 24 policy months, you may exchange your Value Plus policy for a
fixed-benefit single premium whole life insurance policy issued by us or one of
our affiliates, without having to prove that the insured meets our insurance
requirements. For complete details, please see the section called Exchanging
your policy for fixed life insurance.
What happens if you exchange another life insurance contract for a Value Plus
policy?
If you already own another life insurance contract, you may wish to exchange it
for a Value Plus policy. Newly issued Value Plus policies are generally treated
as modified endowment contracts, but may not be treated as such in an exchange
if
o your original contract was not a modified endowment contract prior to the
exchange; and
o you purchase a seven-year fixed-benefit level term rider that is offered
only in these exchange situations with a portion of the original
contract's cash value.
For complete details, please see the section called Exchange of another life
insurance contract for a Value Plus policy.
How can you communicate with us?
We cannot act on any request (except for proper telephone transfer requests)
unless it is received in writing at our executive office, in a form acceptable
to us. Your request must include:
o your policy number
o the full name of all policyowners
o the full name of the insured,
o and your current address.
Our address for regular mail is:
The Guardian Insurance & Annuity Company, Inc.
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
Our address for registered, certified or express mail is:
Value Plus Prospectus
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<PAGE>
The Guardian Insurance & Annuity Company, Inc.
3900 Burgess Place
Bethlehem, Pennsylvania 18017
If you wish to make a telephone transfer, you may call us at 1-800-533-0099
between 9 a.m. and 3:30 p.m. (Eastern time) on days when we are open for
business. We will make the transfer, provided a proper authorization is on file.
Who issues your Value Plus policy?
Your Value Plus policy is issued by The Guardian Insurance & Annuity Company,
Inc. (GIAC), a Delaware stock insurance company formed in 1970. GIAC is licensed
to sell life insurance in all 50 states of the United States of America and the
District of Columbia. As of December 31, 1999, our total assets (GAAP basis)
exceeded $12 billion.
We are wholly owned by The Guardian Life Insurance Company of America (Guardian
Life). The offices of both Guardian Life and GIAC are located at 7 Hanover
Square, New York, New York 10004.
Both Guardian Life and GIAC have consistently received exemplary ratings from
Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps
and A.M. Best. These ratings may change at any time, and only reflect GIAC's
ability to meet its insurance-related obligations. These ratings do not apply to
the investment options, which are subject to the risks of investing in any
securities. Guardian Life does not issue the Value Plus policies, and does not
guarantee the benefits provided by the policy.
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<PAGE>
About your Value Plus policy
This section provides detailed information about your policy. It explains your
rights and responsibilities under the policy, and those of GIAC. Because the
laws and regulations that govern the policy vary among the jurisdictions where
the policy is sold, some of the policy's terms will vary depending on where you
live. These will be outlined in the policy we send you.
The policyowner
The policyowner is the person named on the application (or in our records, if
there was a later change) as the owner of the policy. You may own a policy
jointly with more than one person. A policyowner does not have to be the
insured. While the insured is living, only the policyowner named in our records
has the right to exercise rights granted by the policy unless ownership of the
policy has been assigned to someone else.
If you want to change the policyowner, you must request it in writing in a form
acceptable to us. Your request must be signed and dated by all of the
policyowners. The change will be made effective on the date your request was
signed, whether or not the insured is living when GIAC's Customer Service Office
receives the request. However, the change will not apply to any payments made or
actions taken before we receive your request.
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. If you
are both the policyowner and the insured, a successor owner may not be named,
because the policy ends when you die.
Joint owner
If more than one person is named with no number or the same number, we consider
them to be joint owners. All joint owners must sign any policy transaction.
Unless otherwise provided, if a joint owner dies, ownership passes to the
surviving joint owner or owners. When the last joint owner dies, ownership
passes to that person's estate, unless otherwise provided.
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<PAGE>
The beneficiary
The beneficiary is the person you name to receive the death proceeds when the
insured dies. The beneficiary is named in the application, or in our records if
there was a later change. Unless otherwise provided, in order to receive
proceeds at the insured's death, a beneficiary must be living on the earlier of
o the date we receive proof of the insured's death at our Customer Service
Office or
o the 15th day after the insured's death.
If you want to change the beneficiary, you must request it in writing in a form
acceptable to us. Your request must be signed and dated by all the policyowners.
The change will be made effective on the date your request was signed, whether
or not the insured is living when GIAC's Customer Service Office receives the
request. However, the change will not apply to any payments made or actions
taken before we receive your request.
The policyowner or the policyowner's estate will be the beneficiary if no
designated beneficiary is living on the earlier of the above dates, unless
otherwise provided.
Contingent beneficiary
You may name a 'contingent' beneficiary, who will receive the proceeds if the
first beneficiary dies before the insured. A numbered sequence may be used to
name contingent beneficiaries. The beneficiary is the living person or persons
with 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 survivors, share the proceeds
equally, unless otherwise provided. If a beneficiary does not survive the
insured and has an unequal share, that beneficiary's share passes to the
policyowner or the policyowner's estate, unless otherwise provided.
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<PAGE>
Death benefit
The death benefit payable is the sum of:
o the guaranteed insurance amount, and
o any positive variable insurance amount on the date of the insured's death,
less
o any policy debt (see the section called Policy loans).
The guaranteed insurance amount is the amount specified in your policy when you
buy it. The variable insurance amount varies over the life of the policy. There
is no assurance that the variable insurance amount will be positive (see the
section below called Variable insurance amount).
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, depending on the policy's investment
returns. The variable insurance amount is zero during the first policy month.
From the second month on, it may be positive or negative.
We determine the variable insurance amount at the beginning of each policy
month, on the monthly policy date. We do this 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 section called The policy's excess investment
return). The variable insurance amount changes only on the monthly policy date.
We may also adjust the variable insurance amount on each policy anniversary to
reflect favorable mortality results if the insured is classified as a standard
or preferred underwriting risk (see the section called Underwriting).
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How the variable insurance amount affects the death benefit
The following example uses the policy illustrated in Appendix A, page A-5.
Scenario 1 assumes a gross annual investment return of 6% during policy year 6
(equivalent to a net rate of return of 4.85%). Scenario 2 assumes a gross annual
investment return of 0% (equivalent to a net rate of return of -1.15%). The
chart below shows how the variable insurance amount, under both scenarios, would
affect the death benefit at the end of policy year 6.
- --------------------------------------------------------------------------------
Guaranteed insurance Variable insurance
amount amount Death benefit
- --------------------------------------------------------------------------------
Scenario 1 - gross
annual return of 6%
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Scenario 2 - gross
annual return of 0%
- --------------------------------------------------------------------------------
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 we recover the policy loading charges, the actual rate of return
necessary to create a positive excess investment return will be less than 4%.
After we have fully recovered the policy loading charges from the account value,
the variable insurance amount will increase if 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. The variable insurance amount will not change if the excess investment
return is zero, and there is no mortality adjustment. (See the sections called
The policy's excess investment return and Underwriting.)
Negative variable insurance amounts
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 variable insurance
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amount will continue to be negative until the excess investment return of the
subsequent policy month or months is high enough to offset the negative variable
insurance amount.
To illustrate this concept, refer to the policy illustrated in Appendix A, page
A-2. If we assume a gross annual investment return of 0% (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%.
The policy's excess investment return
We calculate and use your policy's excess investment return to purchase or
cancel the amount of variable insurance provided by the policy. The excess
investment return is based on your policy's actual rate of return (see the
section called Variable insurance amount).
We determine your policy's actual rate of return monthly, taking the following
into account:
o increases or decreases in the net asset value of each Fund's shares plus
any distribution made during the policy month on the shares
o increases or decreases in the value of the units of the Trust plus any
distribution made during the policy month on the units
o interest credited to you on any policy loans, less any charges against the
assets in each division (see the section called Other charges).
The method for calculating each Fund's 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.
Your policy's excess investment return is calculated as:
(1) the account value at the beginning of the policy month; multiplied by
(2) the actual rate of return adjusted to the date of calculation; minus
(3) the cash value at the beginning of the month; multiplied by
(4) an annualized rate of 4%.
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During the first 10 policy years, the account value exceeds the cash value by
the amount of the unrecovered policy loading charges. Adding the policy loading
charges to the account value during this period means that
o there will be greater increases in benefits if the actual rate of return
is greater than zero, or
o there will be larger decreases in benefits if the actual rate of return is
less than zero.
The excess investment return will be positive 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 we recover all policy loading charges, the actual
rate of return necessary to create a positive or negative excess investment
return will vary with the amount of policy loading charges remaining in the
account value.
After all policy loading charges have been recovered, the actual rate of return
must be 4% or greater to result in a positive excess investment return, unless
there is a mortality adjustment (see the section called Underwriting). We will
reduce the variable insurance amount if the excess investment return is
negative.
Use of the net single premium to calculate the variable insurance amount
We use a net single premium per $1 of paid-up whole life insurance to calculate
the variable insurance amount purchased or cancelled for any month. We calculate
the premium based on the insured's sex and age at the policy anniversary. For
intermediate months, we interpolate to arrive at net single premiums. 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
(1.88 x +- $100 - see the table called Illustrative net single premiums in this
section). 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.
The amount of change in the variable insurance amount also depends on the policy
year in which the change occurs. For example, using the policy illustrated in
Appendix A, page A-5, and assuming a 6.0% gross annual investment return
(equivalent to a net rate of return of 4.85%),
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the increase or decrease in the variable insurance amount in policy year 6 is
less than the change occurring during policy year 20.
Calculation of the change in the 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 sex are prohibited by state law, the net single
premium will be lower for females (see table below). The net single premium will
also be lower if the insured is classified as a preferred or standard risk. The
net single premium is also used to set the single premium payment to buy a
policy.
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Illustrative net single premiums
Net single premium Variable insurance
per $1.00 of variable amount purchased or
insurance amount or cancelled by $1.00 of
guaranteed insurance investment return
amount
Attained
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
If distinctions based on sex are prohibited
Some states prohibit insurers from using actuarial tables that distinguish
between men and women to determine premiums and benefits for life insurance
policies. Where such unisex rates are required by state law, we use the female
attained age net single premium table to determine premium payments and the
variable insurance amount. We also use it to perform other policy calculations
for both men and women. Otherwise, we use actuarial tables that differentiate on
the basis of sex (see the section called Legal considerations for employers).
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Premium information, premium allocation and policy values
The premium
The minimum single premium payment is $5,000.
In setting our premium rates, we consider:
o actuarial estimates for death benefits and cash value benefits
o the underwriting rating class of the insured. We project mortality results
will be more favorable in the preferred and standard rating classes than
in the substandard class.
o expenses
o investment experience
o an amount to be contributed to our surplus.
In addition, we allocate assets to our general account to provide for payment of
benefits in the event the insured dies when the guaranteed insurance amount
exceeds the death benefit that would have been payable based on the investment
results.
Underwriting
Underwriting is the process we undergo to evaluate the insurance risk of a
proposed insured, and either determine a premium based on that risk, or reject
the application for insurance.
We issue policies for people classified as preferred, standard or substandard
risks. We group people of the same age into a class which can be expected to
produce mortality experience consistent with the actuarial structure for that
class. We use the following underwriting methods:
o simplified underwriting not requiring a physical examination, and
o paramedical or medical underwriting, which requires an examination.
Paramedical underwriting is when the evaluation of the insured's health is
based on the assessment of a medical professional who is not a physician.
Medical underwriting is when the evaluation of the insured's health is
based on the assessment of a physician, such as the insured's own doctor.
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We base the method of underwriting chosen for any given policy on age, premium
or net amount at risk. The net amount at risk is the difference between your
policy's total account value and death benefit. 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
our general account for any policy debt, if applicable.
We may, however, request an independent medical examination if the insured
answers 'yes' to one of the medical questions in Part II of the application
which requires additional underwriting on our part. In this case, we will ask
the insured to be examined by a medical practitioner of our choice. In all other
situations, we will use paramedical or medical underwriting.
The insured may be classified as a preferred risk if he or she:
o is over 20 years of age
o is a non-smoker
o is employed in a non-hazardous and healthful occupation
o is in superior physical condition
o has a favorable personal health history and favorable personal habits, and
o the premium is $50,000 or more.
We deduct a lower risk charge from the gross single premium if the insured is
classified as a preferred risk.
Mortality adjustment
For policies issued in both the preferred and standard classes, we will adjust
the variable insurance amount on the first policy anniversary. We may also
adjust it on subsequent policy anniversaries to reflect assumed favorable
mortality results. This adjustment is called the mortality adjustment.
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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. We do not guarantee the mortality
adjustment factor. Your variable insurance amount will not change when the
factor is zero and will increase when the factor is positive.
We adjust the variable insurance amount by:
(1) multiplying the total account value immediately before the policy
anniversary by
(2) the adjustment factor for the applicable policy anniversary and dividing
the result by
(3) the net single premium for the insured's age at the policy anniversary.
You will find a table of adjustment factors in a rider to the policy. The
mortality adjustment will never decrease the variable insurance amount.
If the insured is classified as a substandard risk, he or she is not eligible
for the mortality adjustment and you are charged a higher premium for the same
face amount of insurance. The premium would never be more than 120% of the
premium that would be paid for the same policy for a standard insured.
Premium allocation and policy values
We transfer your single premium, including the policy loading charges (see the
section called Policy loading charges), to the Separate Account on the policy
date. This amount then becomes your policy's account value. The policy date is
the date we receive your completed application or the date we receive your
premium, if it's more than five business days later.
On the policy date, we allocate the policy's total account value 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, when we allocate the account value to the investment options
that you specified on the application. The investment date is 45 days after you
complete the application, or 10 days after the policy is issued, whichever is
later. If you wish to change your investment options selection before the
investment date, you
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may do so provided we receive your instructions in writing prior to this date.
You may invest in a maximum of four investment options at any given time.
We deduct the policy loading charges from the policy's account value in 10
installments paid over 10 years, rather than as a lump sum on the policy date.
Therefore at the beginning of each of the second through to the eleventh policy
year, we subtract 10% of the policy loading charges from the policy's account
value (see the section called Policy loading charges). You will retain any
earnings resulting from the unrecovered policy loading charges that remain in
the account value.
The chart below shows how the allocation of the premium works, using some sample
single premium and face amounts.
- --------------------------------------------------------------------------------
Female, 55 years old, standard rating class
- --------------------------------------------------------------------------------
Single Initial Net Policy load- Face
- --------------------------------------------------------------------------------
premium allocation premium ing charges(1) amount
- --------------------------------------------------------------------------------
$ 10,000 $ 10,000 $ 9,075 $ 925 $ 22,597
- --------------------------------------------------------------------------------
25,000 25,000 22,779 2,221 56,720
- --------------------------------------------------------------------------------
50,000 50,000 45,625 4,375 113,608
- --------------------------------------------------------------------------------
100,000 100,000 91,750 8,250 228,461
- --------------------------------------------------------------------------------
(1) GIAC is entitled to the full amount of the policy loading charges on the
policy date and will recover the entire amount.
Account value in each investment option
At the beginning of each policy month, the portion of the policy's account value
in each investment option equals
o the proportionate amount of a policy's net cash value (see the section
below called Cash value) allocated to that particular investment option,
plus
o a correspondingly proportionate amount of any unrecovered policy loading
charges.
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 section called The policy's excess investment
return).
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Cash value
On the policy date, the cash value of your policy equals the net premium. After
the policy date, the cash value increases or decreases daily to reflect a
policy's actual rate of return. No minimum amount of cash value is guaranteed.
The cash value at the end of a policy month can be expressed as:
o the net single premium per $1 of paid-up whole life insurance on that
date; multiplied by
o the sum of the guaranteed insurance amount and the variable insurance
amount.
The cash value on a date during a policy month, assuming there are no policy
loans, can be expressed approximately as:
o the cash value at the end of the preceding policy month; plus
o your policy's actual rate of return, positive or negative, applied to the
account value including any unrecovered policy loading charges at the
beginning of the month; minus
o the charge for the cost of insurance protection provided since the end of
the preceding policy month.
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
charges. 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 account value is only adjusted 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.
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Your investment options
Under the Value Plus policy, you are able to direct where your single premium is
allocated. There are seven investment options, and you may choose up to four
options at any time.
The Separate Account
The Separate Account is the account through which we invest your premium in the
investment options. This account is called The Guardian Separate Account B, and
is referred to in this prospectus as the Separate Account. We are the record
owner of the assets in the Separate Account, and use them exclusively to support
the death benefits and cash values of the variable life insurance policies
described in this prospectus.
The Separate Account consists of seven investment divisions, corresponding to
the six Funds and one Trust in which the Account invests. You may select up to
four Funds, or three Funds and the Trust, as your investment options under the
policy. The assets of each investment division are held separate from one
another.
GIAC established the Separate Account under Delaware law in November 1984. Our
Separate Account is registered with the SEC as a unit investment trust - a type
of investment company under the Investment Company Act of 1940 (the 1940 Act).
Registration under the 1940 Act does not involve any supervision by the SEC of
the investment management or programs of the Separate Account or GIAC. However,
both GIAC and the Separate Account are subject to regulation under Delaware law.
GIAC is also subject to the insurance laws and regulations of all states and
jurisdictions where the company is authorized to do business.
GIAC owns the assets held in the Separate Account. The assets in the Separate
Account are kept separate from GIAC's general account and other separate
accounts. The assets equal to the reserves and other liabilities of the Separate
Account are used only to support the variable life insurance policies issued
through the Separate Account. Delaware insurance law provides that these assets
may not be used to satisfy liabilities arising from any other business that
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GIAC may conduct. This means that the assets supporting policy account values
maintained in the investment options are not available to meet the claims of
GIAC's general creditors.
GIAC may also retain in the Separate Account assets that exceed the reserves and
other liabilities of the Separate Account. Such assets can include GIAC's direct
contributions to the Account, accumulated charges for mortality and expense
risks, mortality gains, recovered policy loading charges, 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 Separate Account to its general account.
GIAC retains the right, subject to applicable law, to
o deregister the Separate Account under the 1940 Act
o operate the Separate Account as a management investment company or any
other form permitted by law
o combine any two or more separate accounts
o transfer the assets of the Separate Account to another separate account
o modify the contracts as necessary to preserve the favorable tax treatment
accorded to them under the Code.
The Funds
Each Fund corresponds to an investment option, and is a diversified, open-end
management investment company, registered with the Securities and Exchange
Commission under the 1940 Act. We buy shares of each Fund at net asset value
which means that there is no sales charge for buying the shares. We reinvest all
dividends and capital gains distributions from a Fund in that Fund's shares at
net asset value, and keep them in the Fund's corresponding Fund Division. We
sell Fund shares at their net asset value, to pay for policy benefits and to
carry out policy transactions, such as loans or transfers.
Each Fund, with the exception of the International Fund, pays an annual
investment advisory fee to its investment adviser equal to 0.50% of the Fund's
average daily net assets. The
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International Fund pays an annual investment advisory fee that equals 0.80% of
its average daily net assets.
Investment objectives and policies of the Funds
Each Fund has a different investment objective that it tries to achieve by
following certain investment policies. These objectives affect the potential
risks and returns for each Fund, and there is no guarantee that a Fund will be
able to meet its investment objectives fully. Some Funds have similar investment
objectives and policies to other Funds managed by the same adviser. The
investment results of the Funds, however, may be higher or lower than the
adviser's other Funds. There is no assurance, and we make no representation,
that the performance of any Fund will be comparable to the performance results
of any other Fund.
The table below summarizes each Fund's investment objective, along with the
typical investments that make up that Fund.
- --------------------------------------------------------------------------------
Fund Investment objective Typical investments
- --------------------------------------------------------------------------------
Guardian Stock Fund Long-term growth of U.S. common stocks
capital
- --------------------------------------------------------------------------------
Guardian Bond Fund Maximum income without investment grade debt
undue risk of principal obligations
- --------------------------------------------------------------------------------
Guardian Cash Fund High level of current money market instruments
income; preservation of
capital
- --------------------------------------------------------------------------------
Baillie Gifford Long-term capital common stocks and
International Fund appreciation convertible securities
issued by foreign
companies
- --------------------------------------------------------------------------------
Value Line Centurion Fund Long-term growth of U.S. common stocks (with
capital selections based on
rankings by the Value
Line Ranking System)
- --------------------------------------------------------------------------------
Value Line Strategic High total investment U.S. common stocks (with
Asset Management Trust return consistent with selections based on
reasonable risk rankings by the Value
Line Ranking System),
bonds and money market
instruments
- --------------------------------------------------------------------------------
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The Funds' investment advisers
All of the Funds' investment advisers are registered as investment advisers
under the Investment Advisers Act of 1940 (Advisers Act).
Guardian Investor Services Corporation
The Guardian Stock Fund, The Guardian Bond Fund and The Guardian Cash Fund (the
Guardian Funds) are advised by Guardian Investor Services Corporation (GISC), 7
Hanover Square, New York, New York 10004. GISC is wholly owned by GIAC.
Guardian Baillie Gifford Limited
Baillie Gifford International Fund is advised by Guardian Baillie Gifford
Limited (GBG), 1 Rutland Court, Edinburgh, EH3 8EY, Scotland. GBG is a member of
Great Britain's Investment Management Regulatory Organization Limited (IMRO).
GBG was incorporated in Scotland by GIAC and Baillie Gifford Overseas Limited
(BG Overseas) in November 1990. BG Overseas is wholly owned by Baillie Gifford &
Co., which is currently one of the largest investment management partnerships in
the United Kingdom.
Baillie Gifford Overseas Limited
GBG has appointed BG Overseas to serve as sub-investment adviser to Baillie
Gifford International Fund. Like GBG, BG Overseas is located at 1 Rutland Court,
Edinburgh, EH3 8EY, Scotland. BG Overseas is also a member of IMRO. GBG pays BG
Overseas one half of the investment advisory fee for its services as the
International Fund's sub-investment adviser. No separate or additional fee is
paid by the Fund to BG Overseas.
Value Line, Inc.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund are
advised by Value Line, Inc., 220 East 42nd Street, New York, New York 10017.
More complete information on the Funds can be found in the accompanying Fund
prospectuses. Please read the prospectuses carefully before investing.
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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 do not pay interest prior to
maturity, but are sold at a steep discount from their face value.
The market prices of zero coupon securities generally are more volatile than the
market prices of conventional interest-bearing securities. Salomon Smith Barney
Inc. ("SSB"), an indirect wholly-owned subsidiary of Citigroup Inc., is the
sponsor of the Trust and sells units of the Trust to GIAC for the Separate
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, 2000 is 5.45%. 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 estimated rate of return to
maturity will also vary daily. This rate reflects:
o the estimated compound rate of growth in the Trust's units
o the mortality and expense risk charge
o the daily asset charge for transaction costs relating to the Trust (see
the section called Expenses charged to the division investing in the
Trust.)
The rate of return does not reflect the applicable policy loading charges or the
cost of life insurance charge that are also deducted under the policy.
If you have invested in the Trust, fluctuations in the value of the Trust's
units will affect the variable insurance amount and cash values under your
policy.
GIAC and SSB reserve the right to cease offering units of the Trust and to
create additional Trusts in the future.
The accompanying prospectus for The Shearson Lehman Brothers Fund of Stripped
("Zero") U.S. Treasury Securities Fund, Series A contains more detailed
information about the Trust. Read the prospectus carefully before investing.
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Substitution of investments
We can substitute investments if
o a Fund or the Trust no longer suits the purposes of the policies due to a
change in its investment objectives or restrictions
o the shares or units of a Fund or the Trust are no longer available for
investment
o GIAC believes it has become inappropriate to continue investing in the
shares or units of a Fund or the Trust.
Before making a substitution, GIAC will obtain approval from the Securities and
Exchange Commission, the Delaware Insurance Department or other regulators, as
may be necessary.
If you are affected by a substitution, you may exchange a policy for a fixed
life insurance policy in accordance with state insurance regulations if
o the Trust has been terminated or does not have available units prior to
its maturity date
o any Fund changes its investment adviser
o any Fund makes material changes in its investment objectives or
restrictions.
You will be affected by the above changes if you have some or all of your
account value in the Trust or applicable Fund when the change occurs.
We will notify you in writing if one of these changes is to occur and will
describe the terms for an exchange. You will be able to exchange a policy within
60 days of receiving notice, or by the effective date of the change, whichever
is later. Exchanging a policy may have tax consequences.
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Charges under the policy
There are various charges required to maintain your Value Plus policy. We have
classified them as Policy loading charges and Other charges. They are summarized
and explained below.
Policy loading charges
We deduct charges from the single premium, called policy loading charges. We
allocate an amount equal to the policy loading charges to the policy account
value on the policy date. We recover these amounts over time. The policy loading
charges are deducted over a period of 10 years, starting in year two and
continuing through to year eleven. We deduct them at the beginning of each
policy year from the account value of your policy. Policy loading charges are
described below.
Sales charge
The sales charge is equal to 4% of the single premium. We may reduce the sales
charge
o for larger premiums
o when policies are purchased to cover a group of individuals
o when policies are sold to the employees of an employer.
If the insured is classified as a substandard risk, the sales charge you pay
will be greater than if the insured was classified as a standard or preferred
risk. This is because the premium you pay is higher for the same face amount of
insurance. 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 rating class.
The amount of the sales charge cannot be specifically related to sales expenses.
If sales expenses are not fully recovered from the sales charge, they may be
recovered from other sources, including the mortality and expense risk charge
and mortality gains.
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Administrative charge
The administrative charge covers our costs for
o insurance underwriting
o establishing and maintaining permanent policy records
o obtaining attending physician statements or medical examinations, if
required
o other expenses incurred as policies are issued.
The administrative charge varies by the age of the insured when the policy is
issued:
- --------------------------------------------------------------------------------
Issue age Charge
- --------------------------------------------------------------------------------
0-14 $125
- --------------------------------------------------------------------------------
15-20 $150
- --------------------------------------------------------------------------------
21 and over $5 for each $1,000 of the guaranteed insurance amount, with
minimum charge of $150 and a maximum charge of $500.
- --------------------------------------------------------------------------------
The administrative charge covers no more than the actual costs associated with
issuing the policies.
State premium tax charge
We deduct 2.25% of the single premium to pay taxes on premiums. Premium taxes
vary from state to state, and currently range from zero to 4%. We impose this
2.25% charge regardless of the premium tax rate in effect in any state. Thus,
you may have a premium tax charge deducted from your policy even if you live in
a state that does not impose a charge. The 2.25% rate is an approximate average
of the premium taxes that we expect to pay in all states for the policies.
Risk charge The risk charge is:
1. 1.5% of the single premium for standard or substandard risks, and
2. 1.0% of the single premium for preferred risks.
The risk charge compensates us for the risk we assume by guaranteeing that the
death benefit will not be less than the guaranteed insurance amount.
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Other charges
We deduct other charges from your policy, as described below.
Cost of life insurance
The cost of insurance covers the anticipated cost of paying death benefits to
beneficiaries of insureds who die during that period. This charge is based on
our cost of insurance rates for insured people of the same age, sex, and rating
class. The cost of insurance is higher for insureds classified as substandard.
It also generally increases as the insured ages.
Each day, we calculate a charge for the cost of life insurance to determine a
policy's cash value. At the end of each policy month, we deduct the cost of life
insurance charges from the account value.
The amount of the charge is based on
o the assumption that the actual number of deaths during the month will be
accurately predicted by the 1980 Commissioners Standard Ordinary Mortality
Tables
o the sum of your guaranteed insurance amount and the variable insurance
amount provided during the month
o the insured's age, sex (unless prohibited for rating purposes) and rating
class.
Mortality and expense risk charge
We will deduct a daily charge, based on an annual rate of 0.50% of the average
daily value of your investment options to cover the mortality and expense risks
that we assume for Value Plus policies. This charge is deducted from the
Separate Account.
The charge covers the risk that the insureds under Value Plus policies may not
live as long as we estimated when we issued the policy, and that our
administrative expenses may be higher than we estimated. If amounts collected
through this charge are greater than the cost, we may
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realize a profit on the charge. We may use any profit to cover expenses incurred
in selling the policies.
Other charges applicable to the Funds
Daily deductions are made from the assets of the Funds to cover advisory fees
and operational expenses. As a result, you pay these fees and expenses
indirectly.
Each Fund, with the exception of the International Fund, pays an annual
investment advisory fee equal to 0.50% of the 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 Strategic Trust and the Centurion Funds reimburse GIAC for administrative
and shareholder servicing expenses that we incur on their behalf. For the year
ended December 31, 1999, the Strategic Trust Fund reimbursed GIAC $857,868 and
the Centurion Fund reimbursed GIAC $586,401. The operational expenses of these
Funds reflect the effect of these reimbursements.
Value Line, Inc. compensates us for marketing the Centurion Fund and the
Strategic Trust to our policyowners. For the year ended December 31, 1999, GIAC
received $1,329,228 from Value Line for the Centurion Fund and $2,313,500 for
the Strategic Trust.
The accompanying prospectuses describe the investment advisory fees and other
expenses for the Funds in more detail. Please read them before making allocation
or transfer decisions.
Expenses charged to the division investing in the Trust
We charge the investment division investing in the Trust for the transaction
charges that we pay directly to Salomon Smith Barney Inc. when Trust units are
sold to the Separate Account. We pay the transaction charges from our general
account assets. The charge to the Trust Division equals an annual charge of
0.25% of the division's assets. This amount may increase in the future, but will
not exceed 0.50% of a division's assets. GIAC does not expect to profit from
this charge.
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In addition to fees paid by SSB, the Trust pays fees such as bank trustee's and
evaluator's fees. The Trust will hold one or more interest-bearing Treasury
securities, which provides income to pay the Trust's expenses.
The prospectus for the Trust describes the Trust's fees and expenses in more
detail. Please read it carefully before making allocation or transfer decisions.
Income tax charge
We have the right to charge the Separate Account, the account through which we
invest your single premium in the investment options, for any federal, state or
local income taxes relating to the Separate Account. We also have the right to
impose additional charges if there is a change in our tax status, if the income
tax treatment of variable life insurance changes for insurance companies, or for
any other tax-related charges associated with the Separate Account or the
policies. We don't currently charge for taxes attributable to the Separate
Account.
Guarantee of certain charges
We guarantee not to increase
o the maximum level of our cost of insurance rates for each age, sex and
rating class
o the mortality and expense risks charge
o the maximum charge against the Trust Division.
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Special features of your policy
Policy loans
While the insured is alive, you may borrow all or a portion of the loan value of
your policy, by assigning your policy to us as collateral for your loan. Your
policy's loan value is:
o 90% of the cash value of your policy on the date we receive your written
request, minus
o the amount of any outstanding policy debt.
You may take a loan at any time while your policy is in effect, after the end of
the "free-look" period. The minimum loan amount is $500.
You must complete and submit a loan form to our Customer Service Office to
request a loan. You may obtain a loan form from the Customer Service Office. As
collateral for the loan, we transfer the requested loan amount from the
investment divisions of the Separate Account to our general account as of the
date we received the loan form.
You may designate the investment divisions of the Separate Account from which
the loan amount will be transferred. If you do not specify a designation, we
will transfer the loan amount proportionately from all of the investment
divisions corresponding to your investment options.
When taking out a policy loan, you should consider
o amounts transferred out of the investment divisions into our general
account are no longer affected by the investment experience, positive or
negative, of those investment options
o as a result, taking a policy loan will have a permanent effect on your
policy account value and the policy's death benefit, even after the loan
is repaid in full
o the amount of your policy that is available for surrender, and your
policy's death benefit proceeds, will also be reduced dollar-for-dollar by
the amount of any policy debt.
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Example: Refer to the policy illustrated in Appendix A, page A-5. If we assume a
6% gross and annual investment return (equivalent to a net rate of return of
4.85%), as well as 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
Policy year insurance amount amount Death 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 in year 6 is only $1,138 as compared to the $1,206 increase shown
in the section called How the variable insurance amount affects the death
benefit. This is because the loan amount held in our 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, we would have deducted the loan amount of
$4,000 plus any accrued interest from the death benefit proceeds.
If the policy debt exceeds the cash value, we will terminate the policy. We will
provide 31 days written notice of our intent to terminate the policy. You may
have to pay tax if the policy lapses with a loan outstanding (see the section
called Tax considerations).
If your policy is considered to be a modified endowment contract under the
Internal Revenue Code, there may be tax consequences associated with taking a
policy loan. Prior to age 59 1/2, a 10% penalty tax may be imposed. See Tax
considerations for a discussion of modified endowment contracts and the effects
on policy loans.
Interest on your policy loan
We charge interest at an annual rate of 4.75% on all outstanding policy debt.
You are expected to pay loan interest on each policy anniversary. Unpaid
interest is added to the outstanding loan and bears interest at the same rate.
We will credit interest to loan collateral held in our general account at the
assumed rate of return of 4%. We retain the difference between this credited
rate of interest and the 4.75%
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loan interest that you pay. We reserve the right to reduce the credited rate of
return in response to changes in tax laws affecting the policy.
Repaying your policy loan
You may repay all or part of the loan at any time while the insured is alive.
The minimum loan repayment is $500 or the balance of the loan, if lower.
You may designate your repayment to any investment option, as long as you will
not be invested in more than four options as a result. If you do not specify a
designation, we will allocate loan repayments among the investment options in
proportion to the account value in each option as of the date of the repayment.
Surrendering your policy
You may surrender your policy for its net cash value while the insured is alive.
The net cash value is the cash value minus any policy debt and unrecovered
policy loading charges. Surrendering your policy may have tax consequences (see
the section called Tax considerations.)
We do not permit partial surrenders. We will cancel the policy as of the date we
receive your written request, which must include your policy, or an acceptable
affidavit of loss stating that you've lost your policy. We will ordinarily pay
the net cash value within seven days after we receive this required
documentation, but we may postpone payment under certain circumstances (see the
section called Postponement).
Transfers between the investment options
You may ask us to transfer your policy account value between the investment
options. We will make transfers based on the unit values at the end of the
business day on which we receive your instructions, either in writing or by
telephone. You can request a transfer by writing to our Customer Service Office
or by calling 1-800-533-0099. Written requests that are received after 4:00 p.m.
EST will be effective on the next business day. Before you can request transfers
over the telephone, you must first send us a written authorization form. Your
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policy account value may not be invested in more than four investment options at
any one time.
If you are requesting your transfer in writing, the address for regular mail is:
Customer Service Office
The Guardian Insurance & Annuity Company, Inc.
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210.
The address for registered, certified or express mail is:
Customer Service Office
The Guardian Insurance & Annuity Company, Inc.
3900 Burgess Place
Bethlehem, Pennsylvania 18017.
We will accept transfer instructions by telephone between 9:00 a.m. and 3:30
p.m. EST on each business day. We will ask callers to identify the policy and
provide a personal security code for the policy, and will accept the
instructions of anyone who can provide this information.
We may also record telephone transfer requests without notifying the caller. If
we reasonably believe that telephone instructions are genuine, we are not liable
for any losses, damages or costs resulting from a transaction. As a result, you
bear the risk of any losses caused by unauthorized or fraudulent telephone
transactions.
The rules for telephone transfers are subject to change, and we reserve the
right to suspend or withdraw this service without notice. During periods of
financial market or economic volatility, it may be difficult to contact us in
order to make a transfer by telephone. If this happens, you should send your
request to us in writing. We reserve the right to limit the frequency of
reallocations and transfers to not more than once every 30 days.
Allocation or transfer to the Trust
You 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, we will
automatically transfer any
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account value held in its Trust Division to the Cash Fund Division, unless you
direct otherwise.
If you have an account value in the Trust Division, we will notify you of the
maturity date of the Trust 30 days in advance. Please notify our Customer
Service Office if you want the Trust's account value transferred to an
investment option other than the Cash Fund Division. Please notify us in writing
or by telephone at least seven days prior to the maturity date of the Trust.
Exchanging your policy for fixed life insurance
You may exchange your policy for a single premium whole life insurance policy,
where benefits do not vary with investment results. You must elect this exchange
in writing, within 24 months from the policy issue date. No evidence of
insurability is required. We, or an affiliate, will issue the new policy.
When you exchange the policy, we will calculate a cash adjustment for the cash
value, as follows:
1. the policy's net cash value; minus
2. the new policy's tabular cash value (a pre-set amount based on the new
policy) 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, we will pay you the difference. If the result is
negative, you must pay us the difference before the new policy is issued. Under
some circumstances, it may be advantageous to purchase a fixed life insurance
policy initially rather than exchange to one later.
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, rating class and face amount as the original policy. Alternatively, if you
wish, the face amount of the new policy can be the face amount of the original
policy plus the variable insurance amount, if
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positive. (See the section called Tax considerations for information on the tax
implications of an exchange.)
Payment options
You have several payment options for the death or surrender proceeds from your
policy. These proceeds can either be paid in a single lump sum, or under one of
the payment options listed below or in any other form that we approve. You may
select a payment option while the insured is living. If the insured has died and
you have not chosen a payment option, the beneficiaries may choose the payment
option, up to one year after the insured's death. If you are surrendering your
policy, you have 60 days after the proceeds of your policy become payable within
which to choose a payment option.
Any payment option election must be submitted in writing.
Under Option 1, called Proceeds left at interest, we will hold the proceeds and
make monthly interest payments at a guaranteed annual rate of at least 3%. Any
additional interest will be determined yearly at our discretion and added to the
monthly payment.
Under Option 2, called Payments of a specified amount, we will make monthly
payments of a specified amount until the proceeds and interest are fully paid.
At least 10% of the original proceeds must be paid each year. An annual rate of
interest of at least 3% will be added to the proceeds each year. Any additional
interest will be determined yearly at our discretion.
Under Option 3, called Payments for a specified period, we will make monthly
payments for the number of years elected. The guaranteed payments shown in the
Option 3 table in the policy will include interest at 3% a year. Any additional
interest will be determined yearly at our discretion.
Under Option 4, called Life income with 10 years guaranteed, we will make
monthly payments for 10 years and for the remaining lifetime of the person on
whose life the option is
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based. The minimum monthly payment will be based on the applicable amount in the
Option 4 table shown in the policy.
Under Option 5, called Refund life income, we 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.
Under Option 6, called Joint and survivor income with 10 years guaranteed, we
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.
To claim a death benefit using regular mail, send your claim to:
Customer Service Office
The Guardian Insurance & Annuity Company, Inc.
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
To claim a death benefit using registered, certified or express mail, send
your claim to:
Customer Service Office
The Guardian Insurance & Annuity Company, Inc.
3900 Burgess Place
Bethlehem, Pennsylvania 18017
We will ordinarily pay the death benefit proceeds to your named beneficiary
within seven days after we receive proof of death, such as a certified copy of
the death certificate.
We will pay interest on the death benefit from the date of death to the date the
proceeds are paid. The interest rate will be the higher of:
o the rate specified in payment option 1, or
o the rate required by law.
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We may postpone paying death benefit proceeds under certain circumstances. For
complete details, see the section called Postponement.
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Tax considerations
This discussion of tax considerations for your Value Plus policy is general in
nature, does not purport to be complete or to cover all tax situations, and
should not be considered as tax advice. It is based on our understanding of
federal income tax laws as they are currently being interpreted. We cannot
guarantee that these laws will not change while this prospectus is in use, or
while your policy is in force. You should consult a legal or tax adviser
regarding your particular circumstances.
Tax status of the policy
In order to qualify as a life insurance contract for federal income tax purposes
and to receive the tax treatment normally accorded life insurance contracts
under federal tax law, a life insurance policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Accordingly, there is some
uncertainty about the application of section 7702A to a policy, particularly so
with respect to policies issued on an insured who does not meet our standard
insurance requirements. Guidance as to how these requirements are to be applied
is limited. Nevertheless, we believe it is reasonable to conclude that your
policy should satisfy the applicable requirements. If it is subsequently
determined that a policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the policy into compliance with such
requirements, and we reserve the right to modify the policy as necessary in
order to do so.
In addition, the Code requires that the investments of the investment divisions
of our Separate Account be "adequately diversified" in order for the policy to
be treated as a life insurance contract for federal income tax purposes. It is
intended that the investment divisions of the Separate Account, through the
Funds, will satisfy these diversification requirements.
You have the ability under the policy to control your investments by exercising
premium allocation and transfer privileges. To date, no regulations or rulings
have been issued regarding the circumstances under which you would be considered
an owner of a pro-rata portion of the assets in our Separate Account as a result
of these privileges.
If you were considered the owner of assets in the Separate Account, any income
and gains would be included in your gross income each year. We currently believe
that GIAC, and not
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our policyowners, is considered to own the Separate Account's assets. However,
we cannot predict when the Treasury Department or the Internal Revenue Service
(IRS) will issue guidance regarding these matters. We therefore reserve the
right to modify the policy, as necessary, to prevent the policyowner from being
treated as the owner of the Separate Account assets supporting the policy.
The following discussion assumes that the policy qualifies as a life insurance
contract for federal income tax purposes.
Tax treatment of policy benefits
We believe that benefits paid under the Value Plus policy should receive
the same federal income tax treatment as the benefits from a life
insurance policy that provides a fixed amount of coverage. Accordingly,
o the death proceeds received by a beneficiary should not be subject to
federal income tax
o cash value increases should not be subject to federal income tax unless
they are distributed from a policy while the insured is still living.
Income recognized from a distribution paid before death will be taxed as
ordinary income.
o interest on policy loans, even if paid, is generally not tax deductible.
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 seven level
annual premiums which would have been paid to acquire paid-up future benefits.
Given the premium requirements, a Value Plus policy entered into after June 20,
1988 is considered to be a modified endowment 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.
Under certain limited circumstances, a Value Plus policy received after June 20,
1988 in exchange for another life insurance contract may not be treated as a
modified endowment contract. You should read Exchange of another life insurance
contract for a Value Plus policy
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<PAGE>
and consult a qualified tax adviser before authorizing the exchange of your
current life insurance contract.
If your policy is considered a modified endowment contract: Distributions from
policies that are modified endowment contracts, including assignments (which is
the transfer of your rights under the policy to another person), 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
the distribution exceeds the investment in the policy.
Investment in the policy is generally defined as:
1. the single premium paid for the policy; plus
2. the amount of any prior loan that has already been included in your gross
income; minus
3. any prior distributions that were excluded from your gross income.
All modified endowment contracts issued by GIAC or its affiliates during any
calendar year will be treated as one modified endowment contract to determine
the taxable portion of any distribution.
In addition, the Code imposes a ten percent (10%) penalty tax on the taxable
income from a distribution, unless the distribution
o is made to a taxpayer who is 59 1/2 years of age or older
o is attributable to a disability, or
o is received as substantially equal periodic payments made over the life of
the taxpayer, or the life of the taxpayer and a beneficiary.
If your policy is not considered a modified endowment contract: 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, but rather as a debt of the policyowner.
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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.
Exchanging a policy
A life insurance contract received in exchange for a Value Plus policy entered
into on or after June 21, 1988 will generally be treated as a modified endowment
contract. This is because the policy being exchanged will typically be a
modified endowment contract. You should consult a tax adviser before exchanging
a Value Plus policy for another life insurance contract.
Estate and generation skipping transfer taxes
If you are both the policyowner and the insured, the death benefit under your
Value Plus policy will generally be included in the value of your gross estate
for federal estate tax purposes. If you are not the insured, under certain
circumstances only the cash value would be included. In general, estates of U.S.
citizens or residents that are valued at less than $675,000 will not incur
federal estate tax liability.
An unlimited marital deduction may be available for federal estate and gift tax
purposes. Federal estate tax and federal gift tax are computed under a unified
rate schedule.
Also, as a general rule, if the beneficiary of the policy is someone who is two
or more generations younger than the policyowner, the generation-skipping
transfer (GST) tax may be imposed on the death benefit. The GST tax rate is the
maximum estate tax rate. Individuals are generally allowed a GST tax exemption
of $1,030,000.
The individual situation of a policyowner or beneficiary will determine how the
ownership of a policy or the receipt of policy proceeds will affect their tax
situation. Because the rules are complex, a legal or tax adviser should be
consulted for specific information.
Other tax consequences
Value Plus policies can be used in various ways, including
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<PAGE>
o as deferred compensation or salary continuance plans
o in split-dollar insurance plans.
The tax consequences of these plans will vary depending on individual
arrangements and circumstances. If the value of a plan depends entirely or
partially on its tax consequences, a qualified tax adviser should be consulted
before a policy is used in connection with the plan.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business should consult a tax adviser regarding possible tax
consequences before buying a policy or changing it.
Possible tax law changes
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the policy could change by legislation or
otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
Income tax withholding
We are generally required to withhold for income taxes applicable to taxable
distributions. You can request in writing that we not withhold any amount for
income tax purposes. If we do not, or if we fail to withhold enough to cover the
taxes that are due, you could be penalized. You would also be responsible for
any unpaid taxes when you file your regular income tax return. We may similarly
withhold generation skipping transfer taxes unless you tell us in writing that
these taxes are not required.
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Rights and responsibilities
Assigning the rights to your policy
You may assign the rights under your Value Plus policy to another person or
business. This is often done, for example, to secure a loan. We will only be
bound by such an agreement when we have received a copy of the assignment
papers, signed by you, the entity or person to whom you are assigning your
rights, and your policy's beneficiaries, if applicable. Assignments are subject
to all payments made or actions we have taken on or before the date we receive
the completed papers. Once filed, the rights of the policyowner and beneficiary
under the policy, including any attached rider, will be subject to the
assignment.
We are not responsible for determining whether the assignment of your policy's
rights is legally valid. The entity or person to whom you assign your rights may
exercise all rights granted under the policy except the right to
o change the policyowner or beneficiary
o elect a payment option.
We will rely solely on the assignee's statement as to the amount of the
assignee's interest.
Voting rights
As explained in Your investment options, we are the owner of the Fund shares
held in the Separate Account. As a result, we have the right to vote at any
meeting of the Funds' shareholders.
Where we are required to by law, we will vote Fund shares based on the
instructions we receive from Value Plus policyowners. If we do not receive
instructions from some policyowners, we will vote Fund shares attributable to
their policies, and any shares we own in our own right, in the same proportion
as the shares attributable to the policyowners from whom we do receive
instructions. This proportion could include policyowners and contract owners
from other separate accounts. If changes in the law or its interpretation allow
us to make voting decisions in our own right, or to restrict the voting of
policyowners, we reserve the right to do so. We will ask you for your voting
instructions if, on the record date set by the
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Fund's directors, part of your account value is invested in the investment
option of the Separate Account that corresponds to the Fund holding a
shareholders' meeting. The number of votes that you have will be based on the
number of shares that you hold. We will calculate the number of shares, or
fraction of a share, that you hold on the record date by dividing the dollar
value of your investment in the division of the Separate Account corresponding
to the Fund, by the net asset value of the investment option's shares on that
date.
If, after careful examination, we reasonably disapprove of a proposed change to
a Fund's investment adviser, its advisory contract, or its investment objectives
or policies, we may disregard policyowners' voting instructions, if the law
allows us to do so. If the change affects the investment adviser or investment
policy, we will only exercise this right if we determine in good faith that the
proposed change is contrary to state law or is inappropriate in view of the
Fund's investment objective and purpose. If we exercise this right, we will
provide a detailed explanation of our actions in the next semi-annual report to
policyowners.
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 amending or terminating a Trust indenture.
Your right to cancel your policy ("free-look" period)
You may cancel your policy by returning it with a written cancellation notice to
either our executive office or the agent from whom you bought the policy. You
must do this within the later of:
o 10 days of receiving your policy, or
o 45 days of signing Part 1 of your completed policy application
Longer periods may apply in some states. If a cancellation notice is sent by
mail, it will be effective on the date of the postmark. Once we receive your
notice, we will refund all of the premiums and unscheduled payments you have
made towards your policy, and it will be
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considered void from the beginning. We may delay refunding any payments you made
by check until your check has cleared.
We reserve the right to defer accepting an application for a new policy for up
to six months, if the application is for the same owner and the same insured as
a returned policy.
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Other important policy provisions
Error in age or sex
If the age or sex of the insured has been misstated, any benefit payable will be
adjusted to that which the premium would have purchased for the correct age or
sex.
Postponement
We will normally fully process benefit payments and transfers based on the
account value within seven days of receiving the policyowner's request. However,
GIAC can postpone the payment of death benefit proceeds if the policy is being
contested. We may delay calculating or paying a benefit, or transferring amounts
based on investment performance if
o the New York Stock Exchange is closed for trading or trading has been
suspended or
o the Securities and Exchange Commission restricts trading or determines
that a state of emergency exists which may make payment or transfer
impracticable.
Payments made by the policyowner to GIAC
When using regular mail, send your
payments to:
Customer Service Office
The Guardian Insurance & Annuity Company, Inc.
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210.
When using registered, certified or express mail, send your payments to:
Customer Service Office
The Guardian Insurance & Annuity Company, Inc.
3900 Burgess Place
Bethlehem, Pennsylvania 18017.
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 will only be liable for the premium paid.
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Exchange of another life insurance contract for a Value Plus policy
If you already own another life insurance contract, you may wish to exchange it
for a Value Plus policy. Newly issued Value Plus policies are generally treated
as modified endowment contracts, but may not be treated as such in an exchange
if
o your original contract was not a modified endowment contract prior to the
exchange; and
o you purchase a term rider with a portion of the original contract's cash
value.
Policies received as a result of all other exchanges will generally be treated
as modified endowment contracts, even though the original contract was not a
modified endowment contract prior to the exchange.
Term rider
A term rider will only be issued to someone who wants to buy a Value Plus policy
by exchanging a life insurance contract which is not a modified endowment
contract.
The term rider
o provides an additional amount of guaranteed insurance for the first seven
policy years
o assures that the death benefit payable will at least equal the guaranteed
death benefit under the original contract for the first seven policy years
by providing an additional guaranteed amount of insurance for that period
o has a premium that is not allocated to the investment divisions, since the
premium is used to fund insurance provided by the term rider only
o does not affect the variable insurance amount
o automatically expires after the seventh policy year and the guaranteed
death benefit decreases by the face amount of the term rider to the
guaranteed insurance amount under the policy without the term rider. 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 decrease.
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The term rider's cash value equals the present value of future death benefits
that may be provided by the rider, and declines to zero at the end of the
seventh policy year. The cash value will be included in the surrender proceeds
if the policy is surrendered before the end of the seventh policy year. You
cannot surrender the term rider independently of the policy. The cash value
attributable to the term rider will not be considered when calculating the
policy's maximum loan value.
The term rider may not be available in all states. You should consult a
qualified tax adviser before exchanging your current life insurance contract for
a policy with a term rider.
Other information
Distribution agreement and other selling arrangements
We have an agreement with Guardian Investor Services Corporation (GISC) for GISC
to act as the principal underwriter of Value Plus policies, as well as the other
variable life insurance policies and variable annuity contracts that we offer.
GISC is a broker-dealer registered under the Securities and Exchange Act of
1934, and a member of the National Association of Securities Dealers (NASD).
Under this agreement we paid through GISC a total of $48,707 in 1997, $36,360 in
1998 and $18,030 in 1999 for the sale of products issued by the Separate
Account. GISC is a New York corporation.
GISC has entered into sales agreements with other SEC registered broker-dealer
firms which are members of the NASD, including Salomon Smith Barney Inc. (SSB)
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.
GIAC agents who are licensed by state insurance authorities to sell variable
life insurance policies must also be registered representatives of GISC, or of
broker-dealer firms which have entered into agreements with GIAC and GISC to
sell Value Plus policies. Our agents receive a maximum sales commission of 4% of
the premium paid.
Value Plus Prospectus
Page 55 of 89
<PAGE>
We may also compensate our agents in the form of commission overrides, expense
allowances, bonuses, wholesaler fees and training allowances. In addition,
agents may qualify for non-cash compensation such as expense-paid trips or
educational seminars.
If you return your policy under the right to cancel provisions, the agent may
have to return some or all of any commissions we have paid.
Communications from GIAC
As of each semi-annual policy anniversary, we will send you an updated statement
showing the following information:
o death benefit
o cash value
o amount of any outstanding policy debt
o allocation of the account value among the policy's investment options.
We also send you semi-annual and annual reports containing financial statements
for the Separate Account and the Funds. We send you annual reports containing
financial statements for the Trust if you have allocated account value to the
Trust Division.
Legal considerations for employers
Gender neutrality
The Value Plus policy estimates different risks for men and women in
establishing a policy's premiums, benefits and deductions, except in states
where gender-neutral standards must be used. In 1983, the United States Supreme
Court held that optional annuity benefits offered under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. Anyone interested in buying
Value Plus policies in connection with insurance or benefits programs should
consult with their legal advisers to determine if the policy is appropriate for
this purpose.
Value Plus Prospectus
Page 56 of 89
<PAGE>
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 entirely or partially on its tax consequences, a qualified tax adviser
should be consulted before a policy is used in connection with the plan.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business should consult a tax adviser regarding possible tax
consequences before buying a Value Plus policy or changing it.
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. In
addition, it is subject to the insurance laws and regulations of the other
states and jurisdictions in which it is licensed. GIAC files an annual statement
reporting on its operations for the preceding year to the Delaware Commissioner
as well as regulators of other states.
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. Guardian Life also submits annual statements as described above to New
York and to the other states and jurisdictions.
Legal proceedings
We are not currently involved in any legal proceedings that would threaten our
financial position or that of the Separate Account.
Legal matters
The legal validity of the Value Plus policy, as described in this prospectus,
has been confirmed by Richard T. Potter Jr., Vice President and Equity Counsel
of Guardian Life and Vice President and Counsel of GIAC.
Value Plus Prospectus
Page 57 of 89
<PAGE>
Registration statement
We have omitted some information from this prospectus, which is contained in our
registration with the Securities and Exchange Commission (SEC), relating to the
Separate Account and the Value Plus policy. You can obtain this information by
contacting the SEC's main office in Washington, DC, and paying the required fee.
Value Plus Prospectus
Page 58 of 89
<PAGE>
Financial and Actuarial Experts
The consolidated financial statements of The Guardian Insurance & Annuity
Company, Inc., as of December 31, 1999 and for each of the three years in the
period ended 1999 and financial statements of the Guardian Separate Account B as
of December 31, 1999 and for period ended December 31, 1999 and 1998 included in
this prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing. PricewaterhouseCoopers LLP is
located at 1177 Avenue of the Americas, New York, New York 10036.
Charles G. Fisher, F.S.A., Second Vice President and Actuary of Guardian Life
and Vice President and Actuary of GIAC, has examined actuarial matters included
in this prospectus. His opinion appears as an exhibit to the registration
statement for the Separate Account filed with the SEC.
Financial statements
The financial statements of the Guardian Separate Account B and the consolidated
financial statements of The Guardian Insurance & Annuity Company, Inc. are
included in this prospectus. The consolidated financial statements reflect
GIAC's ability to meet its policy obligations and are separate from the
financial statements of the Separate Account.
Value Plus Prospectus
Page 59 of 89
<PAGE>
GIAC's management
The directors and officers of GIAC are named below together with information
about their principal occupations and affiliations during the past five years.
The business address of each director and officer is 7 Hanover Square, New York,
New York 10004. The "Guardian Fund Complex" referred to in the biographical
information is comprised of (1) The Guardian Variable Contract Funds, Inc. (2)
The Guardian Bond Fund (3) The Guardian Cash Fund (4) The Park Avenue Portfolio
(a series trust that issues its shares in nine series) and (5) GIAC Funds, Inc.
(a series fund that issues its shares in three series)
Name Title Business History
Value Plus Prospectus
Page 60 of 89
<PAGE>
Name Title Business History
- --------------------------------------------------------------------------------
Joseph A. Caruso Vice Vice President and Corporate Secretary, The
President and Guardian Life Insurance Company of America
Secretary 3/96 - present; Second Vice President and
Corporate Secretary 1/95 - 2/96; Vice
President and Secretary, Guardian Investor
Services Corporation; Secretary, Guardian
Asset Management Corporation, Guardian
Baillie Gifford Limited, Park Avenue
Securities LLC, and various mutual funds
within the Guardian Fund Complex.
- --------------------------------------------------------------------------------
Philip H. Dutter Director Management Consultant (self-employed).
Director, The Guardian Life Insurance
Company of America 3/88 - present. Director,
Guardian Investor Services Corporation.
- --------------------------------------------------------------------------------
Earl C. Harry Treasurer Treasurer, The Guardian Life Insurance
Company of America 11/96 - present.
Assistant Treasurer prior thereto.
Treasurer of Guardian Investor Services
Corporation, Park Avenue Securities LLC and
Guardian Asset Management Corporation.
- --------------------------------------------------------------------------------
Arthur V. Ferrara Director Retired. Former Chairman of the Board and
Chief Executive Officer, The Guardian Life
Insurance Company of America 1/93 - 12/95;
Director 1/81 - present. Director
(Trustee) of Guardian Investor Services
Corporation, Guardian Asset Management
Corporation, Gabelli Capital Asset Fund
and various mutual funds within the
Guardian Fund Complex. Manager of Park
Avenue Securities LLC.
- --------------------------------------------------------------------------------
Charles G. Fisher Vice Second Vice President and Actuary, The
President and Guardian Life Insurance Company of America.
Actuary
- --------------------------------------------------------------------------------
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
various mutual funds within the Guardian
Fund Complex. Manager of Park Avenue
Securities LLC. Director (Trustee) of
various mutual funds sponsored by Value
Line, Inc.
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 61 of 89
<PAGE>
Name Title Business History
- --------------------------------------------------------------------------------
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.
Manager of Park Avenue Securities LLC.
- --------------------------------------------------------------------------------
Frank J. Jones Executive Executive Vice President and Chief
Vice Investment Officer, The Guardian Life
President, Insurance Company of America. Director,
Chief Guardian Investor Services Corporation,
Investment Guardian Baillie Gifford Limited, Director
Officer and and President, Guardian Asset Management
Director Corporation. Manager of Park Avenue
Securities LLC. Executive Vice President,
GIAC Funds, Inc. Officer of various mutual
funds within the Guardian Fund Complex.
- --------------------------------------------------------------------------------
Edward K. Kane Executive Executive Vice President, The Guardian Life
Vice Insurance Company of America 1/97 - present;
President and Senior Vice President, and General
Director Counsel prior thereto; Director 11/88 -
present. Director, Guardian Asset Management
Corporation.
- --------------------------------------------------------------------------------
Bruce C. Long Director and Senior Vice President, The Guardian Life
Executive Insurance Company of America, 9/99 -
Vice present; President, New England Annuities,
President, 2/94 - 6/99. President, Guardian Investor
Equity Services Corporation
Products
- --------------------------------------------------------------------------------
Frank L. Pepe Vice Vice President and Controller, Equity
President and Products, The Guardian Life Insurance
Controller Company of America 1/96 - present; Second
Vice President and Controller, Equity
Products prior thereto. Vice President and
Controller of Guardian Investor Services
Corporation. Vice President and Treasurer,
GIAC Funds, Inc. Officer of various mutual
funds within the Guardian Fund Complex.
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 62 of 89
<PAGE>
Name Title Business History
- --------------------------------------------------------------------------------
Richard T. Potter, Vice Vice President and Equity Counsel, The
Jr. President and Guardian Life Insurance Company of America
Counsel 1/96 - present; Second Vice President and
Equity Counsel prior thereto. Vice President
and Counsel of Guardian Investor Services
Corporation. Counsel of Guardian Asset
Management Corporation, Park Avenue
Securities LLC and various mutual funds
within the Guardian Fund Complex.
- --------------------------------------------------------------------------------
Joseph D. Sargent President, President, Chief Executive Officer and
Chief Director, The Guardian Life Insurance
Executive Company of America 1/96 - present; President
Officer and prior thereto; Director 1/93 - present.
Director Chairman of the Board of Guardian Investor
Services Corporation and Guardian Asset
Management Corporation and various mutual
funds within the Guardian Fund Complex.
Director of Guardian Baillie Gifford
Limited. Manager of Park Avenue Securities
LLC.
- --------------------------------------------------------------------------------
William C. Warren Director Retired. Dean Emeritus, Columbia Law School.
Former Chairman of the Board, Sandoz, Inc.;
Director of The Guardian Life Insurance
Company of America 1/57 - present and
Director of Guardian Investor Services
Corporation. Manager of Park Avenue
Securities LLC.
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 63 of 89
<PAGE>
No officer or director of GIAC receives any compensation from the Separate
Account. No separately allocable compensation has been paid by GIAC, or any of
its affiliates, to any person listed above for services rendered to the Separate
Account.
Value Plus Prospectus
Page 64 of 89
<PAGE>
Financial Statements of The Guardian Separate Account B
GAAP Basis Financial Statements of The Guardian Insurance & Annuity Company,
Inc.
Appendix A: Illustrations of death benefits and cash values
Value Plus Prospectus
Page 65 of 89
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .......................... 3,924,477 2,282,417 4,051,222 613,182
Net asset value per share (NAV) .................................... 55.20 11.41 10.00 26.78
------------- ------------- ------------- -------------
Total Assets (Shares x NAV) ....................................... $ 216,632,391 $ 26,042,377 $ 40,510,981 $ 16,421,007
Liabilities:
Due to Guardian Insurance & Annuity Company, Inc. ................. 84,670 10,867 369,705 7,617
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 .............................................. $ 216,547,721 $ 26,031,510 $ 40,141,276 $ 16,413,390
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
Number of units outstanding .......................................... 1,786,896.571 898,718.400 2,004,084.794 530,563.465
Unit value ........................................................... 121.19 28.97 20.03 30.94
FIFO Cost ............................................................ $ 176,711,110 $ 27,576,484 $ 40,510,981 $ 13,153,628
<CAPTION>
Value Line
Strategic Shearson
Value Line Asset Lehman
Centurion Management Fund 2004
-------------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .......................... 3,160,497 1,330,111 8,196,748
Net asset value per share (NAV) .................................... 36.09 29.39 0.73
------------- ------------- -------------
Total Assets (Shares x NAV) ....................................... $ 114,062,352 $ 39,091,958 $ 6,007,397
Liabilities:
Due to Guardian Insurance & Annuity Company, Inc. ................. 41,500 15,168 4,103
------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 .............................................. $ 114,020,852 $ 39,076,790 $ 6,003,294
============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------
Number of units outstanding .......................................... 1,127,557.377 662,097.628 115,813.925
Unit value ........................................................... 101.12 59.02 51.84
FIFO Cost ............................................................ $ 91,979,158 $ 28,548,326 $ 4,616,027
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 853,042 $ 1,551,783 $ 1,870,969 $ 60,924
Expenses -- Note 3:
Mortality and expense risk charges .............................. 964,953 140,010 201,546 70,868
------------- ------------- ------------- -------------
Net investment income/(expense) .................................... (111,911) 1,411,773 1,669,423 (9,944)
------------- ------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 22,183,995 (256,351) -- 1,151,356
Reinvested realized gain distributions .......................... 29,230,175 77,691 -- 1,169,079
------------- ------------- ------------- -------------
Net realized gain/(loss) on investments ........................... 51,414,170 (178,660) -- 2,320,435
Net change in unrealized appreciation/(depreciation) of investments 155,759 (1,629,504) -- 2,340,487
------------- ------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ............. 51,569,929 (1,808,164) -- 4,660,922
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ...... $ 51,458,018 $ (396,391) $ 1,669,423 $ 4,650,978
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Value Line
Strategic Shearson
Value Line Asset Lehman
Centurion Management Fund 2004
------------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 280,786 $ 363,930 $ --
Expenses -- Note 3:
Mortality and expense risk charges .............................. 513,465 178,835 50,577
------------- ------------- -------------
Net investment income/(expense) .................................... (232,679) 185,095 (50,577)
------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 15,731,879 2,521,955 1,063,843
Reinvested realized gain distributions .......................... 7,550,026 1,877,112 --
------------- ------------- -------------
Net realized gain/(loss) on investments ........................... 23,281,905 4,399,067 1,063,843
Net change in unrealized appreciation/(depreciation) of investments 1,755,661 2,953,142 (1,328,857)
------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ............. 25,037,566 7,352,209 (265,104)
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ...... $ 24,804,887 $ 7,537,304 $ (315,591)
============= ============= =============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 66 & 67 of 89
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
--------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 785,824 $ 1,347,573 $ 1,781,581
Net realized gain/(loss) from sale of investments ................. 20,459,401 (9,192) --
Reinvested realized gain distributions ............................ 19,892,487 347,936 --
Net change in unrealized appreciation/(depreciation) of investments (9,255,640) 320,086 --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 31,882,072 2,006,403 1,781,581
------------- ------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- -- 592,915
Transfer of net policy loading -- Note 3 .......................... (163,656) (23,106) (49,433)
Transfer on account of death ...................................... (1,429,136) (229,758) (419,861)
Transfer on account of other terminations ......................... (5,045,779) (1,366,661) (2,818,547)
Transfer of policy loans .......................................... (2,421,724) (836,466) (660,755)
Transfer of cost of insurance and policy fees -- Note 3 ........... (2,515,933) (455,421) (708,818)
Transfer between investment divisions ............................. (1,486,763) 1,402,000 (534,389)
Transfers -- other ................................................ (29,237) (6,609) (2,901)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (13,092,228) (1,516,021) (4,601,789)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 18,789,844 490,382 (2,820,208)
Net Assets at December 31, 1997 ................................... 173,125,131 27,214,106 38,158,883
------------- ------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 191,914,975 $ 27,704,488 $ 35,338,675
============= ============= =============
- ---------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (111,911) $ 1,411,773 $ 1,669,423
Net realized gain/(loss) from sale of investments ................. 22,183,995 (256,351) --
Reinvested realized gain distributions ............................ 29,230,175 77,691 --
Net change in unrealized appreciation/(depreciation) of investments 155,759 (1,629,504) --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 51,458,018 (396,391) 1,669,423
------------- ------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- -- 267,622
Transfer of net policy loading -- Note 3 .......................... (103,990) (15,791) (29,816)
Transfer on account of death ...................................... (1,196,094) (350,798) (449,356)
Transfer on account of other terminations ......................... (9,105,387) (754,310) (4,512,680)
Transfer of policy loans .......................................... (2,110,202) (341,959) (1,157,597)
Transfer of cost of insurance and policy fees -- Note 3 ........... (2,746,793) (473,633) (735,130)
Transfer between investment divisions ............................. (11,532,555) 661,676 9,751,271
Transfers -- other ................................................ (30,251) (1,772) (1,136)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (26,825,272) (1,276,587) 3,133,178
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 24,632,746 (1,672,978) 4,802,601
Net Assets at December 31, 1998 ................................... 191,914,975 27,704,488 35,338,675
------------- ------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 216,547,721 $ 26,031,510 $ 40,141,276
============= ============= =============
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Baillie
Gifford Value Line
International Centurion
----------------------------------
<S> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 12,050 $ (169,948)
Net realized gain/(loss) from sale of investments ................. 1,918,655 11,395,122
Reinvested realized gain distributions ............................ 694,143 5,067,463
Net change in unrealized appreciation/(depreciation) of investments (16,477) 5,468,485
------------- -------------
Net increase/(decrease) resulting from operations ................. 2,608,371 21,761,122
------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (38,711) (61,480)
Transfer on account of death ...................................... (368,359) (714,278)
Transfer on account of other terminations ......................... (727,267) (3,926,389)
Transfer of policy loans .......................................... (183,897) (1,178,658)
Transfer of cost of insurance and policy fees -- Note 3 ........... (190,976) (1,221,051)
Transfer between investment divisions ............................. (789,594) 1,244,451
Transfers -- other ................................................ (10,301) (59,160)
------------- -------------
Net increase/(decrease) from policy transactions .................. (2,309,105) (5,916,565)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 299,266 15,844,557
Net Assets at December 31, 1997 ................................... 13,541,320 81,485,954
------------- -------------
- -----------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 13,840,586 $ 97,330,511
============= =============
- -----------------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (9,944) $ (232,679)
Net realized gain/(loss) from sale of investments ................. 1,151,356 15,731,879
Reinvested realized gain distributions ............................ 1,169,079 7,550,026
Net change in unrealized appreciation/(depreciation) of investments 2,340,487 1,755,661
------------- -------------
Net increase/(decrease) resulting from operations ................. 4,650,978 24,804,887
------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (20,325) (43,165)
Transfer on account of death ...................................... (120,752) (686,549)
Transfer on account of other terminations ......................... (772,439) (4,538,650)
Transfer of policy loans .......................................... (517,997) (1,283,944)
Transfer of cost of insurance and policy fees -- Note 3 ........... (187,108) (1,525,735)
Transfer between investment divisions ............................. (457,889) 28,390
Transfers -- other ................................................ (1,664) (64,893)
------------- -------------
Net increase/(decrease) from policy transactions .................. (2,078,174) (8,114,546)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 2,572,804 16,690,341
Net Assets at December 31, 1998 ................................... 13,840,586 97,330,511
------------- -------------
- -----------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 16,413,390 $ 114,020,852
============= =============
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Value Line
Strategic Shearson
Asset Lehman
Management Fund 2004
--------------------------------
<S> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 661,765 $ (54,947)
Net realized gain/(loss) from sale of investments ................. 3,341,162 1,160,312
Reinvested realized gain distributions ............................ 2,344,129 --
Net change in unrealized appreciation/(depreciation) of investments 765,425 (337,780)
------------- -------------
Net increase/(decrease) resulting from operations ................. 7,112,481 767,585
------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (54,745) (10,648)
Transfer on account of death ...................................... (131,469) --
Transfer on account of other terminations ......................... (1,659,288) (238,311)
Transfer of policy loans .......................................... (599,046) (263,328)
Transfer of cost of insurance and policy fees -- Note 3 ........... (440,555) (103,121)
Transfer between investment divisions ............................. (251,487) 415,782
Transfers -- other ................................................ (11,341) (332)
------------- -------------
Net increase/(decrease) from policy transactions .................. (3,147,931) (199,958)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 3,964,550 567,627
Net Assets at December 31, 1997 ................................... 28,208,307 6,707,210
------------- -------------
- ---------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 32,172,857 $ 7,274,837
============= =============
- ---------------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 185,095 $ (50,577)
Net realized gain/(loss) from sale of investments ................. 2,521,955 1,063,843
Reinvested realized gain distributions ............................ 1,877,112 --
Net change in unrealized appreciation/(depreciation) of investments 2,953,142 (1,328,857)
------------- -------------
Net increase/(decrease) resulting from operations ................. 7,537,304 (315,591)
------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (39,013) (4,745)
Transfer on account of death ...................................... (50,278) (64,978)
Transfer on account of other terminations ......................... (1,683,601) (259,934)
Transfer of policy loans .......................................... (614,180) 199,675
Transfer of cost of insurance and policy fees -- Note 3 ........... (521,676) (96,264)
Transfer between investment divisions ............................. 2,279,862 (730,755)
Transfers -- other ................................................ (4,485) 1,049
------------- -------------
Net increase/(decrease) from policy transactions .................. (633,371) (955,952)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 6,903,933 (1,271,543)
Net Assets at December 31, 1998 ................................... 32,172,857 7,274,837
------------- -------------
- ---------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 39,076,790 $ 6,003,294
============= =============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 68 & 69 of 89
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ----------------------
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. GIAC, a wholly owned subsidiary of The Guardian
Life Insurance Company of America (Guardian), 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 as selected by the policyowner. The Account
currently comprises seven investment divisions which invest in the shares of
certain mutual funds and a unit investment trust. However, a policyowner can
only invest in up to four investment divisions. The policyowner also has the
ability to transfer his or her policy value among the investment divisions
within the Account.
Six of the investment divisions of the Account invest in shares of one of
the following mutual funds: The Guardian Stock Fund (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 other investment division purchases units in The Shearson
Lehman Brothers Fund of Stripped ("Zero") U.S. Treasury Securities Fund, Series
A-2004 Trust (the "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 Trust at net asset value. All distributions made by a
Fund are reinvested in shares of the same Fund.
(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 Trust 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 first in, first out
(FIFO) basis.
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 70 of 89
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
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 the 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 the Trust. For the year ended December 31, 1999
the total amount of these charges was $2,120,254.
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 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.
For the years ended December 31, 1999 and 1998 these fees amounted to $256,845
and $401,779 respectively.
In addition, GIAC also makes a monthly charge for the cost of life
insurance, based on the account value of the policyowner's insurance in force,
as compensation for the anticipated cost of paying death benefits. For the years
ended December 31, 1999 and 1998, deductions for cost of life insurance amounted
to $6,286,339 and $5,331,692, respectively.
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.
- ---------------------------------
Note 4 -- Net Assets, December 31
- ---------------------------------
At December 31, 1999, net assets of the Account were as follows:
Accumulation of Single Premium
Variable Life Insurance
Policyowners' Accounts $457,559,188
Owned by GIAC 675,645
------------
$458,234,833
============
The amount retained by GIAC in the Account comprises GIAC's initial
contribution to the Account together with 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 $256,845 at December 31, 1999
may be transferred by GIAC to its general account.
Value Plus Prospectus
Page 71 of 89
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
- -----------------------------
Note 5 -- Purchases and Sales
- -----------------------------
During the years ended December 31, 1999 and 1998, purchases and sales of
shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund .......... $ 42,656,176 $ 42,987,410 $ 40,319,464 $ 35,512,717
The Guardian Bond Fund, Inc. ..... 8,948,493 7,083,905 8,730,606 6,924,015
The Guardian Cash Fund, Inc. ..... 44,395,185 43,594,897 39,532,860 46,423,310
Baillie Gifford International Fund 4,780,387 6,645,091 5,695,557 8,257,111
Value Line Centurion Fund, Inc. .. 27,652,340 21,739,663 28,429,074 22,809,153
Value Line Strategic Asset
Management Trust ............... 6,712,900 5,542,631 5,276,229 5,703,163
Shearson Lehman Fund 2004 ........ 556,779 1,387,604 1,561,731 1,649,562
------------ ------------ ------------ ------------
Total .......................... $135,702,260 $128,981,201 $129,545,521 $127,279,031
============ ============ ============ ============
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 72 of 89
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
OF THE GUARDIAN SEPARATE ACCOUNT B
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Policyowners of The Guardian Separate Account B
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Guardian Stock,
Guardian Bond, Guardian Cash, Baillie Gifford International, Value Line
Centurion, Value Line Strategic Asset Management and Shearson Lehman Fund 2004
investment divisions (constituting The Guardian Separate Account B) at December
31, 1999, and the results of each of their operations for the year then ended
and the changes in each of their net assets for each of the two years then
ended, in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned at December 31, 1999 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 20, 2000
Value Plus Prospectus
Page 73 of 89
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Value Plus Prospectus
Page 74 of 89
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE
& ANNUITY COMPANY, INC.
- --------------------------------------------------------------------------------
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
---------------------
1999 1998
-------- --------
(In millions)
<S> <C> <C>
Assets:
Bonds, available for sale at fair
value (cost $572.7 million; $538.6 million, respectively) ....... $ 554.8 $ 549.0
Affiliated mutual funds ............................................ 78.0 42.9
Joint ventures ..................................................... 0.5 0.4
Policy loans ....................................................... 80.1 72.9
Short-term investments ............................................. 7.1 --
--------- ---------
Total invested assets .............................................. 720.5 665.2
--------- ---------
Cash and cash equivalents .......................................... 63.6 18.5
Deferred acquisition costs ......................................... 357.5 313.6
Deferred software costs ............................................ 11.6 --
Uncollected and unpaid premiums .................................... 3.4 2.1
Amounts receivable from reinsurers ................................. 46.5 42.5
Investment income due and accrued .................................. 9.9 9.4
Other assets ....................................................... 5.1 3.3
Accounts receivable ................................................ 37.5 22.2
Separate account assets ............................................ 11,063.8 8,841.7
--------- ---------
Total Assets ....................................................... $12,319.4 $ 9,918.5
========= =========
Liabilities:
Future policy benefits and other policyholder liabilities .......... $ 547.9 $ 480.0
Due to parent and mutual fund affiliates ........................... 69.6 32.2
Current federal income taxes ....................................... 18.2 25.8
Deferred federal income taxes ...................................... 102.8 98.8
Accrued expenses and other liabilities ............................. 110.0 47.5
Separate account liabilities ....................................... 10,970.4 8,764.8
--------- ---------
Total Liabilities .................................................. 11,818.9 9,449.1
--------- ---------
Stockholder's equity:
Common stock, 1999 - $100 par value, 25,000 shares authorized,
issued and outstanding; 1998 - $100 par value, 20,000 shares
authorized, issued and oustanding ............................... 2.5 2.0
Additional paid-in capital ......................................... 136.9 137.4
Retained earnings .................................................. 347.9 310.6
Accumulated other comprehensive income ............................. 13.2 19.4
--------- ---------
Stockholder's equity ............................................... 500.5 469.4
--------- ---------
Total Liabilities & Stockholder's Equity ........................... $12,319.4 $ 9,918.5
========= =========
</TABLE>
See notes to consolidated financial statements.
Value Plus Prospectus
Page 76 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In millions)
Revenues:
<S> <C> <C> <C>
Premiums ............................................... $ 12.0 $ 9.1 $ 3.7
Net investment income .................................. 45.4 41.4 38.7
Realized capital (losses) gains on investments ......... (1.7) 2.1 0.9
Income from brokerage operations ....................... 67.1 39.7 31.1
Administrative service fees ............................ 217.1 173.6 130.5
Other income ........................................... 17.5 24.0 20.3
------ ------ ------
Total revenues ......................................... 357.4 289.9 225.2
------ ------ ------
Benefits and other deductions:
Policyholder benefits .................................. 21.2 23.7 20.3
Amortization of deferred policy acquisition costs ...... 67.1 55.3 36.6
Amortization of deferred software costs ................ 1.8 -- --
Other operating costs and expenses ..................... 165.6 105.1 73.3
------ ------ ------
Total benefits and other deductions .................... 255.7 184.1 130.2
------ ------ ------
Income before income taxes ............................. 101.7 105.8 95.0
Federal income taxes:
Current expense ........................................ 12.1 24.4 17.2
Deferred expense ....................................... 12.3 12.0 16.2
------ ------ ------
Total federal income taxes ............................. 24.4 36.4 33.4
------ ------ ------
Net income ............................................. 77.3 69.4 61.6
Other comprehensive income, net of income tax:
Change in unrealized investment (losses) gains ......... (6.2) 3.2 12.6
------ ------ ------
Comprehensive income ................................... $ 71.1 $ 72.6 $ 74.2
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
Value Plus Prospectus
Page 77 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In millions)
<S> <C> <C> <C>
Common stock at par value, beginning of year ........... $ 2.0 $ 2.0 $ 2.0
Increase in par value .................................. 0.5 -- --
------ ------ ------
Common stock at par value, end of year ................. 2.5 2.0 2.0
------ ------ ------
Capital in excess of par value, beginning of year ...... 137.4 137.4 137.4
(Decrease) in capital .................................. (0.5) -- --
------ ------ ------
Capital in excess of par value, end of year ............ 136.9 137.4 137.4
------ ------ ------
Retained earnings, beginning of year ................... 310.6 241.2 179.6
Net income ............................................. 77.3 69.4 61.6
Dividends to parent .................................... (40.0) -- --
------ ------ ------
Retained earnings, end of year ......................... 347.9 310.6 241.2
------ ------ ------
Accumulated comprehensive income,
net of deferred taxes, beginning of year ............ 19.4 16.2 3.6
Change in unrealized investment (losses) gains,
net of deferred taxes ............................... (6.2) 3.2 12.6
------ ------ ------
Accumulated comprehensive income,
net of deferred taxes, end of year .................. 13.2 19.4 16.2
------ ------ ------
Total stockholder's equity, end of year ................ $500.5 $469.4 $396.8
====== ====== ======
</TABLE>
See notes to consolidated financial statements
Value Plus Prospectus
Page 78 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In millions)
<S> <C> <C> <C>
Operating activities
Net income .............................................. $ 77.3 $ 69.4 $ 61.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in
Deferred policy acquisition costs .................... (43.9) (46.2) (45.9)
Deferred software costs .............................. (11.6) -- --
Uncollected premiums ................................. (1.3) 2.4 0.5
Amounts receivable from reinsurers ................... (4.0) (13.4) 24.9
Investment income due and accrued .................... (0.5) (0.5) (0.3)
Other assets ......................................... (1.8) 0.1 0.6
Accounts receivable .................................. (15.3) 8.6 (10.4)
Separate accounts, net ............................... (16.5) (14.8) (5.1)
Future policy benefits and policyholder liabilities .. 20.9 21.9 (17.0)
Payable to parent .................................... 10.7 5.7 8.9
Federal income taxes:
Current ............................................ (7.6) 9.1 6.9
Deferred ........................................... 4.0 14.1 19.2
Accrued expenses and other liabilities ............... 62.5 (1.5) (14.0)
Realized losses(gains) on investments ................ 1.7 (2.1) (0.9)
Other, net ........................................... (0.7) 1.0 (3.8)
------ ------ ------
Net cash provided by operating activities .......... 73.9 53.8 25.2
------ ------ ------
Investment activities
Proceeds from investments sold
Bonds ................................................ 142.2 280.9 315.4
Other items, net ..................................... -- -- (1.3)
Investments purchased
Bonds ................................................ (180.1) (331.7) (310.5)
Affiliated mutual funds .............................. (24.6) (3.3) (20.5)
------ ------ ------
Net cash used by investing activities .............. (62.5) (54.1) (16.9)
------ ------ ------
Financing activities
Additions to policyholder contract deposits ............. 107.7 54.8 61.7
Withdrawals from policyholder contract deposits ......... (60.7) (64.4) (61.8)
Dividend to parent ...................................... (13.3) -- --
------ ------ ------
Net cash provided (used) by financing activities ... 33.7 (9.6) (0.1)
------ ------ ------
(Decrease) Increase in cash ................................ 45.1 (9.9) 8.2
Cash and cash equivalents, at beginning of year ............ 18.5 28.4 20.2
------ ------ ------
Cash and cash equivalents, at end of year .................. $ 63.6 $ 18.5 $ 28.4
====== ====== ======
Supplemental disclosure:
Federal income taxes paid ............................... $ 19.7 $ 15.4 $ 10.2
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
Value Plus Prospectus
Page 79 of 89
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Guardian Insurance & Annuity Company, Inc. (GIAC or the Company) is a
wholly owned subsidiary of The Guardian Life Insurance Company of America (The
Guardian). The Company, domiciled in the state of Delaware, is licensed to
conduct life and health insurance business in all fifty states and the District
of Columbia. The Company's primary business is the sale of variable deferred
annuity contracts and variable and term life insurance policies. For variable
products, other than 401(k) products, contracts are sold by insurance agents who
are licensed by GIAC and are either Registered Representatives of Park Avenue
Securities, LLP (PAS) or of broker dealer firms that have entered into sales
agreements with GIAC. The Company's general agency distribution system is used
for the sale of other products and policies.
PAS, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934. PAS was established as a
broker dealer during 1999 and has assumed the registered representatives
formally affiliated with Guardian Investor Services Corporation (GISC).
GISC, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934 and is a registered investment
advisor under the Investment Adviser's Act of 1940. GISC is the distributor and
underwriter for GIAC's variable products, and is the investment advisor to
certain mutual funds sponsored by GIAC which are investment options for the
variable products.
The Company has established fourteen insurance separate accounts primarily
to support the variable annuity, universal variable life and variable life
insurance products it offers. The majority of the separate accounts are unit
investment trusts registered under the Investment Company Act of 1940. Proceeds
from the sale of variable products are invested through these separate accounts
in certain mutual funds specified by the contractholders. Of these separate
accounts the Company maintains two separate accounts whose sole purpose is to
fund certain employee benefits plans of The Guardian.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Company's consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States (GAAP). All significant intercompany balances and transactions
have been eliminated.
Accounting Changes: In March 1998, the American Institute of Certified
Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which requires capitalization of external and certain internal
costs incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP 98-1
prospectively effective January 1, 1999. The adoption of SOP 98-1 resulted in
$14.9 million of software costs being capitalized. Capitalized internal use
software is amortized on a straight-line basis over the estimated useful life of
the software.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES:
Bonds and common stocks are classified as available for sale and carried
at estimated fair value, with unrealized appreciation or depreciation recorded
net of applicable deferred taxes are included in a separate component of equity,
"Accumulated other comprehensive income". The investment portfolio is reviewed
for investments that may have experienced a decline in value considered to be
other than temporary.
Joint ventures are carried on the equity basis of accounting.
Policy loans are stated at unpaid principal balance. The carrying amount
approximates fair value since loans on policies have no defined maturity date
and reduce the amount payable at death or surrender of the contract.
Value Plus Prospectus
Page 80 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Securities purchase under agreements to resell and securities sold under
agreements to repurchase are treated as financing arrangements and are carried
at the amounts at which the securities will be subsequently resold or
reacquired, including accrued interest, as specified in the respective
agreements. The Company's policy is to take possession of securities purchased
under agreements to resell. The market value of securities to be repurchased or
resold is monitored, and additional collateral is requested, where appropriate,
to protect against credit exposure.
Securities repurchase and resale agreements and securities borrowed and
loaned transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
Realized investment gains, net are computed using the specific
identification method. Costs of bonds and stocks are adjusted for impairments
considered other than temporary. Allowances for losses on mortgage loans and
real estate are netted against asset categories to which they apply and
provisions for losses on investments are included in "Realized investment gains,
net." Decreases in lower of depreciated cost or fair value less selling costs of
investment real estate held for sale are recorded in "Realized investment gains,
net."
Short-term investments are stated at amortized cost and consist primarily
of investments with maturities as of purchase date of six months or less. Market
values for such investments approximate carrying value.
Cash and cash equivalents include cash on hand and highly liquid debt
instruments purchased with an original maturity of three months or less.
Deferred Policy Acquisition Costs are costs of acquiring new business,
principally commissions, underwriting, agency and policy issue expenses, all of
which vary with and are primarily related to the production of new business, are
deferred. Deferred policy acquisition costs are subject to recoverability
testing at the time of policy issue and loss recognition testing at the end of
each accounting period.
For investment-type products, deferred policy acquisition costs are
amortized over the shorter of the expected average life of the contracts or
thirty years, as a constant percentage of estimated gross profits arising
principally from investment results, mortality and expense margins and surrender
charges based on actual results and anticipated future experience, updated at
the end of each accounting period. The effect on the amortization of deferred
policy acquisition costs of revisions to estimated gross profits is reflected in
earnings in the period such estimated gross profits are revised.
For life insurance products, deferred policy acquisition costs are
amortized in proportion to anticipated premiums. Assumptions as to anticipated
premiums are estimated at the date of policy issue and are consistently applied
during the life of the contracts. Deviations from estimated experience are
reflected in earnings in the period such deviations occur. For these contracts,
the amortization periods generally are for the estimated life of the policy.
Separate account assets and liabilities are reported at market value, and
represent policyholder funds maintained in accounts having specific investment
objectives. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company.
Investment risks associated with market value changes are generally borne by the
customers, except to the extent of minimum guarantees made by the Company with
respect to certain amounts. The investment results of separate accounts are
reflected in separate account liabilities. The amounts provided by the Company
to establish separate account investment portfolios (seed money) are included in
separate account assets.
Insurance Revenue and Expense Recognition consists of premiums and
benefits. Premiums for term life and certain annuity insurance products are
recognized as revenue when due and collected. The reserve for future policy
benefits has been provided on a net-level premium method based upon estimated
investment yields, mortality, and other assumptions which were appropriate at
the time the policies were issued. Benefits and expenses are associated with
earned premiums so as to result in recognition of profits over the life of the
contract. This association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition costs.
Revenues for variable life and for individual and group variable annuity
products consist of net investment income and cost of insurance, policy
administration and surrender charges that have been earned and assessed against
policyholder account balances during the period. Policy benefits and claims that
are charged to expense include benefits and
Value Plus Prospectus
Page 81 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
claims incurred in the period in excess of related policy account balances,
maintenance costs and interest credited to policyholder account balances. The
policyholder account values represent an accumulation of gross premium payments
plus credited interest less expense and mortality charges and withdrawals.
Income Taxes for the Guardian and its life insurance and non-life
insurance subsidiaries file a consolidated federal income tax return. Current
federal taxes are charged or credited to operations based on amounts estimated
to be payable or recoverable as a result of taxable operations for the current
year. Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax basis of
assets and liabilities using enacted income tax rates and laws.
Reclassifications of certain amounts in prior years have been adjusted to
conform to current year presentation.
NOTE 3 - INVESTMENT SECURITIES
Market values of bonds and common stocks are based on quoted prices as
available. For certain private placement debt securities where quoted market
prices are not available, management estimates fair market value by using
adjusted market prices for like securities.
The cost and estimated market values of investments by major investment
category as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
(In millions)
-------------------------------------------------
Gross Gross Estimated
Cost Unrealized Unrealized Market
Basis Gains Losses Value
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations of U.S. ....
government corporations and agencies ............ $ 24.5 $ 0.2 $ 0.7 $ 24.0
Obligations of states and political subdivisions .. 30.7 0.1 0.5 30.3
Debt securities issued by foreign governments ..... 3.8 -- 0.1 3.7
Corporate debt securities ......................... 513.7 0.5 17.4 496.8
------- ------- ------- -------
Subtotal ........................................ 572.7 0.8 18.7 554.8
Affiliated mutual funds ........................... 61.0 17.2 0.2 78.0
------- ------- ------- -------
$ 633.7 $ 18.0 $ 18.9 $ 632.8
======= ======= ======= =======
(In millions)
-------------------------------------------------
Gross Gross Estimated
Cost Unrealized Unrealized Market
Basis Gains Losses Value
------- ---------- ---------- ---------
U.S. Treasury securities & obligations of U.S. ....
government corporations and agencies ............ $ 28.4 $ 1.5 $ -- $ 29.9
Obligations of states and political subdivisions .. 60.2 1.4 -- 61.6
Debt securities issued by foreign governments ..... 8.0 0.1 -- 8.1
Corporate debt securities ......................... 442.0 10.0 2.6 449.4
------- ------- ------- -------
Subtotal ........................................ 538.6 13.0 2.6 549.0
Affiliated mutual funds ........................... 36.9 6.6 0.6 42.9
------- ------- ------- -------
$ 575.5 $ 19.6 $ 3.2 $ 591.9
======= ======= ======= =======
</TABLE>
The amortized cost and estimated market value of bonds as of December 31,
1999 and 1998 by contractual maturity is shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations.
Value Plus Prospectus
Page 82 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
<TABLE>
<CAPTION>
As of December 31, 1999
(In millions)
-----------------------
Estimated
Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less ............................................ $ 61.4 $ 61.2
Due after one year through five years .............................. 296.4 290.0
Due after five years through ten years ............................. 100.1 95.5
Due after ten years ................................................ 51.7 46.7
Sinking fund bonds (including collateralized mortgage obligations) . 63.1 61.4
--------- ---------
$ 572.7 $ 554.8
========= =========
As of December 31, 1998
(In millions)
-----------------------
Estimated
Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less ............................................ $ 47.5 $ 47.7
Due after one year through five years .............................. 250.0 253.2
Due after five years through ten years ............................. 102.5 107.8
Due after ten years ................................................ 67.6 68.3
Sinking fund bonds (including collateralized mortgage obligations) . 71.0 72.0
--------- ---------
$ 538.6 $ 549.0
========= =========
</TABLE>
The major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Fixed maturities ....................................... $ 37.2 $ 33.9 $ 31.8
Affiliated mutual funds ................................ 1.6 1.5 1.1
Policy loans ........................................... 3.7 3.5 3.4
Short-term investment .................................. 2.9 2.3 2.4
Joint venture dividend ................................. 1.3 1.3 1.1
------ ------ ------
46.7 42.5 39.8
Less: Investment expenses .............................. 1.3 1.1 1.1
------ ------ ------
Net investment income .................................. $ 45.4 $ 41.4 $ 38.7
====== ====== ======
</TABLE>
Realized gains and losses are based upon specific identification of the
investments. The components of gross realized gains and losses for the year
ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Realized gains from dispositions:
Bonds ................................................ $ 0.6 $ 2.2 $ 1.1
Separate account seed ................................ 0.9 -- 0.9
Realized Loss from dispositions:
Bonds ................................................ (3.1) (0.1) (1.1)
Affiliated mutual funds .............................. (0.1) -- --
------ ------ ------
Realized gains ......................................... $ (1.7) $ 2.1 $ 0.9
====== ====== ======
</TABLE>
Value Plus Prospectus
Page 83 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The net unrealized holding gains and losses, included in the consolidated
balance sheets as a component of comprehensive income and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year ............................. $ 19.4 $ 16.2 $ 3.6
Changes in unrealized investment gains (losses),
net of deferred taxes, attributable to:
Bonds .............................................. (20.4) 2.6 4.6
Affiliated mutual funds ............................ 9.1 (1.8) 7.3
Separate account seed .............................. 5.1 2.4 1.7
Other .............................................. -- -- (1.0)
------ ------ ------
Balance, end of year ................................... $ 13.2 $ 19.4 $ 16.2
====== ====== ======
</TABLE>
Currently, comprehensive income for the Company consists of net income and
the change in unrealized gains and losses on securities. As of December 31,
1999, 1998 and 1997, the change in unrealized gains and losses before tax was
$(12.9), $7.4 and $15.6 and after tax was $(6.2), $3.2 and $12.6, respectively.
Reclassification adjustments for the period, which include gains on
investment securities that were realized and included in net income of the
current period that also had been included in other comprehensive income as
unrealized holding gains in the period in which they arose, are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Unrealized holding (losses) gains ...................... $(14.5) $ 5.7 $ 15.6
Less: Reclassification adjustments ..................... 1.6 1.7 --
------ ------ ------
Change in unrealized holding (losses) gains ............ $(12.9) $ 7.4 $ 15.6
====== ====== ======
</TABLE>
Special Deposit assets of $3.7 million and $4.1 million at December 31,
1999 and 1998, respectively, were on deposit with governmental authorities or
trustees as required by certain insurance laws.
NOTE 4 - DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs as of and
for the years ended December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
As of December 31,
(In millions)
-----------------------
1999 1998
<S> <C> <C>
Balance, beginning of year ......................................... $ 313.6 $ 267.4
Capitalization of deferrable expenses .............................. 93.8 77.0
Amortization of recoverable DAC balances ........................... (67.1) (55.3)
Interest on DAC .................................................... 21.7 24.2
Retrospectively applied adjustments ................................ (4.5) 0.3
--------- ---------
Balance, end of year ............................................... $ 357.5 $ 313.6
========= =========
</TABLE>
Value Plus Prospectus
Page 84 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 5 - POLICYHOLDERS' ACCOUNT BALANCES
The balances of policyholders' account balances as of and for the years
ended December 31, 1999 and 1998 are summarized as follows:
As of December 31,
(In millions)
-----------------------
1999 1998
---------- ---------
Individual annuities ................................ $ 7,617.9 $ 6,492.8
Group annuities ..................................... 3,105.7 2,104.3
Variable life ....................................... 713.7 569.6
Interest-sensitive life contracts ................... 4.2 4.5
---------- ---------
Policyholders' account balances ..................... $ 11,441.5 $ 9,171.2
========== =========
Policyholders' account balances for investment-type contracts represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses and mortality charges.
NOTE 6 - FEDERAL INCOME TAXES
The federal income tax expense in the consolidated statements of earnings
is summarized as follows:
For the years ended December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
Federal Income Tax expense:
Current ................................... $ 12.1 $ 24.4 $ 17.2
Deferred .................................. 12.3 12.0 16.2
------ ------ ------
Total ....................................... $ 24.4 $ 36.4 $ 33.4
====== ====== ======
The federal income taxes attributable to consolidated operations in
certain circumstances can be different from the amounts determined by
multiplying the earnings from operations before federal income taxes by the
expected federal income tax rate of 35%. The sources of the difference and the
tax effects of each source are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Expected taxes on pre-tax income ....................... $ 35.6 $ 37.5 $ 33.3
Permanent adjustments:
Dividends received deduction on separate accounts .... (13.1) -- --
Reserve on overpayment of 1998 taxes in 1999 ........... 1.3 -- --
True-up of tax basis reserves .......................... 1.3 -- --
State and local taxes .................................. -- (0.5) 0.1
Foreign tax credit ..................................... (0.3) (0.3) --
Other .................................................. (0.4) (0.3) --
------ ------ ------
Total tax expense ...................................... $ 24.4 $ 36.4 $ 33.4
====== ====== ======
</TABLE>
Value Plus Prospectus
Page 85 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The tax effect of temporary differences which give rise to deferred
federal income tax assets and liabilities as of December 31, 1999 and 1998, are
as follows:
As of December 31,
(In millions)
-----------------------
1999 1998
--------- ---------
Deferred tax assets:
Other liabilities ................................... $ 19.5 $ 15.7
DAC Proxy ........................................... 13.7 11.1
Amounts receivable from reinsurer ................... 0.3 0.9
Other ............................................... 3.9 1.4
--------- ---------
Total deferred tax assets ........................... 37.4 29.1
Deferred tax liabilities:
Deferred acquisition costs .......................... $ 125.1 $ 109.8
Capitalized software costs .......................... 4.1 --
Reserves ............................................ 7.7 6.0
Investments ......................................... 3.3 10.3
Other ............................................... -- 1.8
--------- ---------
Total deferred tax liabilities ...................... 140.2 127.9
--------- ---------
Net deferred tax liability .......................... $ 102.8 $ 98.8
========= =========
Management has concluded that the deferred income tax assets are more
likely than not to be realized. Therefore, no valuation allowance has been
provided.
NOTE 7 - REINSURANCE
The Company has entered into cession and assumption agreements on a
coinsurance, modified coinsurance and yearly renewable term basis with
affiliated and non-affiliated companies. Ceding reinsurance is used by the
Company to limit its risk from large exposures and to permit recovery of a
portion of direct losses, although ceded reinsurance does not relieve the
originating insurer of liability.
The Company has assumed and ceded coinsurance and modified coinsurance
agreements with affiliated companies. Under these agreements, included in the
consolidated statements of income are $0.9 million, $0.9 million and $1.0
million of assumed premiums at December 31, 1999, 1998 and 1997, and $83.1
million, $65.2 million and $43.6 million of ceded premiums at December 31, 1999,
1998 and 1997, respectively.
The Company terminated, during 1997, an assumption agreement with an
unaffiliated company. Under this agreement, included in the consolidated
statements of income are $(2.3) million of premiums at December 31, 1997.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values for fixed maturities and equity securities, other
than private placement securities, are based on quoted market prices or
estimates from independent pricing services. Fair values for private placement
securities are estimated using a discounted cash flow model which considers the
current market spreads between the U.S. Treasury yield curve and corporate bond
yield curve, adjusted for the type of issue, its current credit quality and its
remaining average life. The fair value of certain non-performing private
placement securities is based on amounts estimated by management.
Value Plus Prospectus
Page 86 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$141.0 million in 1999, $100.8 million in 1998 and $72.2 million in 1997, and,
in the opinion of management, were considered appropriate for the services
rendered.
The Company had an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware Insurance law as an insurance
company separate account. GIAC had contributed capital to GREA to provide for
funds and to preserve liquidity. Effective December 19, 1997 GREA was liquidated
and, as a result, $6.7 million was returned to GIAC in the form of capital and
there was a realized gain recorded of $1.0 million.
A significant portion of the Company's separate account assets is invested
in affiliated mutual funds. Each of these funds has an investment advisory
agreement with the Company, except for The Baillie Gifford International Fund,
The Baillie Gifford Emerging Markets Fund, The Guardian Baillie Gifford
International Fund and The Guardian Baillie Gifford Emerging Markets Fund.
The separate account assets invested in affiliated mutual funds as of
December 31, 1999 and 1998 are as follows (in millions):
1999 1998
--------- ---------
The Guardian Stock Fund .............................. $ 4,153.9 $ 3,664.9
The Guardian VC 500 Index Fund ....................... 1.8 --
The Guardian VC Allocation Fund ...................... 0.8 --
The Guardian High Yield Bond Fund .................... 0.2 --
The Guardian Bond Fund ............................... 320.0 381.5
The Guardian Cash Fund ............................... 484.1 419.5
The Baillie Gifford International Fund ............... 662.3 526.4
The Baillie Gifford Emerging Markets Fund ............ 64.6 34.6
The Guardian Small Cap Stock Fund .................... 130.6 109.2
The Guardian Park Avenue Fund ........................ 621.3 511.6
The Guardian Park Avenue Small Cap Fund .............. 22.8 13.2
The Guardian Asset Allocation Fund ................... 46.0 39.8
The Guardian Baillie Gifford International Fund ...... 15.5 9.1
The Guardian Baillie Gifford Emerging Markets Fund ... 6.8 0.8
The Guardian Investment Quality Bond Fund ............ 12.7 9.3
The Guardian High Yield Bond Fund .................... 0.8 --
The Guardian Cash Management Fund .................... 126.4 57.9
--------- ---------
$ 6,670.6 $ 5,777.8
========= =========
The Company, in agreement with Baillie Gifford Overseas Ltd., has a joint
venture company -- Guardian Baillie Gifford Ltd. (GBG) -- that is organized as a
corporation in Scotland. GBG is registered in both the United Kingdom and the
United States to act as an investment advisor for the Baillie Gifford
International Fund (BGIF), the Baillie Gifford Emerging Markets Fund (BGEMF),
The Guardian Baillie Gifford International Fund (GBGIF) and The Guardian Baillie
Gifford Emerging Markets Fund (GBGEMF). The Funds are offered in the U.S. as
investment options under certain variable annuity contracts and variable life
policies.
Value Plus Prospectus
Page 87 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The Company maintains investments in affiliated mutual funds. These
investments as of December 31, 1999 and 1998 are as follows (in millions):
1999 1998
--------- ---------
The Guardian Park Avenue Fund ........................ $ 0.1 $ 0.1
The Guardian Park Avenue Small Cap Fund .............. 2.5 1.8
The Guardian Small Cap Stock Fund .................... 35.2 26.1
The Guardian Asset Allocation Fund ................... 2.8 2.5
The Guardian Baillie Gifford International Fund ...... 2.9 2.1
The Guardian Baillie Gifford Emerging Markets Fund ... 1.5 0.9
The Guardian Investment Quality Bond Fund ............ 1.6 1.6
The Guardian High Yield Bond Fund .................... 1.6 1.6
The Guardian Cash Management Fund .................... 29.8 6.2
--------- ---------
$ 78.0 $ 42.9
========= =========
NOTE 10 - STATUTORY EQUITY AND INCOME
Applicable insurance department regulations require that the Company
prepare statutory financial statements in accordance with statutory accounting
practices prescribed or permitted by the New York Department of Insurance.
Statutory accounting practices primarily differ from GAAP by charging policy
acquisition costs to expense as incurred, establishing future policy benefits
reserves using different actuarial and interest assumptions, not providing for
deferred taxes, and valuing securities on a different basis.
The following reconciles the consolidated GAAP net income of the Company
to statutory net income as reported to the regulatory authorities:
<TABLE>
<CAPTION>
For the years ended December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Consolidated GAAP net income ........................... $ 77.3 $ 69.4 $ 61.6
Adjustments to restate to statutory basis:
Statutory net income of subsidiaries ................. 3.3 (4.5) (4.3)
Change in deferred policy acquisition costs .......... (45.2) (43.2) (41.9)
Change in deferred software costs .................... (8.8) -- --
Deferred premiums .................................... 0.3 1.5 5.6
Re-estimation of future policy benefits .............. 13.1 9.7 3.3
Reinsurance .......................................... (3.8) (4.1) (12.4)
Deferred federal income tax expense .................. 11.2 11.9 16.2
Amortization of interest maintenance reserve ......... 0.4 0.3 0.1
Transfer to interest maintenance reserve ............. 2.4 (1.4) --
Other, net ........................................... 2.8 0.9 (0.2)
------ ------ ------
Statutory net income ................................... $ 53.0 $ 40.5 $ 28.0
====== ====== ======
</TABLE>
Value Plus Prospectus
Page 88 of 89
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The following reconciles the consolidated GAAP stockholder's equity of the
Company to statutory capital and surplus as reported to the regulatory
authorities:
<TABLE>
<CAPTION>
As of December 31,
(In millions)
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Consolidated GAAP stockholder's equity ................. $500.5 $469.4 $396.8
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs .................... (357.5) (313.6) (267.4)
Deferred software costs .............................. (11.6) -- --
Elimination of asset valuation reserve ............... (42.7) (29.6) (26.3)
Re-estimation of future policy benefits .............. (53.4) (46.9) (41.3)
Establishment of deferred income tax liability ....... 102.8 98.8 84.7
Unrealized gains on investments ...................... 19.8 (11.7) (7.9)
Other liabilities .................................... 66.7 48.1 33.5
Deferred premiums .................................... 8.2 7.8 7.0
Other, net ........................................... 5.4 5.1 3.6
------ ------ ------
Statutory capital and surplus .......................... $238.2 $227.4 $182.7
====== ====== ======
</TABLE>
Value Plus Prospectus
Page 89 of 89
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income, of changes in equity
and of cash flows present fairly, in all material respects, the financial
position of The Guardian Insurance & Annuity Company, Inc. and its subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for costs of computer software developed or
obtained for internal use in 1999.
/s/ PricewaterhouseCoopers LLP
February 14, 2000
Value Plus Prospectus
Page 75 of 89
<PAGE>
APPENDIX A
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 are based on the following additional
assumptions:
1. The illustration on page A-2 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 A-3 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 A-4 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 A-5 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
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").
Value Plus Prospectus
A-1
<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.
Value Plus Prospectus
A-2
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$5,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $46,116
<TABLE>
<CAPTION>
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.
Value Plus Prospectus
A-3
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$20,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $98,848
<TABLE>
<CAPTION>
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.
Value Plus Prospectus
A-4
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$25,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $76,470
<TABLE>
<CAPTION>
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.
Value Plus Prospectus
A-5
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$50,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
GUARANTEED INSURANCE AMOUNT: $113,608
<TABLE>
<CAPTION>
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.
Value Plus Prospectus
A-6
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484
Under Article VIII of GIAC's By-Laws, as supplemented by Section 3.2 of
GIAC's Certificate of Incorporation, any past or present director or officer of
GIAC (including persons who serve at GIAC's request or for its benefit as
directors or officers of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise [hereinafter referred to
as a "Covered Person"]) is indemnified to the fullest extent permitted by law
against liability and all expenses reasonably incurred by such Covered Person in
connection with any action, suit or proceeding to which such Covered Person may
be a party or otherwise involved by reason of being or having been a Covered
Person. However, this provision does not protect a Covered Person against any
liability to either GIAC or its stockholder to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office. This provision does protect a director of GIAC against
any liability to GIAC or its stockholder for monetary damages or for breach of
fiduciary duty as a director of GIAC, except for liability (i) for any breach of
the director's duty of loyalty to GIAC or its stockholder, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26
The Guardian Insurance & Annuity Company, Inc. hereby represents that the
fees and charges deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by The Guardian Insurance & Annuity Company, Inc.
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 89 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
The Representation pursuant to Section 26 of The Investment Company Act of
1940.
The signatures.
II-1
<PAGE>
Written opinions and/or consents of the following persons:
Richard T. Potter, Jr., Esq.
Charles G. Fisher, F.S.A.
PricewaterhouseCoopers 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.(9)
(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.(6)
(b) By-laws of The Guardian Insurance & Annuity Company,
Inc.(9)
(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.(8)
(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 PricewaterhouseCoopers LLP.
8. Powers of Attorney executed by a majority of the Board of Directors
and certain principal officers of The Guardian Insurance & Annuity
Company, Inc.
- ----------------
(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, 1989
(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. 17 to the
Registration Statement on Form S-6 filed by Registrant on March 2, 1995
(Reg. No. 2-97765).
(9) Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement on Form S-6 filed by Registrant on April 30, 1998
(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. 23 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 20 day of April, 2000.
THE GUARDIAN SEPARATE ACCOUNT B
(Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Depositor)
By /s/ Richard T. Potter, Jr.
------------------------------
RICHARD T. POTTER, JR.
VICE PRESIDENT AND COUNSEL
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* Executive Vice
Frank J. Jones President, Chief Investment
Principal Financial Officer Officer and Director
FRANK L. PEPE Vice President and Controller
Frank L. Pepe
Principal Accounting Officer
BRUCE C. LONG* Executive Vice President,
Bruce C. Long Equity Products and Director
EDWARD K. KANE* Executive Vice President and
Edward K. Kane 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*
Peter L. Hutchings Director
WILLIAM C. WARREN* Director
William C. Warren
*By: /s/ RICHARD T. POTTER, JR. Date: April 20, 2000
-------------------------------
Richard T. Potter, Jr.
Vice President and Counsel
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 PricewaterhouseCoopers LLP
8 Powers of Attorney
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 20, 2000
[letterhead]
April 20, 2000
The Guardian Insurance & Annuity Company, Inc.
7 Hanover Square
New York, New York 10004
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. 23 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 "Appendix A:
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
"Death benefit" 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,
/s/ Charles G. Fisher
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. 23 to The Guardian Separate Account B registration
statement on Form S-6 (the "Registration Statement") of our report dated
February 20, 2000, relating to the financial statements of The Guardian Separate
Account B and our report dated February 14, 2000, relating to the consolidated
financial statements of The Guardian Insurance & Annuity Company, Inc., which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Financial and Actuarial Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 20, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Philip H. Dutter, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ Philip H. Dutter
----------------------------
Philip H. Dutter
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Arthur V. Ferrara, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ Arthur V. Ferrara
----------------------------
Arthur V. Ferrara
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Leo R. Futia, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ Leo R. Futia
----------------------------
Leo R. Futia
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Frank J. Jones, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ Frank J. Jones
----------------------------
Frank J. Jones
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Edward K. Kane, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ Edward K. Kane
----------------------------
Edward K. Kane
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Peter L. Hutchings, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ Peter L. Hutchings
----------------------------
Peter L. Hutchings
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Joseph D. Sargent, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ Joseph D. Sargent
----------------------------
Joseph D. Sargent
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that William C. Warren, whose
signature appears below, constitutes and appoints Bruce C. Long, Frank L. Pepe
and Richard T. Potter, Jr. each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for any and
all separate accounts established by The Guardian Insurance & Annuity Company,
Inc. which are currently in existance or which may be established in the future
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitutes,
may do or cause to be done by virtue hereof.
Dated September 23, 1999
/s/ William C. Warren
----------------------------
William C. Warren
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Bruce C. Long, whose
signature appears below, constitutes and appoints Frank L. Pepe and Richard T.
Potter, Jr. each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for any and all separate
accounts established by The Guardian Insurance & Annuity Company, Inc. which are
currently in existance or which may be established in the future and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitutes, may do or cause to be
done by virtue hereof.
Dated April 7, 2000
/s/ Bruce C. Long
----------------------------
Bruce C. Long
