SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from to
---------- -----------
33-22548
Commission file number 33-33686
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-2656036
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 Park Avenue South, New York, New York 10003
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (212) 598-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
-- --
[Cover page 1 of 2 pages]
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X - Not Applicable]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405). THE REGISTRANT DOES NOT ISSUE VOTING
STOCK.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. None.
----
Cover page 2 of 2 pages]
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Registrant)
INDEX
Item Page
No. No.
---- ----
Cover Page ..................................................... -
Index .......................................................... 1
PART I
1. Business ....................................................... 2
2. Properties ..................................................... 5
3. Legal Proceedings .............................................. 6
4. Submission of Matters to a Vote of Security Holders ............ 6
PART II
5. Market for the Registrant's Common Stock and
Related Security Holder Matters .............................. 7
6. Selected Financial Data ........................................ 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 10
8. Financial Statements and Supplementary Data .................... 12
9. Disagreements on Accounting and Financial Disclosure ........... 12
PART III
10. Directors and Executive Officers of the Registrant ............. 13
11. Executive Compensation ......................................... 16
12. Security Ownership of Certain Beneficial Owners and
Management ................................................... 16
13. Certain Relationships and Related Transactions ................. 16
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K .................................................. 17
Exhibit Index .................................................. 20
Signatures ..................................................... 21
Report of Price Waterhouse LLP, Independent Accountants ........ F-2
1
<PAGE>
PART I
Item 1. Business
A. General
The Guardian Insurance & Annuity Company, Inc. ("GIAC"), a wholly owned
subsidiary of The Guardian Life Insurance Company of America ("Guardian
Life"), established The Guardian Real Estate Account (the "Registrant" or
the "Account") in December 1987 as a separate investment account pursuant
to Delaware insurance law. The Account provides a real estate investment
option under certain variable life insurance policies and variable annuity
contracts issued by GIAC (collectively, the "Contracts," and individually,
a "Contract").
Unlike the other separate accounts funding the Contracts, the Account is
not registered as an investment company with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940. The
participating interests offered by the Account are registered with the SEC
under the Securities Act of 1933. The registration statement registering
participating interests in the Account was initially declared effective on
November 1, 1988, at which time interests in the Account began to be
offered to Contractowners. Contractowners have no voting rights with
respect to the Account.
The Account is controlled by GIAC. GIAC's Board of Directors and officers
are responsible for the management of the Account. The Investment
Committee of GIAC's Board of Directors monitors the Account's investments
and reviews each real estate-related acquisition or disposition
recommended by the investment manager responsible for such
recommendations.
GIAC has contracted with the following two investment managers to provide
assistance in the selection, administration, management and disposition of
the Account's investments: (i) O'Connor Realty Advisors Incorporated
("O'Connor Realty"), which is not affiliated with Guardian Life or GIAC;
and (ii) Guardian Investor Services Corporation ("GISC"), a wholly owned
subsidiary of GIAC. O'Connor Realty generally arranges and supervises
day-to-day administration and management of the real estate-related
investments of the Account, though from time-to-time GIAC may provide such
services with respect to selected real estate-related assets. GISC is
responsible for the day-to-day administration and management of the
portfolio of cash, cash equivalents, and short-term and intermediate-term
debt instruments maintained by the Account for liquidity purposes.
As of December 31, 1994, the Account's net assets totalled $15,065,948. Of
this amount, $9,870,097 was attributable to Contractowner interests and
$5,195,851 was attributable to GIAC.
2
<PAGE>
Although the primary source of the Account's funds is intended to be
Contractowner contributions, from time to time GIAC has made contributions
to provide additional funds for acquisitions or liquidity. During 1994,
GIAC contributed $950,000 to the Account to enable the acquisition of
additional assets. There can be no assurance that GIAC will make
additional contributions to the Account, and it may withdraw some or all
of its contributions when it is satisfied that such a withdrawal will not
adversely affect the interests of Contractowners and all legal
requirements are met. GIAC withdrew most of its earlier contributions to
the Account in transactions which occurred in October 1990 and December
1991.
The Account owns two office buildings in Glastonbury, Connecticut. The
Account has also acquired a warehouse/office facility located in Kennesaw,
Georgia. These real property acquisitions were made in June 1989 and
October 1991. During 1993, the Account purchased fixed-income securities
with available cash and continued to seek suitable real estate-related
investments.
Independent appraisals of the Account's real estate-related investments
are ordinarily obtained annually after acquisition. As of December 31,
1993 and 1994, the buildings in Glastonbury, Connecticut were valued as
follows: 45 Glastonbury Boulevard -- $3,000,000 and $3,550,000,
respectively; and 115 Glastonbury Boulevard -- $4,200,000 and $3,700,000
respectively. Both buildings are fully leased, although the rental rates
now in place are lower than the rates which were in place when the
buildings were acquired. The market for office space in the area has been
hampered by the prolonged economic slowdown in the Northeast generally,
and in Connecticut specifically, where layoffs and company closings have
had a detrimental effect on the local economy. The appraised value of the
Account's Kennesaw, Georgia property was $5,100,000 as of December 31,
1994; which was also the appraised value as of December 31, 1993. Despite
this plateau, the appraised value of the property remains slightly lower
than its acquisition cost of $5,131,350.
Potential real estate-related investments for the Account continue to be
evaluated.
B. Investment Objectives
The Account's investment objectives are to (i) preserve and protect the
Account's capital; (ii) provide for the compounding of income by
reinvesting cash flow from investments; and (iii) provide for increases
over time in the amount of such income through appreciation in the value
of the Account's assets. There can be no assurance that these investment
objectives will be met.
The Account seeks to invest at least 65% of its assets in (i)
income-producing real property such as office buildings, shopping centers
or industrial properties; (ii) participating mortgage loans (which include
3
<PAGE>
participations in the appreciation and/or the revenues of the real
properties that secure the mortgage loans); and (iii) real property
purchase-leaseback transactions (which may include a participation
feature). Another portion of the Account's assets, typically ranging
between 20% and 25%, may be invested in other types of real estate-related
investments, including conventional, non-participating mortgage loans. The
remainder of the Account's assets (normally 10%-15%) will consist of cash
and investments in short-term or intermediate-term debt instruments for
liquidity purposes. The actual allocations among these different
investments may vary from the percentages set forth above because there is
no assurance that sufficient, suitable real estate-related investments
will be found for the Account. In addition, GIAC has reserved the right to
increase the portion of its assets held in fixed-income instruments to 30%
of the total. As of December 31, 1994, the Account's investments in
fixed-income securities and cash totalled $3,034,806.
It is intended that the Account will be managed so as to meet the
diversification requirements set forth in Section 817(h) of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations thereunder,
concerning the investments of variable life insurance and variable annuity
separate accounts.
C. Competition
As of December 31, 1994, GIAC was aware that several other real estate
investment separate accounts have been registered with the SEC and are
being offered for sale by competitors to fund benefits under variable
contracts. These products contain features which differ to some degree
from the Account, but their structure and investment objectives are
similar. The Account also competes against other real estate investment
funds, registered investment companies, limited partnerships, unit
investment trusts and pension and profit sharing trusts, all of which may
be offered for sale by commercial and investment banks, insurance
companies, realty corporations, savings and loan associations, diversified
financial service companies, and other financial services intermediaries.
The Account also competes against the other allocation options offered
under GIAC's Contracts, even though their investment programs are not
related to real estate.
The Account competes for real property investments, mortgage loans and
real property purchase-leasebacks with numerous other entities, including
certain affiliates of O'Connor Realty and GIAC.
D. Employees
The Account does not directly employ any person. The Board of Directors of
GIAC, through its Investment Committee, oversees the services provided in
connection with the acquisition, management and disposition of the
Account's real estate-related assets.
4
<PAGE>
Item 2. Properties
Office Buildings in Glastonbury, Connecticut
The Account owns two office buildings in Glastonbury, Connecticut. The
first, 45 Glastonbury Boulevard, contains nearly 41,000 square feet of net
rentable space, as does the second which is located at 115 Glastonbury
Boulevard. The buildings are part of Somerset Square, an 80-acre complex
containing office and retail space. The buildings are located at the
intersection of two state highways, which link the buildings to two major
interstate highways, and are approximately five miles southeast of downtown
Hartford.
The 45 Glastonbury Boulevard building is fully leased by four tenants,
three of whom began their tenancies in 1994. All leases have five year terms.
The building at 115 Glastonbury Boulevard is approximately 98% leased by four
tenants, three of whom renewed their initial five year leases for additional
five year terms in 1993 and 1994. Annual gross rentals in both buildings now
range from $17.00 to $19.00 per square foot, which compares favorably with
average local asking rates of $17.00 to $19.00 per square foot. Actual rents in
the locality may be 5% to 10% less than asking rents. The rental rates now in
place for both Glastonbury buildings are lower than the rates which were in
force when the buildings were acquired in 1989. Unfortunately, the market for
office space in Glastonbury and its environs has been hampered by the prolonged
economic slowdown in the Northeast generally, and Connecticut specifically,
where layoffs and company closings have been having detrimental effects on the
local economy.
Warehouse/Office Facility in Kennesaw, Georgia
The Account also owns a warehouse/office building containing 97, 518 square
feet located at 955 Cobb Place Boulevard, Kennesaw, Georgia. The property is
located in a 1,000 acre mixed-use business park on Interstate 75, approximately
15 miles northwest of Atlanta.
The entire building has been leased to Curtin Matheson Scientific, Inc.
("CMS") under a ten-year lease which expires in September 2001. CMS manufactures
and distributes clinical laboratory equipment. CMS is a wholly owned subsidiary
of Fisons PLC, a British manufacturer and supplier of pharmaceuticals,
scientific equipment and horticultural products.
The annual net rental rate under the lease with CMS is $5.40 per square
foot ($527,000 annually) through September 1996. Thereafter, the annual net
rental rate will be $6.43 per square foot ($627,000 annually) until the current
lease expires. The lease agreement provides for two five-year renewal options at
fair market value, and grants CMS the option to have the building expanded by
25,000 square feet. The Account is obligated to fund construction of the
expanded space if CMS exercises its option. However, it is expected that the
Account would recover any amounts expended for construction during the
lease-term through additional rent, and that providing for expansion may
encourage long-term term tenancy by CMS.
Within the property's environs, asking rental rates for office/warehouse
space typically range from $3.50 to $9.00 per square foot, depending on the
degree and percentage of space that has been finished for office use. The
Account's building is 20% office space. The property's rental rate reflects, in
part, the tenant's option to have the building expanded and certain improvements
relating to the tenant's use of the building. However, there is no assurance
that the potential expansion will occur.
5
<PAGE>
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Contractowners participating in the Account have no voting rights with
respect to the Account.
[THIS SPACE INTENTIONALLY LEFT BLANK]
6
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
As of December 31, 1994, interests in the Account were available in
connection with four Contracts issued by GIAC. At least one of these
Contracts is available for sale in every state.
Owners of Contracts that provide the opportunity to invest in the Account
may allocate all or part of the net consideration for their Contracts, or
transfer a portion of the total amount invested under their Contracts, to
the Account. Thereafter, values and benefits under their Contracts which
are attributable to their interests in the Account reflect the Account's
investment experience.
Equity, on a fair value basis, as of December 31, 1994 totalled
$15,065,948 which represents (i) GIAC's equity of $5,195,851 (568,614
units) and (ii) Contractowners' equity of $9,870,097 (1,356,133 units).
The high and low unit values during the periods indicated are detailed in
the chart below. Unit values are used to determine the value of a
participating interest in the Account.
Variable Annuity Unit Values Unit Value
ValueGuard ----------------------------
During the Quarter Ended: High Low
------------------------- ---- ---
December 31, 1994 $ 8.705184 $ 8.500098
September 30, 1994 $ 8.566393 $ 8.490478
June 30, 1994 $ 8.733579 $ 8.506989
March 31, 1994 $ 8.988593 $ 8.661648
December 31, 1993 $ 9.448880 $ 8.659812
September 30, 1993 $ 9.329429 $ 9.189190
June 30, 1993 $ 9.227943 $ 9.033124
March 31, 1993 $10.129764 $ 9.030906
December 31, 1992 $11.670823 $ 9.903619
September 30, 1992 $12.352665 $11.374473
June 30, 1992 $12.284548 $12.066002
March 31, 1992 $12.063650 $11.858621
December 31, 1991 $12.257247 $11.839737
September 30, 1991 $12.153958 $11.996576
June 30, 1991 $11.995525 $11.838827
March 31, 1991 $11.832058 $11.672532
Guardian Investor
Individual and Group Variable Unit Value
Annuity Contracts ----------------------------
During the Quarter Ended: High Low
------------------------- ---- ---
December 31, 1994 $ 7.870057 $ 7.684609
September 30, 1994 $ 7.747891 $ 7.689309
June 30, 1994 $ 7.902694 $ 7.697407
March 31, 1994 $ 8.139659 $ 7.843922
7
<PAGE>
Guardian Investor
Individual and Group Variable Unit Value
Annuity Contracts ---------------------------
During the Quarter Ended (Continued): High Low
------------------------- ---- ---
December 31, 1993 $ 8.557641 $ 7.842370
September 30, 1993 $ 8.452430 $ 8.328888
June 30, 1993 $ 8.364091 $ 8.190929
March 31, 1993 $ 9.185416 $ 8.188956
December 31, 1992 $10.587345 $ 8.984153
September 30, 1992 $11.326370 $11.213878
June 30, 1992 $11.153611 $10.959809
March 31, 1992 $10.957724 $10.776036
December 31, 1991 $11.138195 $10.759331
September 30, 1991 $11.049233 $10.910811
June 30, 1991 $10.909663 $10.771939
March 31, 1991 $10.766273 $10.624867
Variable Life Unit Values Unit Value
ValuePlus ---------------------------
During the Quarter Ended: High Low
------------------------- ---- ---
December 31, 1994 $ 8.969504 $ 8.758310
September 30, 1994 $ 8.815853 $ 8.736790
June 30, 1994 $ 8.976336 $ 8.744263
March 31, 1994 $ 9.218466 $ 8.882101
December 31, 1993 $ 9.686788 $ 8.879865
September 30, 1993 $ 9.554818 $ 9.399967
June 30, 1993 $ 9.439357 $ 9.226781
March 31, 1993 $10.349319 $ 9.226781
December 31, 1992 $11.909368 $10.106202
September 30, 1992 $12.579740 $11.584040
June 30, 1992 $12.505393 $12.268261
March 31, 1992 $12.265707 $12.042856
December 31, 1991 $12.445517 $12.022243
September 30, 1991 $12.327563 $12.153251
June 30, 1991 $12.151702 $12.022081
March 31, 1991 $11.966248 $11.789597
The Guardian Insurance & Annuity Unit Value
Company, Inc. Unit Values ---------------------------
During the Quarter Ended: High Low
------------------------- ---- ---
December 31, 1994 $ 9.3532 $ 9.1331
September 30, 1994 $ 9.1815 $ 9.0893
June 30, 1994 $ 9.3362 $ 9.0957
March 31, 1994 $ 9.5666 $ 9.2164
December 31, 1993 $10.0486 $ 9.2137
September 30, 1993 $ 9.9015 $ 9.7290
June 30, 1993 $ 9.7695 $ 9.5403
March 31, 1993 $10.6979 $ 9.5377
December 31, 1992 $12.2951 $10.4337
September 30, 1992 $12.9601 $10.9348
June 30, 1992 $12.8782 $12.6184
March 31, 1992 $12.6156 $12.3762
December 31, 1991 $12.7828 $12.3484
September 30, 1991 $12.6474 $12.453
June 30, 1991 $12.4509 $12.2591
March 31, 1991 $12.2511 $12.0548
8
<PAGE>
Unit value as of a given date is determined by GIAC based upon the latest
appraisal values of the Account's real estate-related assets, estimates of
the Account's accrued net operating income from real estate-related
assets, the value of the Account's liquid assets, and the Account's
liabilities. A public trading market does not exist for participating
interests in the Account, per se, since they are only offered in
connection with Contracts issued by GIAC.
As of February 28, 1995, there were 1,609 Contractowners of record
invested in the Account.
9
<PAGE>
Item 6. Selected Financial Data
The following selected financial data should be considered in connection
with the financial statements and notes thereto for the Account commencing
on page F-4.
Selected Financial Data for The Guardian Real Estate Account*
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues ........................................ $ 2,161,596 $ 2,540,877 $ 2,644,553 $ 3,015,065 $ 3,108,006
Net (decrease)/increase in net assets ........... (237,910) (2,101,375) (3,107,692) 597,299 1,993,317
Net (decrease)/increase in net assets per unit**:
Variable Annuity
Contractowners
Value Guard ............................... $ (0.15) $ (1.22) $ (1.80) $ 0.21 $ 0.72
Guardian Investor ......................... $ (0.16) $ (1.17) $ (1.87) $ 0.09 $ 0.54#
Variable Life
Contractowners .......................... $ (0.13) $ (1.16) $ (1.85) $ 0.24 $ 0.78
GIAC ....................................... $ (0.08) $ (1.58) $ (1.93) $ 0.33 $ 0.88
<CAPTION>
As at December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Financial Position:
Total assets .................................... $ 15,471,566 $ 16,021,167 $ 16,041,795 $ 21,177,088 $ 29,665,293
Total liabilities ............................... $ 405,618 $ 462,017 $ 165,758 $ 395,079 $ 195,634
Total net assets ................................ $ 15,065,948 $ 15,559,150 $ 15,876,037 $ 20,782,009 $ 29,469,659
</TABLE>
----------
* The figures presented in this table for the years ended prior to December
31, 1992 were adjusted by management in 1992 to reflect the change in the
basis of presentation of the Account's financial statements from the
historical cost basis to the fair value basis. See the financial statements
and related notes for additional information.
** Net (decrease)/increase in net assets per unit reflects the effects of GlAC's
partial subsidization of the Account's expenses since inception and GISC's
partial waiver of its management fee from inception through December 31,
1992. Net (decrease)/increase in net assets per unit also reflects the
deduction of certain Contract related fees and expenses from the Account.
Such fees and expenses differ among Contracts. GIAC's investment in the
Account is not subject to any such fees and expenses.
# The Guardian Investor Individual Deferred Variable Annuity Contract was
introduced in January 1990. The Guardian Investor Group Unallocated Deferred
Variable Annuity was introduced in September 1990.
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
As of December 31, 1994, the Account's net assets totalled $15,065,948. Of
this amount, $9,870,097 was attributable to Contractowner interests and
$5,195,851 was attributable to GIAC. At December 31, 1993, the Account's
net assets totalled $15,559,150. The Account's current source of funds is
primarily Contractowner contributions, although in December 1993, July
1994 and October 1994 GIAC contributed $1.8 million, $400,000, and
$550,000 respectively, to the Account to diversify its portfolio of
investments.
As of December 31, 1994, almost 80% of the Account's assets were invested
in real estate-related assets and the remainder was invested in permitted
fixed-income instruments. This ratio (i.e., approximately 80/20) of real
estate to liquid assets remained fairly steady throughout the year ended
December 31, 1994, and the Account remained able to meet its obligations
under GlAC's variable Contracts to pay benefits and effect transfers. GIAC
believes that the Account will continue to be sufficiently liquid to meet
Contract obligations. Furthermore, GIAC has indicated its willingness to
contribute to the Account in the future to permit the acquisition of
additional assets or to meet liquidity needs. However, there can be no
assurance that GIAC will make additional contributions to the Account.
Based on the conclusions of an independent external appraisal, the
building at 45 Glastonbury Boulevard has been valued at $3,550,000 and
the building at 115 Glastonbury Boulevard has been valued at $3,700,000
as of December 31, 1994. The 1994 year-end valuation for the building at
45 Glastonbury Boulevard reflects an increase of $550,000 over its 1993
year-end valuation. Capital improvements costing approximately
$500,000 were made to this building during 1994 to attract new
tenants, and the building is now fully leased. The 1994 year-end
valuation for the building at 115 Glastonbury Boulevard reflects a
decrease of $500,000 from its 1993 year-end valuation and a decrease of
$50,000 from its June 30, 1994 valuation. Increases in property expenses
are the primary reason for the decline in value. Both Glastonbury
buildings have declined in value from their respective acquisition costs.
The persistent economic downturn in the Northeast generally and
Connecticut specifically have adversely affected these buildings. Most of
the leases for space within the buildings have been renegotiated or
renewed at lower rates than those which were in force when the buildings
were acquired. This has contributed to the decline in value for both of
the Glastonbury buildings.
The Account's real estate-related investment located in Kennesaw, Georgia
was also appraised by an independent appraiser as of December 31, 1994.
The appraised value remained unchanged from its year-end 1993 value of
$5,100,000. Thus, the current appraised value is slightly lower than
its acquisition cost of $5,131,350. This valuation does not reflect the
potential renewal of the current lease, nor any potential expansion of the
facility. Both are uncertain at this time, but could add to the property's
value if they were to occur.
Cash and liquid securities held by the Account decreased during the year
ended December 31, 1994, largely as a result of expenditures for capital
improvements made to the 45 Glastonbury Boulevard building and price
declines for the long-term bonds held by the Account.
Results of Operations
The Account's net assets decreased as a result of operations for the year
ended December 31, 1994 by $237,910. This represents a significant
improvement over year-end 1993 and 1992 results when net operational
losses were $2,101,375 and $3,107,692, respectively. Net investment income
has declined from $1,377,072 and $1,468,606 for the years ended December
31, 1993 and 1992, respectively, to $1,021,472 for the year ended December
31, 1994. However, unrealized losses on the Account's assets have declined
from $4,576,298 and $3,478,447 for the years ended December 31, 1992 and
1993 to $1,259,382 for the year ended December 31, 1994. We believe that
this improvement, while not as satisfying as gains, indicates that the
values of the Account's real estate-related assets are stabilizing.
The Account's expenses for the year ended December 31, 1994 totalled
$1,140,124 as compared to $1,163,805 for the year ended December 31, 1993
and $1,175,947 for the year ended December 31, 1992. The foregoing expense
amounts include the effects of subsidization. Since the Account's
inception, GIAC has subsidized all or a portion of the Account's operating
expenses, and until January 1, 1993, GISC waived portions of its
management fee. The termination of GISC's fee waiver did not result in a
net increase in the Account's expenses, however, since O'Connor Realty's
management fee has declined in coordination with the declines in the
aggregate values of the Account's real estate-related investments. If GIAC
ceases to subsidize the Account's expenses, the ultimate return realized
by Contractowners who have interests in the Account will decrease.
Finally, the Account has experienced net withdrawals of Contractowner
contributions. While Contractowner withdrawals were significantly offset
by GIAC contributions for the years ended December 31, 1993 and 1994, the
Account's inability to attract and retain Contractowner contributions has
hindered its efforts to expand its investment portfolio. The Account is
offered as one of several investment options under the Contracts. When
comparing the relative attractiveness of the investment options and
considering the recent economic and market climate, Contractowners have
generally elected to allocate their Contract values among other investment
options offered under the Contracts. Accordingly, the Account has not
flourished concomitantly with increases in premiums received by GIAC for
the Contracts which offer the Account as an investment option.
11
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in the accompanying
Index to Financial Statements and Supplementary Data are incorporated
herein by reference and filed as a part of this report.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
12
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Account has no directors or officers. The directors and officers of
GIAC, the Account's sponsor, are listed below. Information about the
principal occupation of each such director or officer during the last five
years appears on the pages which follow.
MANAGEMENT OF GIAC AND GISC
The directors and executive officers of GIAC and GISC are named below.
Information about their principal occupations during the last five years
appears on the pages which follow.
<TABLE>
<CAPTION>
Position with Position with
Name GIAC GISC
---- ---- ----
<S> <C> <C>
Arthur V. Ferrara* ................ Chairman and Chief Director
Executive Officer
John C. Angle ..................... Director Director
Leo R. Futia ...................... Director Director
George T. Conklin. Jr.* ........... Director --
William C. Warren* ................ Director Director
Philip H. Dutter .................. Director Director
Edward K. Kane**................... Director. Senior Vice President Director, Senior Vice President
and General Counsel and General Counsel
John M. Smith** ................... Director and Executive Vice Director and President
President
Joseph D. Sargent* ................ Director and President Director
Peter L. Hutchings ................ Director Director
Frank J. Jones* ................... Director, Executive Vice President Director
and Chief Investment Officer
Charles E. Albers.................. Vice President, Equity Securities Executive Vice President
John M. Fagan ..................... Vice President Vice President
Charles G. Fisher ................. Vice President and Actuary --
William C. Frentz ................. Vice President, Real Estate --
Nikolaos D. Monoyios............... -- Vice President
Frank L. Pepe...................... Vice President and Controller Vice President and Controller
John M. Emanuele .................. Treasurer Treasurer
Joseph A. Caruso .................. Secretary Secretary
John J. Grandsire ................. Vice President, Administrative Vice President, Administrative
Support Support
Thomas R. Hickey. Jr. ............. Vice President, Operations Vice President, Operations
Richard T. Potter. Jr. ............ Counsel Counsel
Michele S. Babakian ............... Vice President Vice President
Donald P. Sullivan. Jr. ........... Vice President Vice President
Ryan W. Johnson ................... Vice President. Equity Sales Vice President and National Sales
Director
</TABLE>
----------
* Member of Investment Committee of GIAC Board of Directors.
** Alternate member of Investment Committee of GIAC Board of Directors.
13
<PAGE>
ARTHUR V. FERRARA -- Chairman of the Board and Chief Executive
Officer of The Guardian Life Insurance Company of America since January
1993; President and Chief Executive Officer prior thereto; Director since
January 1981.
JOHN C. ANGLE -- Retired Chairman of the Board and Chief Executive
Officer of The Guardian Life Insurance Company of America; Director since
January 1978.
LEO R. FUTIA -- Retired Chairman of the Board and Chief Executive
Officer of The Guardian Life Insurance Company of America; Director since
May 1970.
GEORGE T. CONKLIN, JR. -- Retired Chairman of the Board and Chief
Executive Officer of The Guardian Life Insurance Company of America;
Director since January 1957.
WILLIAM C. WARREN -- Retired. Dean Emeritus, Columbia Law School.
Former Chairman of the Board, Sandoz, Inc. Director of The Guardian Life
Insurance Company of America since January 1957.
PHILIP H. DUTTER -- Self-employed as a management consultant since
retirement from McKinsey & Co. in June 1986. Director of The Guardian Life
Insurance Company of America since March 1988.
EDWARD K. KANE -- Senior Vice President and General Counsel of The
Guardian Life Insurance Company of America since January 1983; Director
since November 1988.
JOHN M. SMITH -- Executive Vice President of The Guardian Life
Insurance Company of America since January 1995. Senior Vice President,
Equity Products prior thereto.
JOSEPH D. SARGENT -- President of The Guardian Life Insurance
Company of America since January 1993; Executive Vice President prior
thereto.
PETER L. HUTCHINGS -- Executive Vice President and Chief Financial
Officer of The Guardian Life Insurance Company of America since May 1987.
FRANK J. JONES -- Executive Vice President and Chief Investment
Officer of The Guardian Life Insurance Company of America since January
1994, Senior Vice President and Chief Investment Officer from August 1991
to December 1993. First Vice President and Director of Global Fixed Income
Research and Economics, Merrill Lynch & Co. prior thereto.
CHARLES E. ALBERS -- Senior Vice President, Equity Securities of The
Guardian Life Insurance Company of America since January 1991; Vice
President, Equity Securities prior thereto.
JOHN M. FAGAN -- Vice President, Life Policy Operations of The
Guardian Life Insurance Company of America since March 1992; Vice
President, Equity Administration prior thereto.
CHARLES G. FISHER -- Second Vice President and Actuary of The
Guardian Life Insurance Company of America since December 1986.
WILLIAM C. FRENTZ -- Vice President, Real Estate of The Guardian
Life Insurance Company of America since January 1985.
NIKOLAOS D. MONOYIOS -- Vice President, Equity Securities of The
Guardian Life Insurance Company of America since March 1991; Second Vice
President, Equity Securities prior thereto.
FRANK L. PEPE -- Second Vice President, Equity Products of The
Guardian Life Insurance Company of America since December 1986.
14
<PAGE>
JOHN M. EMANUELE -- Treasurer of The Guardian Life Insurance Company
of America since January 1981.
JOSEPH A. CARUSO -- Second Vice President & Corporate Secretary of
The Guardian Life Insurance Company of America since January 1995;
Corporate Secretary from October 1992 to December 1994; Assistant
Secretary from January 1991 to October 1992; Manager, Board Relations
prior thereto.
JOHN J. GRANDSIRE -- Second Vice President, Equity Administrative
Support of The Guardian Life Insurance Company of America since November
1992; Second Vice President, Equity Administration prior thereto.
THOMAS R. HICKEY, JR. -- Vice President, Equity Operations of The
Guardian Life Insurance Company of America since March 1992; Second Vice
President and Equity Counsel prior thereto.
RICHARD T. POTTER, JR. -- Second Vice President and Equity Counsel
of The Guardian Life Insurance Company of America since January 1993;
Counsel from January 1992 to December 1992. Vice President - Counsel, Home
Life Insurance Company prior thereto.
MICHELE S. BABAKIAN -- Vice President, Fixed Income Securities of
The Guardian Life Insurance Company of America since January 1995; Second
Vice President. Fixed Income Securities prior thereto.
DONALD P. SULLIVAN, JR. -- Second Vice President, Equity
Administration of The Guardian Life Insurance Company of America since
January 1995; Assistant Vice President from June 1991 to December 1994;
Manager, GISC Agency Division prior thereto.
RYAN W. JOHNSON -- Second Vice President, Equity Sales of The
Guardian Life Insurance Company of America from November 1994 to present;
Regional Vice President of Guardian Investor Services Corporation prior
thereto.
15
<PAGE>
Item 11. Executive Compensation
The Account does not pay any fees, compensation or reimbursement to any
director or officer of GIAC.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
As of December 31, 1994, GIAC held 568,614 units, representing 35% of the
Account's total net assets. All of the units owned by GIAC may be redeemed
at any time at the accumulation unit value at the time of redemption. The
Account's accumulation unit value fluctuates.
Item 13. Certain Relationships and Related Transactions
Pursuant to an investment advisory agreement, GIAC has retained GISC to
manage the Account's non-real estate-related assets, which are maintained
in cash and short-term and intermediate-term marketable debt instruments.
GISC is a wholly owned subsidiary of GIAC. GISC charges the Account a
daily investment management fee at an annual rate of .50% of the average
daily assets of the Account which it manages. Prior to January 1, 1993,
GISC waived all or a portion of this fee, and thereby provided a subsidy
to the Account. Certain expenses incurred by GISC on behalf of the Account
are chargeable to the Account, such as: brokerage commissions; custodian
and legal fees and related expenses; and any other costs which may arise
in connection with the purchase and sale of non-real estate-related
investments. GISC does not charge the Account or GIAC for any overhead
expenses or for the time and services of its personnel which are
attributable to services performed on behalf of the Account.
Since the Account commenced its operations, GIAC has assumed all or a
portion of the Account's non-real estate-related operating expenses. For
the year ending December 31, 1994, GIAC assumed 25% of such expenses.
Expenses directly relating to the operations of real estate-related
investments and O'Connor Realty's investment management fee have never
been assumed or waived. GIAC has agreed to continue its subsidization of
certain of the Account's operating expenses through December 31, 1995.
As subsidies of the Account are withdrawn, it is expected that the
Account's expenses will increase and returns to Contractowners will
correspondingly decrease.
16
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements.
See the Index to Financial Statements and Supplemental Data on
page 20.
2. Financial Statement Schedules.
See the Index to Financial Statements and Supplemental Data on
page 20.
3. Documents Incorporated by Reference.
See the list of exhibits in (c), below.
4. Exhibits
See the list of exhibits in (c), below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year
ending December 31, 1994.
(c) The following is a list of Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994:
3.1 Certificate of Incorporation of The Guardian Insurance &
Annuity Company, Inc., Exhibit 3(a) to Form S-1 Registration
Statement No. 33-22548, filed June 15, 1988, and incorporated
herein by reference.
3.2 By-Laws of The Guardian Insurance & Annuity Company, Inc.,
Exhibit 3(b) to Form S-1 Registration Statement No. 33-22548,
filed June 15, 1988, and incorporated herein by reference.
17
<PAGE>
3.3 Certified copy of resolution of the Board of Directors of The
Guardian Insurance & Annuity Company, Inc. establishing The
Guardian Real Estate Account, Exhibit 3(c) to Form S-1
Registration Statement No. 33-22548, filed June 15, 1988, and
incorporated herein by reference.
4.1 Specimen of Single Premium Variable Life Insurance Policy
including Rider pertaining to The Guardian Real Estate
Account, Exhibit 4(a) to Pre-Effective Amendment No. 1 to Form
S-1 Registration Statement No. 33-22548, filed October 3,
1988, and incorporated herein by reference.
4.2 Specimen of Variable Annuity Contract including Rider
pertaining to The Guardian Real Estate Account, Exhibit 4(b)
to Pre-Effective Amendment No. 1 to Form S-1 Registration
Statement No. 33-22548 filed October 3, 1988, and incorporated
herein by reference.
4.3 Specimen of Variable Annuity Contract which provides for
allocations to The Guardian Real Estate Account, Exhibit 4(c)
to Form S-1 Registration Statement No. 33-33686, filed March
7, 1990, and incorporated herein by reference.
4.4 Specimen of Group Unallocated Deferred Variable Annuity
Contract which provides for allocations to The Guardian Real
Estate Account, Exhibit 4(d) to Post-Effective Amendment No. 1
to the Form S-1 Registration Statement No. 33-33686 filed
March 6, 1991, and incorporated herein by reference.
9. None.
10.1 Form of Investment Management Agreement between The Guardian
Insurance & Annuity Company, Inc. and O'Connor Realty Advisors
Incorporated with respect to The Guardian Real Estate Account,
Exhibit 10(a) to Form S-1 Registration Statement No. 33-22548,
filed June 15, 1988, and incorporated by reference herein.
10.2 Form of Investment Management Agreement between The Guardian
Insurance & Annuity Company, Inc. and Guardian Investor
Services Corporation with respect to The Guardian Real Estate
Account, Exhibit 10(b) to Form S-1 Registration Statement No.
33-22548, filed June 15, 1988, and incorporated by reference
herein.
18
<PAGE>
11. None.
12. None.
13. Inapplicable.
18. None.
19. Inapplicable.
22. None.
23. Inapplicable.
24. None.
25.1 Certified copy of a resolution by the Board of Directors of
The Guardian Insurance & Annuity Company, Inc. authorizing the
use of powers of attorney in connection with the signing of
registration statements and amendments thereto, Exhibit 25(a)
to Post-Effective Amendment No. 1 to Form S-1 Registration
Statement No. 33-33686 filed March 6, 1991, and incorporated
herein by reference.
25.2 Powers of Attorney executed by directors and officers of The
Guardian Insurance & Annuity Company, Inc., Exhibit 25(b) to
Post-Effective Amendment No. 1 to Form S-1 Registration
Statement No. 33-33686 filed March 6, 1991, and incorporated
herein by reference.
28. None.
29. None.
19
<PAGE>
Item 8. INDEX TO FINANCIAL STATEMENTS & SUPPLEMENTAL DATA
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE &
ANNUITY COMPANY. INC. FOR THE YEAR ENDED DECEMBER 31,1994
INDEX
Page
Numbers
Report of Price Waterhouse Independent Accountants F-2
Financial Statements:
Statements of Assets and Liabilities -
December 31, 1994 and December 31, 1993 F-4
Statements of Operations - Years ended
December 31, 1994, 1993 and 1992 F-5
Statements of Changes in Net Assets -
Years ended December 31, 1994, 1993
and 1992 F-6
Statements of Cash Flows - Years ended
December 31, 1994, 1993 and 1992 F-7
Notes to Financial Statements F-8
All schedules are omitted because they are not applicable
or because the required information is included in the
financial statements or notes thereto.
Annual Report to Account Owners F-14
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE GUARDIAN REAL ESTATE ACCOUNT OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
Dated: March 29, 1995 By: s/FRANK J. JONES
---------------------------------------------
Frank J. Jones
Executive Vice President,
Chief Investment Officer and Director
21
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
s/ARTHUR V. FERRARA* Chairman and Chief March 29, 1995
------------------------- Executive Officer
Arthur V. Ferrara
s/FRANK J. JONES Executive Vice President, March 29, 1995
------------------------- Chief Investment Officer
Frank J. Jones and Director
s/FRANK L. PEPE* Vice President and March 29, 1995
------------------------- Controller
Frank L. Pepe
s/JOSEPH D. SARGENT* President and Director March 29, 1995
-------------------------
Joseph D. Sargent
s/JOHN C. ANGLE* Director March 29, 1995
-------------------------
John C. Angle
s/LEO R. FUTIA* Director March 29, 1995
-------------------------
Leo R. Futia
s/WILLIAM C. WARREN* Director March 29, 1995
-------------------------
William C. Warren
s/GEORGE T. CONKLIN JR.* Director March 29, 1995
-------------------------
George T. Conklin, Jr.
s/PHILIP H. DUTTER* Director March 29, 1995
-------------------------
Philip H. Dutter
s/EDWARD K. KANE* Senior Vice President, March 29, 1995
------------------------- General Counsel and Director
Edward K. Kane
s/JOHN M. SMITH* Executive Vice President March 29, 1995
------------------------- and Director
John M. Smith
s/JOHN M. EMANUELE* Treasurer March 29, 1995
-------------------------
John M. Emanuele
Director March 29, 1995
-------------------------
Peter L. Hutchings
s/THOMAS R. HICKEY JR. March 29, 1995
-------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
Pursuant to Power of Attorney
22
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
REPORT OF INDEPENDENT AUDITOR
-AND-
FINANCIAL STATEMENTS
F-1
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF ASSETS AND LIABILITIES
December 31,
1994 1993
---- ----
ASSETS:
Investment Properties at fair value
(Cost basis: $22,405,832 and
$21,436,044, respectively) ............. $ 12,350,000 $ 12,300,000
Long-term Investments at fair value
(Cost basis: $2,473,870 and
$2,479,757, respectively) .............. 2,128,404 2,473,884
Cash ..................................... 1,402 5,770
Short-term Investments ................... 905,000 1,200,000
Receivables .............................. 86,760 41,513
------------ ------------
TOTAL ASSETS ........................... 15,471,566 16,021,167
============ ============
LIABILITIES:
Accrued Management Advisory Fees ......... 34,804 35,606
Accrued Expenses ......................... 111,489 75,177
Unearned Rent ............................ 149,457 238,929
Annuitant Mortality Fluctuation Fund ..... 72,500 65,798
Other Liabilities ........................ 37,368 46,507
------------ ------------
TOTAL LIABILITIES ...................... 405,618 462,017
------------ ------------
NET ASSETS REPRESENTING
CONTRACTOWNERS' EQUITY:
Value Guard II ........................... 4,623,454 5,821,550
Guardian Investor ........................ 4,812,744 4,713,854
ValuePlus ................................ 433,899 738,520
The Guardian Insurance & Annuity Co., Inc. 5,195,851 4,285,226
------------ ------------
TOTAL NET ASSETS ....................... 15,065,948 15,559,150
------------ ------------
TOTAL LIABILITIES AND NET ASSETS ....... $ 15,471,566 $ 16,021,167
============ ============
Number of Units Outstanding:
Variable Annuity Contractowners
Value Guard II ......................... 542,296 672,070
Guardian Investor ...................... 624,615 600,918
ValuePlus Contractowners ................. 49,518 83,145
The Guardian Insurance & Annuity Co., Inc. 568,614 464,959
Unit Value:
Variable Annuity Contractowners
Value Guard II ......................... $8.5039 $8.6621
Guardian Investor ...................... $7.6880 $7.8444
ValuePlus Contractowners ................. $8.7625 $8.8823
The Guardian Insurance & Annuity Co., Inc. $9.1377 $9.2164
See Notes to the Financial Statements
F-2
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Rental ........................................................... $ 1,961,004 $ 2,490,806 $ 2,608,268
Interest ......................................................... 200,592 50,071 36,285
----------- ----------- -----------
Total Income ................................................... 2,161,596 2,540,877 2,644,553
----------- ----------- -----------
EXPENSES:
Real Estate Operating Expenses ................................... 401,239 441,262 387,652
Real Estate Taxes ................................................ 265,622 268,860 268,233
Management Advisory Fees ......................................... 139,344 144,789 191,440
Repairs and Maintenance .......................................... 222,849 193,859 177,035
Administrative Expenses .......................................... 111,070 115,035 151,587
----------- ----------- -----------
Total Expenses ................................................. 1,140,124 1,163,805 1,175,947
----------- ----------- -----------
Net Investment Income Before Realized Gains and Net
Unrealized (Depreciation)/Appreciation ............................. $ 1,021,472 $ 1,377,072 $ 1,468,606
Net Unrealized (Depreciation)/Appreciation in Value of
Investments ........................................................ (1,259,381) (3,478,447) (4,576,298)
----------- ----------- -----------
Net (Decrease)/Increase in Net Assets Resulting from
Operations ..................................................... $ (237,910) $(2,101,375) $(3,107,692)
=========== =========== ===========
Net (Decrease)/Increase in Net Assets Per Unit:
Value Guard II Contractowners .................................. $ (0.15) $ (1.22) $ (1.80)
=========== =========== ===========
Guardian Investor Contractowners ............................... $ (0.16) $ (1.17) $ (1.87)
=========== =========== ===========
ValuePlus Contractowners ....................................... $ (0.13) $ (1.16) $ (1.85)
=========== =========== ===========
The Guardian Insurance & Annuity Co., Inc ...................... $ (0.08) $ (1.58) $ (1.93)
=========== =========== ===========
Weighted Average Number of Units Outstanding:
Value Guard II Contractowners .................................... 608,410 735,018 873,268
=========== =========== ===========
Guardian Investor Contractowners ................................. 627,737 559,546 484,186
=========== =========== ===========
ValuePlus Contractowners ......................................... 68,922 67,526 41,665
=========== =========== ===========
The Guardian Insurance & Annuity Co., Inc. ....................... 498,989 297,141 283,185
=========== =========== ===========
</TABLE>
See Notes to the Financial Statements
F-3
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
The Guardian
Contractowners Insurance
----------------------------------------------------------- &
Value Guard II Guardian Investor ValuePlus Annuity Company, Inc.
----------------------------------------------------------- ---------------------
Units Amount Units Amount Units Amount Units Amount Total
----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1992 ......... 985,815 $11,690,726 470,360 $5,068,776 43,119 $519,279 283,185 $3,503,229 $20,782,010
Equity contributed/(withdrawn)
during 1992 ..................... (176,843) (2,100,387) 30,200 335,929 (2,703) (33,823) -- -- (1,798,281)
Net (Decrease)/Increase in Net
Assets .......................... -- (1,576,583) -- (906,488) -- (76,899) -- (547,722) (3,107,692)
-------- ----------- ------- ---------- ------ -------- ------- ---------- -----------
Balance - December 31, 1992 ....... 808,972 8,013,756 500,560 4,498,217 40,416 408,557 283,185 2,955,507 15,876,037
Equity contributed/(withdrawn)
during 1993 ..................... (136,902) (1,296,702) 100,358 872,515 42,729 408,675 181,774 1,800,000 1,784,488
Net (Decrease)/Increase in Net
Assets .......................... -- (895,504) -- (656,878) -- (78,712) -- (470,281) (2,101,375)
-------- ----------- ------- ---------- ------ -------- ------- ---------- -----------
Balance - December 31, 1993 ....... 672,070 5,821,550 600,918 4,713,854 83,145 738,520 464,959 4,285,226 15,559,150
Equity contributed/(withdrawn)
during 1994 ..................... (129,774) (1,108,091) 23,697 198,176 (33,627) (295,377) 103,655 950,000 (255,292)
Net (Decrease)/Increase in Net
Assets .......................... -- (90,005) -- (99,286) -- (9,244) -- (39,375) (237,910)
-------- ----------- ------- ---------- ------ -------- ------- ---------- -----------
Balance - December 31, 1994 ....... 542,296 $4,623,454 624,615 4,812,744 49,518 $433,899 568,614 $5,195,851 $15,065,948
======== ========== ======= ========= ====== ======== ======= ========== ===========
</TABLE>
See Notes to the Financial Statements
F-4
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Investment Income ................................... $1,021,472 $1,377,072 $1,468,606
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in Other Receivables ............................ (45,247) (14,626) (23,303)
Change in Unearned Rent ................................ (89,472) 238,929 --
Change in Accrued Management Advisory Fees ............. (802) 19,718 (59,265)
Change in Accrued Expenses .............. .............. 36,312 2,644 (61,700)
Change in Annuitant Mortality Fluctuation Fund ......... 6,702 10,536 12,512
Amortization of Premium ................................ 5,887 -- --
Change in Other Liabilities ............................ (9,139) 24,432 (120,868)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............... 925,713 1,658,705 1,215,982
---------- ---------- ----------
INVESTING ACTIVITIES:
(Purchase)/Sale of Long-Term Investments ................ -- (2,479,757) --
(Purchase)/Sale of Short-Term Investments ............... 295,000 (240,000) 575,000
Purchase of Real Estate ................................. -- -- --
Capital Improvements, Net of Dispositions ............... (969,789) (722,574) 5,052
---------- ---------- ----------
NET CASH PROVIDED BY/(USED IN)
INVESTING ACTIVITIES .................................... (674,789) (3,442,331) 580,052
---------- ---------- ----------
FINANCING ACTIVITIES:
Contractowners' (Withdrawals)/Contributions ............. (1,205,292) (15,512) (1,798,280)
The Guardian Insurance & Annuity Co., Inc. (Withdrawals)/
Contributions .......................................... 950,000 1,800,000 --
---------- ---------- ----------
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES .................................... (255,292) 1,784,488 (1,798,280)
---------- ---------- ----------
INCREASE/(DECREASE) IN CASH ........................... (4,368) 862 (2,246)
CASH AT BEGINNING OF YEAR ............................. 5,770 4,908 7,154
---------- ---------- ----------
CASH AT END OF YEAR ................................... $ 1,402 $ 5,770 $ 4,908
========== ========== ==========
</TABLE>
See Notes to the Financial Statements
F-5
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
Note 1 - Organization
Organization
The Guardian Real Estate Account (the "Account") of The Guardian Insurance
& Annuity Company, Inc. (GIAC) was established in 1987 under Delaware Insurance
Law as an insurance company separate account. Participating interests in the
Account are registered under the Securities Act of 1933 and are offered by GIAC
as an investment option under certain variable life insurance policies and
variable deferred annuity contracts (the "Contracts"). GIAC is a wholly owned
subsidiary of The Guardian Life Insurance Company of America ("The Guardian").
The obligations to Contractowners and beneficiaries arising under the
Contracts are general corporate obligations of GIAC. GIAC is the legal owner of
the assets in the Account. GIAC will at all times, however, maintain assets in
the Account with a total market value at least equal to the amounts credited
under each Contract which participates in the Account. These assets may not be
charged with liabilities which arise from any other business conducted by GIAC.
The Board of Directors of GIAC has authorized a total investment of up to
$25 million to enable the Account to acquire a portfolio of real estate-related
investments to meet its investment objectives and policies. Pursuant to this
authority, GIAC has contributed capital to the Account from time to time since
its inception to provide funds for acquisitions and to preserve liquidity. GIAC
has also withdrawn contributed funds when it has appeared that such withdrawals
would not adversely affect the interests of Contractowners and all legal
requirements have been met. GIAC's most recent contributions to the Account were
made on December 27, 1993, July 27,1994 and October 28, 1994, when $1,800,000,
$400,000 and $550,000 respectively were invested. At December 31, 1994, GIAC
maintained 35% ownership of the Account.
The Account is authorized to invest in income-producing real property,
participating mortgage loans, conventional mortgage loans, real property
purchase-leaseback transactions and in short-term or intermediate-term debt
instruments for liquidity purposes.
The Account owns three properties. Two of the three properties are office
buildings located in Glastonbury, Connecticut which were acquired for $7,921,854
and $7,644,386, respectively. The third property is an office/distribution
facility located in Kennesaw, Georgia which was acquired on October 1, 1991 for
$5,134,068, including acquisition fees.
F-6
<PAGE>
Note 2 - Summary of Significant Accounting Policies
Real Estate Investment Properties
Investments in real estate are stated at estimated fair value; accordingly
the Account does not record depreciation. Real estate assets owned by the
Account are initially valued at their respective purchase prices. Thereafter,
the values will ordinarily be based upon appraisal reports on the real estate-
related assets prepared by independent real estate appraisers. Independent
appraisals are typically performed on at least an annual basis. The Account
reserves the right, however, to prepare the annual appraisals internally. The
property valuations are also reviewed internally at least every three months and
adjusted if it is determined that there has been a change in the value of one or
more of the properties since the last valuation.
The purpose of an appraisal is to estimate the fair value of a property as
of a specific date. Fair value is defined as the most probable price for which
the appraised property will sell in a competitive market under all conditions
requisite to fair sale, with the buyer and seller each acting prudently,
knowledgeably, and for self interest, and assuming that neither is under undue
duress. This estimation of fair value through the appraisal process inherently
requires the exercise of subjective judgements. Capital improvements are
recognized only to the extent that the valuation process acknowledges a
corresponding increase in fair value.
Short-term Investments
The short-term investments held by the Account will consist of the types
and quality of investments authorized for purchase by the Account. These
instruments include: U.S. Government securities; securities issued or fully
guaranteed by U.S. Government agencies; repurchase agreements; certificates of
deposit; banker's acceptances; and commercial paper. Short-term investments are
valued at amortized cost which approximates market.
At December 31, 1994, the Account's short-term investments consisted of a
repurchase agreement with State Street Bank and Trust Co. which matures on
January 3, 1995. The collateral under the repurchase agreement consists of a
U.S. Treasury Note, held in safekeeping in the name of the Account at State
Street Bank and Trust Co., the Account's custodian (Note 9). Repurchase
agreements held by the Account are fully collateralized (including the interest
earned thereon) and marked to market daily during the entire term of such
agreements. If the value of the underlying collateral falls below the value of
the repurchase price plus accrued interest, the Account will require the seller
to deposit additional collateral by the next business day. If the request for
additional collateral is not met, or the seller defaults, the Account maintains
the right to sell the collateral and may claim any resulting loss against the
seller.
Long-term Investments
Long-term investments are carried at market value. Securities listed on
national securities exchanges are valued based upon closing prices on these
exchanges. Securities traded in the over-the-counter market and listed
securities for which there have been no trades for the day are valued at the
mean of the bid and asked prices.
Net realized gain or loss on sales of investments is determined on the
basis of identified cost. Interest income, including amortization of premium and
discount, is recorded when earned.
F-7
<PAGE>
Revenue Recognition
Income from properties and other investments, as well as expenses, are
recorded on the accrual basis.
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 tax law, no federal income taxes are payable by GIAC with respect to
the operations of the Account. However, GIAC reserves the right to charge taxes
attributable to the Account in the future.
Note 3 - Investment Advisory Agreements And Related Parties Transactions
The investment managers of the Account are O'Connor Realty Advisors
Incorporated ("O'Connor Realty") and Guardian Investor Services Corporation
("GISC"). O'Connor Realty, a wholly owned subsidiary of J.W. O'Connor & Co.,
Inc., provides various management services with respect to the real
estate-related investments of the Account. GISC, a wholly owned subsidiary of
GIAC, provides services with respect to the assets maintained in cash and
short-term and intermediate-term marketable debt instruments.
The Account is charged a daily fee to compensate O'Connor Realty for its
investment management services. This fee amounts to 1.0% per year of the average
daily assets of the Account managed by O'Connor Realty. The Account is also
charged a daily fee to compensate GISC for its investment management services.
This fee amounts to 0.50% per year of the average daily net assets of the
Account managed by GISC.
GIAC has been assuming certain operating expenses of the Account since the
Account's inception. The amount of this subsidy has declined from 100% of such
expenses to the present level of 25%. GIAC has agreed to continue its 25%
assumption of certain operating expenses of the Account during 1995. For the
year ended December 31, 1994, GIAC assumed expenses of $32,362 related to the
Account. Total expenses assumed by GIAC were $31,440 and $18,159 for the years
ended December 31, 1993 and 1992, respectively.
For the year ended December 31, 1994, investment management fees earned by
GISC totalled $16,446 and investment management fees earned by O'Connor Realty
totalled $122,898. For the year ended December 31, 1993, investment management
fees earned by GISC totalled $7,817 and investment management fees earned by
O'Connor Realty totalled $136,972. For the year ended December 31, 1992,
investment management fees earned by GISC totalled $3,213 and investment
management fees earned by O'Connor Realty totalled $188,287. No portion of the
expenses directly related to the operations of the real estate-related
investments or O'Connor Realty's investment management fee are subsidized.
Note 4 - Real Estate-Related Expenses
In addition to investment management fees and expenses, certain other
expenses and charges attributable to the real estate-related operations of the
Account are also charged against the Account. All costs of acquisition,
administration and disposition of the real estate-related investments are
F-8
<PAGE>
charged to the account. These costs include brokerage fees, appraisal fees,
attorneys' fees, architects' fees, engineers' fees and accountants' fees
incurred in connection with the investment process. In addition, the Account
will incur recurring costs such as mortgage servicing fees, annual audit
charges, accounting and legal fees and various administrative expenses. Other
expenses, such as insurance costs, taxes, and property management fees, will
ordinarily be deducted from rental income, thereby reducing the gross income of
the Account.
Note 5 - Leases
The buildings in the Account are leased to corporate tenants under various
lease arrangements. The leases expire at various times through 2000 in the
Glastonbury, Connecticut buildings. Leases renewed during 1993 and 1994 provide
for rental payments which are generally lower than previous rental rates,
reflecting market declines. The lease for the Kennesaw, Georgia facility expires
in the third quarter of 2001. Aggregate minimum rentals for the three buildings
are as follows:
Fiscal Year Ending
December 31,
------------------
1995 $ 2,071,916
1996 2,071,916
1997 2,073,720
1998 2,118,637
1999 1,409,993
2000 699,897
2001 470,250
-----------
Total $10,916,329
===========
Certain leases provide for additional rents based upon operating costs in
excess of given base amounts. For the year ended December 31, 1994, rental
income included approximately $86,757 of such additional rental income. For the
years ended December 31, 1993 and 1992, rental income included approximately
$243,000 and $256,000, respectively, of such additional rental income.
Note 6 - Annuitant Mortality Fluctuation Fund
The Annuitant Mortality Fluctuation Fund is a special fund established in
response to various regulatory requirements and provides for any possible
adverse experience inherent in the transaction of annuity business.
Note 7 - Other Charges
Included in the Account's total expenses are mortality and expense risk
charges which are calculated on a daily basis and applied to the Contracts and
thus to each Contractowner's interest by GIAC.
F-9
<PAGE>
NOTE 8
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
REAL ESTATE
December 31, 1994
<TABLE>
<CAPTION>
Costs
capitalized
subsequent Gross cost
Initial cost to cost at close
to Account acquisitions of period
---------------- ------------ --------------
Buildings Improvements Buildings
Encum- and and Carrying and Date of Date
Description brances Land Improvements Costs Land Improvements Total Construction Acquired
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction
45 Somerset Square completed in
Office Building - late 1988
Glastonbury, CT. ..... $0 $ 871,668 $ 7,050,186 $1,126,293 $ 871,668 $ 8,176,479 $ 9,048,147 and early 1989 6/12/89
Construction
115 Somerset Square completed in
Office Building - late 1988
Glastonbury, CT. ..... 0 843,441 6,800,945 579,231 843,441 7,380,176 8,223,617 and early 1989 6/12/89
955 Cobb Place Blvd.
Office Building Construction
Warehouse Facility - completed
Kennesaw, GA. ........ 0 751,187 4,382,881 0 751,187 4,382,887 5,134,068 in late 1991 10/01/91
------------------------------------------------------------------------------
Total .............. $0 $2,466,296 $18,234,012 $1,705,524 $2,466,296 $19,939,536 $22,405,832
==============================================================================
December 31,
A) Reconciliation of investment property
owned: 1994 1993 1992
-----------------------------------------
Real Estate at beginning of year ............. $21,436,043 $20,713,469 $20,721,118
Net Acquisitions (dispositions) .............. 0 0 (20,811)
Capital Improvements and Carrying Costs ...... 969,789 722,574 13,162
-----------------------------------------
Balance at the end of the year ............... $22,405,832 $21,436,043 $20,713,469
=========================================
B) Total tax basis for properties based on
historical cost:
45 Somerset Square Office Building -
Glastonbury, CT. ........................... $ 8,000,294
115 Somerset Square Office Building -
Glastonbury, CT. ........................... 7,155,484
955 Cobb Place Blvd. Office Building Warehouse
Facility -
Kennesaw, GA. .............................. 4,782,747
</TABLE>
F-10
<PAGE>
NOTE 9
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
MARKETABLE SECURITIES
For Year Ended December 31, 1994
<TABLE>
<CAPTION>
Market Value Amount Carried
Description Par Value Cost 12/31/94 on Balance Sheet
----------- --------- ---- -------- ----------------
<S> <C> <C> <C> <C>
Marketable Securities:
Repurchase Agreement:
State Street Bank and Trust Company
repurchase agreement at 5.15% due
1/3/95, maturity value $905,518
(collateralized by $920,000 U.S. Treasury
Notes plus accrued interest, 6.125% due
7/31/96, market value at 12/31/94 was
$923,410) $ 905,000 $ 905,000 $ 905,000 $ 905,000
---------- ---------- ---------- ----------
Fixed Maturities:
Indianapolis Power & Light Company
7.375% due 8/01/07 1,000,000 1,072,290 916,760 916,760
GTE Southwest Inc.
6.54% due 12/01/05 1,400,000 1,401,580 1,211,644 1,211,644
---------- ---------- ---------- ----------
2,400,000 2,473,870 2,128,404 2,128,404
---------- ---------- ---------- ----------
Total Marketable Securities $3,305,000 $3,378,870 $3,033,404 $3,033,404
========== ========== ========== ==========
</TABLE>
See Notes to the Financial Statements
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
of The Guardian Insurance & Annuity Company, Inc.
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and changes in net assets and of cash flows
present fairly, in all material respects, the financial position of The Guardian
Real Estate Account of The Guardian Insurance & Annuity Company, Inc. at
December 31, 1994 and 1993 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles. 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 audit. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As explained in Note 2, the financial statements include real estate investments
the values of which have been determined by The Guardian Insurance & Annuity
Company, Inc. in accordance with procedures described in the Note, which
included receipt of independent appraisers' reports. We have tested the
procedures used by The Guardian Insurance & Annuity Company, Inc. in arriving at
its determination of fair value and have tested underlying documentation. In the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. Because of the subjectivity inherent in any determination of fair
value of real estate, and because the real estate investments are held for
long-term operation and appreciation and thus are not presently for sale,
amounts ultimately realized from the real estate investments may vary
significantly from the fair values presented.
PRICE WATERHOUSE LLP
New York, New York
February 20, 1995
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,402
<SECURITIES> 3,033,404
<RECEIVABLES> 86,760
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,121,566
<PP&E> 12,350,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,471,566
<CURRENT-LIABILITIES> 183,661
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,065,948
<TOTAL-LIABILITY-AND-EQUITY> 15,471,566
<SALES> 2,161,596
<TOTAL-REVENUES> 2,161,596
<CGS> 666,861
<TOTAL-COSTS> 666,861
<OTHER-EXPENSES> 1,494,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (237,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> (237,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237,910)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
