As filed with the Securities and Exchange Commission on March 8, 1996
Reg. No. 33-33686
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-1
Post-Effective Amendment No. 6
to
Registration Statement under the
Securities Act of 1933
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The Guardian Real Estate Account
of
The Guardian Insurance & Annuity Company, Inc.
(Exact name of registrant)
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The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(212) 598-8000
(Address of registrant's principal executive offices)
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Richard T. Potter, Jr., Esq.
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and address of agent for service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ X ].
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<PAGE>
CROSS REFERENCE SHEET
BETWEEN
REGISTRATION STATEMENT ON FORM S-1 AND PROSPECTUS
<TABLE>
<CAPTION>
Item Number and Description Heading in Prospectus
--------------------------- ---------------------
<C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page
of Prospectus ........................................................... Cover Page
2. Inside Front Cover and Outside Back Cover Pages of Prospectus .............. Inside Front Cover
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges ... Summary; Risk Factors
4. Use of Proceeds ............................................................ Investment Objectives and Policies of
the Account
5. Determination of Offering Price ............................................ Not applicable
6. Dilution ................................................................... Not applicable
7. Selling Security Holders ................................................... Not applicable
8. Plan of Distribution ....................................................... Distribution of the Contracts
9. Description of Securities to be Registered ................................. Descriptions of GIAC and the Real
Estate Account; Descriptions of
the Investment Managers; Valuation
of Participating Interests and
Assets; Investment by Employee
Benefit Plans; Charges Against the
Account; Restrictions on
Withdrawals; Restrictions on
Contractowners' Investment in the
Account
10. Interests of Named Experts and Counsel ..................................... Not applicable
11. Information with Respect to the Registrant ................................. Descriptions of GIAC and the Real
Estate Account; Investment
Objectives and Policies of the
Account; The Account's Real
Estate-Related Investments;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Conflicts of Interest; Investment
Restrictions; Valuation of
Participating Interests and
Assets; Federal Income Tax
Considerations; State Regulation;
Legal Matters; Litigation;
Additional Information; Financial
Statements
12. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities ............................................................. Not applicable
</TABLE>
<PAGE>
PROSPECTUS May 1, 1996
THE GUARDIAN
REAL ESTATE ACCOUNT
This Prospectus describes The Guardian Real Estate Account (the "Account"
or the "Real Estate Account"), a separate account established by The Guardian
Insurance & Annuity Company, Inc. ("GIAC"), a wholly owned subsidiary of The
Guardian Life Insurance Company of America ("Guardian Life"). GIAC offers the
Account as a real estate investment option under certain variable life insurance
policies and variable annuity contracts ("Contract(s)") that it issues. The
Contracts are described in other prospectuses. This Prospectus will always be
accompanied by the prospectus for the type of Contract selected by the
prospective purchaser.
The Account's investment objectives are to: (1) preserve and protect the
Account's capital; (2) provide for the compounding of income by reinvesting cash
flow from investments; and (3) provide for increases over time in the amount of
such income through appreciation in the value of its assets. The Account seeks
to invest at least 65% of its assets in: (1) income-producing real property such
as office buildings, shopping centers or industrial properties; (2)
participating mortgage loans (which include participations in the appreciation
and/or the revenues of the real properties that secure the mortgage loans); and
(3) 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. For liquidity, the remainder of the Account's assets (normally 10%-15%)
will consist of cash and investments in short-term or intermediate-term debt
instruments. However, GIAC reserves the right to increase this amount up to 30%
of the Account's assets. The actual allocations among these different
investments may vary from the percentages set forth above because there is no
assurance that sufficient suitable investments will be found for the Account.
There can be no assurance that the Account's investment objectives will be met.
GIAC is 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 prior to approval.
The Investment Committee makes the final determination as to whether or not to
engage in any such transaction.
The Account's real estate-related investments are primarily managed on
behalf of GIAC by O'Connor Realty Advisors Incorporated ("O'Connor Realty"),
which is wholly owned by The O'Connor Group, a New York-based
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(continued from previous page)
real estate investment and management firm. The Account's cash and investments
in short-term and intermediate-term debt instruments ("liquid securities") are
managed on behalf of GIAC by Guardian Investor Services Corporation(R) ("GISC"),
a wholly owned subsidiary of GIAC and the distributor of the Contracts.
Values under the Contracts that are allocated to the Account will vary with
the performance of the Account's investments. The only way to acquire interests
in the Account is by owning one of GIAC's Contracts.
THIS OFFERING INVOLVES CERTAIN RISKS. Investment in the Account involves a
significant degree of risk, because its real estate-related assets may not be
readily saleable on commercially reasonable terms, and because market conditions
have made it increasingly difficult for O'Connor Realty to identify and acquire
real estate-related assets deemed suitable for the Account. (See "Risk
Factors.") Presently, the Account owns real properties in a limited number of
geographic locations, which places it at a greater risk of being adversely
affected by declines in property values than an account which has acquired
properties in a greater number of geographic locations. Reductions in the
valuations of the Account's real estate-related investments will have a
correspondingly negative impact on Contract values which are allocated to the
Account. Since the Account's real estate-related assets are not as liquid as the
investments generally made by other variable life insurance and variable annuity
separate accounts, GIAC restricts its Contract owners' rights to withdraw or
transfer Contract values out of the Account. (See "Restrictions on
Withdrawals.") In addition, the investments and operation of the Account may be
subject to certain conflicts of interest. (See "Conflicts of Interest.") Please
consider these risks before allocating Contract values to the Account.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS
ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE RELATED CONTRACT.
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.
Offered by
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
Executive Office: Customer Service Office:
201 Park Avenue South 3900 Burgess Place
New York, New York 10003 Bethlehem, Pennsylvania 18017
(212) 598-8000 (800) 221-3253
2
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
PROSPECTUS CONTENTS
Page
----
Summary ................................................................. 4
Descriptions of GIAC and the Real Estate Account ........................ 6
Descriptions of the Investment Managers ................................. 7
Investment Objectives and Policies of the Account ....................... 8
Risk Factors ............................................................ 12
The Account's Real Estate-Related Investments ........................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................. 17
Investment by Employee Benefit Plans .................................... 20
Investment Restrictions ................................................. 21
Conflicts of Interest ................................................... 21
Valuation of Participating Interests and Assets ......................... 23
Borrowing by the Account ................................................ 25
Charges Against the Account ............................................. 25
Restrictions on Withdrawals ............................................. 26
Restrictions on Contractowners' Investment in the Account ............... 27
Federal Income Tax Considerations ....................................... 27
Distribution of the Contracts ........................................... 28
State Regulation ........................................................ 28
Experts ................................................................. 28
Legal Matters ........................................................... 28
Litigation .............................................................. 28
Additional Information .................................................. 28
Financial Statements .................................................... 28
Appendix A-Management of O'Connor Realty ................................ A-1
Appendix B-Management of GIAC and GISC .................................. B-1
The Account is subject to the informational requirements of the Securities
Exchange Act of 1934, so it files reports and other information with the
Securities and Exchange Commission ("SEC"). All reports and information filed by
the Account can be inspected and copied at the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional
offices located at the following addresses: 230 South Dearborn Street, Chicago,
Illinois 60604 and 75 Park Place, New York, New York 10007.
Reports to Contractowners
GIAC will mail an annual report to each Contractowner who allocates a
portion of his or her Contract value to the Account. This annual report will
contain the Account's audited financial statements and such other information as
may be required by applicable law or regulation.
3
<PAGE>
SUMMARY
This Prospectus describes The Guardian Real Estate Account (the "Account"
or the "Real Estate Account"). The Guardian Insurance & Annuity Company, Inc.
("GIAC") established the Real Estate Account as a separate account under
Delaware insurance law. Owners of certain variable life insurance policies and
variable annuity contracts ("Contract(s)") issued by GIAC may allocate some or
all of their net premiums or transfer some or all of their Contract values to
the Account. Thereafter, the values and benefits under their Contracts which are
attributable to their interests in the Account will reflect the Account's
investment experience, whether favorable or unfavorable. Under Delaware law, the
assets of the Account are not chargeable with liabilities arising out of any
other business conducted by GIAC. This Prospectus must be accompanied by, and
should be read in conjunction with, the prospectus for the type of Contract
selected by the Contractowner. Special considerations may apply to investments
in the Account under Contracts purchased in connection with qualified retirement
and other employee benefit plans. (See "Investment by Employee Benefit Plans.")
The investment objectives of the Account are to: (1) preserve and protect
the Account's capital; (2) provide for the compounding of income by reinvesting
cash flow from investments; and (3) provide for increases over time in the
amount of such income through appreciation in the value of the Account's assets.
(See "Investment Objectives and Policies of the Account.") There can be no
assurance that the Account's investment objectives will be attained.
The Account seeks to invest at least 65% of its assets in income-producing
real property, participating mortgage loans (mortgages providing for
participation in the revenues generated by or the appreciation of the underlying
property or both) and purchase-leasebacks. It is expected that the majority of
these real estate-related investments will be in income-producing real property,
such as office buildings, shopping centers or industrial properties. A portion
of the Account's assets (ordinarily 10%-15%) will consist of cash and
investments in short-term or intermediate-term debt instruments. The remainder
of the Account's assets may be invested in other types of real estate-related
investments, including conventional, non-participating mortgage loans. The
actual allocations among these different investments may vary from the
percentages set forth above because there is no assurance that sufficient
suitable investments will be found for the Account.
Investment in the Account involves significant risks. These include the
risk of fluctuating real estate values, the risk that the Account will not
achieve sufficient geographic and functional diversification to protect it
against possible adverse performance by certain of its real estate-related
investments, and the risk that the appraised or estimated values of the
Account's real estate-related investments will not be realized upon their
disposition. Many of the Account's real estate-related investments will not be
quickly convertible into cash through disposition on commercially reasonable
terms, so the Account should be viewed only as a long-term investment. Moreover,
a Contractowner should be aware that there are restrictions on the amount which
may be withdrawn or transferred from the Account, and that GIAC has reserved the
right to defer payment of any Contract benefits, other than guaranteed death
benefits, funded by the Account (such as cash surrender values, loan proceeds,
transfers, partial withdrawals, and death benefits in excessof the guaranteed
death benefit) for up to six (6) months, although GIAC does not expect to do so.
(See "Restrictions on Withdrawals.") Prompt payment of any guaranteed death
benefit will not be affected by a Contractowner's investment in the Account.
(See "Risk Factors.")
Despite its reservations of rights regarding deferral of payments from the
Account, GIAC believes the Account will be sufficiently liquid to satisfy all
anticipated requests for the payment of Contract benefits and to effect
withdrawals and transfers out of the Account as permitted by the Contracts. The
Account will normally maintain approximately 10%-15% of its assets in cash and
short-term and intermediate-term marketable debt instru-
4
<PAGE>
ments, and expects to have income streams from its real property investments,
mortgage loans, and purchase-leasebacks. Moreover, the Account may borrow funds
in order to increase its liquid assets. The Account may also borrow for purposes
of increasing its portfolio of real estate-related investments. (See "Borrowing
by the Account.")
The investment managers of the Account are O'Connor Realty Advisors
Incorporated ("O'Connor Realty") and Guardian Investor Services Corporation
("GISC"). O'Connor Realty provides various management services with respect to
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 provides services with respect to the assets maintained in cash and
short-term and intermediate-term marketable debt instruments. The Account's
investment managers are subject to potential conflicts of interest in connection
with the services which they provide to the Account. (See "Conflicts of
Interest.") The Investment Committee of GIAC's Board of Directors reviews every
acquisition or disposition of the Account's real estate-related assets and makes
the final determination as to whether or not to engage in each transaction.
GIAC charges the Account a daily fee for investment management services
which amounts to one percent (1.0%) per year of the Account's average daily
assets managed by O'Connor Realty and one-half percent (0.50%) per year of the
Account's average daily assets managed by GISC. No fee is expected to be charged
against the Account in connection with such services which may be provided by
GIAC. In addition, ordinary actual operating expenses of the Account such as the
costs of property appraisals (whether or not performed by O'Connor Realty),
legal, accounting and auditing expenses, and certain expenses of O'Connor Realty
and GISC are charged against the assets of the Account.
The Account is currently available to owners of single premium variable
life insurance policies and variable annuity contracts issued by GIAC. The
Account may be offered to other types of Contracts in the future. Although
Contract charges differ among the GIAC products which offer the Account as an
investment option, particular Contract charges will not change in response to
the allocation decisions of a Contractowner. A variable life insurance
Contractowner who elects to invest some or all of his or her net premium in the
Real Estate Account will be subject to the same sales load, the same cost of
insurance rates and the same mortality and expense risk charges as he or she
would be if the net premium were invested in that Contract's other investment
options. The applicable Contract prospectus should be consulted for a more
detailed description of Contract charges. At present, the Account has
established subdivisions as a mechanism for maintaining records regarding the
charges applicable to different Contracts. (See "Charges Against the Account.")
5
<PAGE>
DESCRIPTIONS OF GIAC AND THE REAL ESTATE ACCOUNT
The Guardian Insurance & Annuity Company, Inc.
GIAC was organized in 1970 in the State of Delaware as a stock life
insurance company. It is currently licensed to sell life insurance and annuities
in all 50 states and the District of Columbia. As of December 31, 1995, GIAC had
total assets of over $5.0 billion. GIAC's current financial statements appear in
the accompanying Prospectus for The Guardian Separate Account B (Value Plus) and
in the Statement of Additional Information for The Guardian Separate Account D
(The Guardian Investor(R) and The Guardian Investor(R) Group Program). The
financial statements of GIAC contained in these documents do not bear upon the
Account's investment experience.
GIAC is wholly owned by Guardian Life, a mutual life insurance company
founded in 1860 under the laws of the State of New York. As of December 31,
1995, Guardian Life had total assets in excess of $10.9 billion and ranked among
the 20 largest mutual life insurance companies in the United States. To date,
Guardian Life has invested $139 million in GIAC. Guardian Life may, from time to
time, make additional capital contributions to GIAC as needed to enable GIAC to
meet its reserve requirements and expenses in connection with its business.
However, Guardian Life is under no obligation to make such contributions and its
assets do not back the benefits payable under any Contracts issued by GIAC.
GIAC is responsible for the overall management of the Account. GIAC's Board
of Directors has created an Investment Committee which is responsible for
establishing the Account's investment objectives, policies and restrictions, and
approving the acquisition or disposition of the Account's real estate-related
investments. The Investment Committee is also responsible for monitoring the
services furnished to the Account by its investment managers. The Investment
Committee currently consists of four GIAC directors, three of whom are also
employees of Guardian Life.
For information about the directors and executive officers of GIAC and the
members of GIAC's Investment Committee, see Appendix B to this Prospectus.
The Guardian Real Estate Account
GIAC's Board of Directors established the Real Estate Account under
Delaware insurance law as a separate investment account in December 1987. The
Account holds assets that are segregated from all of GIAC's other assets. The
Account is used only to support those variable benefits payable under the
Contracts that are funded by this real estate investment option.
GIAC's obligations to its Contractowners and their beneficiaries are
general corporate obligations. 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 this real estate
investment option to all the Contracts participating in the Account. These
assets may not be charged with liabilities which arise from any other business
conducted by GIAC. In addition to assets which are attributable to Contractowner
interests in the Account, the Account's assets may include amounts which are
attributable to funds contributed by GIAC or an affiliate, and the accumulation
of charges GIAC makes against the Account. GIAC may withdraw accumulated charges
from the Account.
GIAC has been authorized by its Board of Directors to invest up to $25
million in the Account to acquire assets which may be approved for the Account,
or to meet liquidity needs. While GIAC has contributed to the Account in the
past for these purposes, there can be no assurance that GIAC will make
additional contributions in the future. In addition, GIAC has reserved the right
to withdraw or redeem some or all of its contributions to the Account and any
related net income. GIAC will not exercise this right unless it is satisfied
that such a withdrawal will not adversely affect the interests of Contractowners
and all legal requirements are met.
6
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Unlike the other separate accounts funding the Contracts, the Account is
not registered with the SEC under the Investment Company Act of 1940 (the "1940
Act") as an investment company. The participating interests in the Account are
registered with the SEC under the Securities Act of 1933. For state law
purposes, the Account is treated as a part or division of GIAC. Contractowners
have no voting rights with respect to the Account.
As described above, the Account is under the control of GIAC, and the Board
of Directors and officers of GIAC are responsible for its management. No
salaries are paid by the Account since the Account does not employ any person.
The Account's financial statements appear in this Prospectus.
DESCRIPTIONS OF THE INVESTMENT MANAGERS
GIAC's Board of Directors, through its Investment Committee, oversees the
services provided by the manager of the Account's real estate-related assets.
The Investment Committee is responsible for approving all real estate-related
transactions on behalf of the Account. GIAC has entered into agreements with the
investment managers named below who provide assistance in selecting, managing
and disposing the Account's investments.
O'Connor Realty Advisors Incorporated
O'Connor Realty, 399 Park Avenue, New York, New York 10022, is a Delaware
corporation and an investment adviser registered with the SEC under the
Investment Advisers Act of 1940. O'Connor Realty manages real estate accounts
for pension funds.
O'Connor Realty is wholly owned by J.W. O'Connor & Co., Inc., a Delaware
corporation that acquires, manages and redevelops large scale commercial
properties. As of December 31, 1995, J.W. O'Connor & Co., Inc. and O'Connor
Realty managed or advised real estate assets valued at approximately $7.5
billion. J.W. O'Connor & Co., Inc. currently employs 164 professionals.
O'Connor Realty generally arranges and supervises the day-to-day
administration and management of the Account's real estate-related investments.
O'Connor Realty also recommends properties for acquisition or disposition in
reports to the Investment Committee of the GIAC Board of Directors. The Account
will not retain affiliates of GIAC or O'Connor Realty to provide property
management services.
To mitigate against conflicts of interest that may arise from O'Connor
Realty's obligations to the Account and its other clients, O'Connor Realty
adheres to a specific Conflicts of Interest policy which has been accepted by
GIAC. (See "Conflicts of Interest.")
For information about the directors and executive officers of O'Connor
Realty who are involved in the management and administration of the Account's
real-estate related assets, see Appendix A to this Prospectus.
Guardian Investor Services Corporation
GISC, 201 Park Avenue South, New York, New York 10003, is a New York
corporation that is wholly owned by GIAC. GISC is registered as an investment
adviser under the Investment Advisers Act of 1940, and currently manages over
$3.5 billion for several Guardian-sponsored mutual funds. GISC is also
registered as a broker-dealer under the Securities Exchange Act of 1934. As
such, GISC is the principal underwriter and distributor of the
Guardian-sponsored mutual funds and of the variable annuities and variable life
insurance policies issued by GIAC.
GISC is responsible for the day-to-day management of the Real Estate
Account's portfolio of cash, cash equivalents and short-term and
intermediate-term debt instruments. (See "Investments for Liquidity Purposes.")
For information about the directors and officers of GISC, see Appendix B to
this Prospectus.
7
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INVESTMENT OBJECTIVES AND POLICIES OF THE ACCOUNT
Overview
The Account seeks to invest at least 65% of its assets in income-producing
real property, participating mortgage loans and real property
purchase-leasebacks. The largest portion of these real estate-related
investments will be in income-producing real property, such as office buildings,
shopping centers or industrial properties. (See "Investments in Real Property,"
"Investments in Mortgage Loans" and "Investments in Purchase-Leasebacks.")
For liquidity purposes, ordinarily 10% to 15% of the Account's assets will
be maintained in cash or invested in short-term and intermediate-term debt
obligations. However, this amount may be increased to 30% of the Account's
assets under certain circumstances. (See "Investments for Liquidity Purposes.")
The remainder of the Account's assets may be invested in other types of
real estate-related investments, including conventional, non-participating
mortgage loans. (See "Investments in Mortgage Loans.")
The actual allocations among these different investments may vary, and GIAC
reserves the right to deviate from the percentages set forth above to respond to
market conditions, or under any other circumstances if it deems such action to
be advisable in light of the Account's investment objectives or liquidity
considerations. However, the Account intends only to make investments which will
not result in it being deemed an investment company under the 1940 Act.
General Investment and Operating Policies of the Account
The Account does not intend to invest in any properties, mortgage loans, or
purchase-leasebacks with a view to making short-term profits from their sale.
However, the Account may dispose of its real estate-related investments to the
extent such disposition is necessary to meet its cash requirements or where it
is deemed to be desirable because of market conditions or otherwise. Any
proceeds from the disposition of assets (and any cash flow from operations)
which are not necessary for the Account's operations and which are not
distributed pursuant to the Contracts will be reinvested by the Account.
In making investments in properties, mortgage loans or purchase-leasebacks,
the Account typically will not receive an independent appraisal prior to
entering into the applicable transaction. After acquisition, however, the
properties owned and mortgage loans held by the Account will normally be
appraised annually by local independent appraisers who are members of a
nationally recognized society of appraisers. Each such appraisal shall be
maintained in the records of the Account for at least five years. It should be
noted that appraised values are opinions and, as such, may not represent the
true worth or realizable value of the property being appraised. GIAC and
O'Connor Realty reserve the right to make annual appraisals on some or all of
these investments internally. Internal appraisals may not be as costly to the
Account as independent appraisals. Nevertheless, GIAC and O'Connor Realty
presently intend to use independent appraisals on all such investments of the
Account. (See "Conflicts of Interest" and "Valuation of Participating Interests
and Assets" for information on the possible risks associated with internal
appraisals.)
The Account will ordinarily purchase properties on an unleveraged basis,
and the properties acquired will typically be free and clear of mortgage
indebtedness immediately after their acquisition. The Account may, however,
acquire properties subject to existing mortgage loans held by unaffiliated
lenders. In addition, while the Account will generally not mortgage its
properties or acquire properties partly with the proceeds of purchase money
mortgage loans, it may borrow up to 75% of the value of a property if GIAC deems
such action consistent with the Account's investment objectives. Where the
Account does mortgage its properties, it will, of course, bear the expense of
mortgage payments. The Account will not obtain financing from GIAC or O'Connor
Realty or any of
8
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their affiliates. (See "Borrowing by the Account.")
The Account may invest in properties, mortgage loans, or
purchase-leasebacks through joint ventures with unaffiliated parties.
GIAC and the investment managers intend to manage the Account to comply
with the diversification requirements of Section 817(h) of the Internal Revenue
Code of 1986, as amended and its related rules and regulations (the "Code").
Regulations under Section 817(h) provide that a separate account's assets will
be deemed to be adequately diversified if: (1) no more than 55% of such assets
are invested in any one investment; (2) no more than 70% of such assets are
invested in any two investments; (3) no more than 80% of such assets are
invested in any three investments; and (4) no more than 90% of such assets are
invested in any four investments. All interests in the same real property
project are treated as a single investment. The Account must meet this test
within 30 days of the end of each calendar quarter.
O'Connor Realty will use its discretion in recommending whether to
foreclose on defaulting borrowers or to evict defaulting tenants from properties
held by the Account and managed by O'Connor Realty. In making any such
recommendation, O'Connor Realty will consider the best interests of the Account
in maintaining the value of the investment. GIAC retains the right to make the
ultimate decision on foreclosure, eviction and other recommended enforcement
actions.
Property management services generally will be required to operate
properties which are owned by the Account. With respect to mortgage loans owned
by the Account, general mortgage loan servicing, including assistance in
exercising default remedies or foreclosing on non-performing mortgage loans, may
be required. O'Connor Realty will not provide or engage an affiliate to provide
property management, loan servicing, or other services to the Account.
Finally, GIAC monitors the proportion of the Account's assets that are
placed in various types of investments to ensure that the Account complies with
its investment objectives and policies. When suitable real estate-related assets
cannot be found, the Account may invest a significant portion of its assets in
U.S. government instruments. Since the Account is structured so it will not be
subject to registration or regulation under the 1940 Act, it may be precluded
from making investments in other types of securities, even though such
investments might produce favorable returns.
Following are descriptions of the types of real estate-related investments
that the Account may make. Please see "Risk Factors" for additional information.
Investments in Real Property
A. Acquisition and Disposition
The Account's principal type of real estate-related investment is existing
(including newly constructed) income-producing office, retail and industrial
properties. Potential property acquisitions will typically be identified by
O'Connor Realty. Information about all proposed acquisitions and dispositions of
real estate-related investments will be submitted for review and approval by the
Investment Committee of GIAC's Board of Directors.
Although it has not been deemed appropriate to establish percentage
limitations on the type and location of properties that may be acquired by the
Account, GIAC intends to diversify the Account's real estate-related investments
both as to the type of property acquired and its geographic location. It cannot
be assured, however, that sufficient real estate-related assets will be
identified or acquired to meet this goal.
To attain its stated objectives, the Account must acquire properties which
will generate cash in excess of its gross operating expenses. For this reason,
the Account seeks properties with operating histories that include estab-
9
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lished rent and expense schedules or new properties which are expected to
generate reliable income from creditworthy tenants on long-term leases. However,
the Account may also acquire recently constructed properties from sellers who
may have agreed to provide for certain minimum levels of income for a specified
period. Upon the expiration of or default under these agreements, there can be
no assurance that the Account will be able to maintain the level of operating
income previously experienced.
The real estate properties acquired by the Account will generally be
completely constructed and operating. Accordingly, the Account will not usually
be subject to the risks of development or construction inherent in the purchase
of unimproved real estate. From time to time, however, the Account may invest in
a developmental real estate project deemed consistent with the Account's
objectives, and the Account will then be subject to those risks.
B. Property Management
It is anticipated that the Account will, in most cases, retain local
property management companies to manage its real properties. Generally, the
investment manager will oversee the local manager's activities, establish
accounting requirements, periodically inspect and review the operations of the
properties and set and monitor budgets. In addition to day-to-day management of
the property, the local management company will generally have responsibility
for supervising any on-site personnel, negotiating maintenance and service
contracts, recommending major repairs, replacements or capital improvements,
reviewing market conditions to recommend rental rates, and marketing the
property to obtain and maintain good occupancy by responsible tenants. The fees
of the local management company will reduce the cash flow from the property to
the Account.
Investments in Mortgage Loans
A. Types of Mortgage Loans
The Account may invest in conventional commercial mortgage loans that pay
fixed or variable rates of interest and, to the extent available,
"participating" mortgage loans. The Account's mortgage loans will typically be
secured by commercial properties, such as office buildings, shopping centers and
industrial properties, which have a demonstrable income-producing potential.
Generally, such mortgage loans will not be personal obligations of the borrower
nor be insured or guaranteed by governmental agencies or others. The Account
will not make mortgage loans to affiliates of O'Connor Realty or GIAC.
1. First Mortgage Loans. First mortgage loans provide purchase money
or other financing to a property owner, and are secured by such property.
First mortgage loans may provide for a variety of principal and interest
payments to the lender, including interest-only payments and balloon
payments. The yields on traditional first mortgage loans have historically
been lower than the yields on wraparound mortgage loans on the same types
of property (see below). However, first mortgage loans which provide for
variable interest rates, equity participations and similar devices may have
higher yields than wraparound mortgages.
2. Participating Mortgage Loans. The Account will also seek to make
mortgage loans which permit the Account to participate in the economic
benefits of the underlying property. Participations are available in
several forms, including interests in a percentage of the underlying
property's gross or net revenues, or interests in a percentage of any
increase in value realized through the sale, refinancing or reappraisal of
the property. Participations may also involve options to acquire mortgaged
property or an undivided interest in such property. When the Account
negotiates the right to receive a percentage of a property's revenues, the
interest rate associated with the mortgage will generally be lower than
would otherwise be the case. Such percentage participations are generally
activated when revenues exceed a certain base amount, which may be subject
to adjustment for increases in real property taxes or similar charges. The
form and extent of any participations
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<PAGE>
will vary with each transaction. The Account intends to use participations
as a hedge against inflation when rental rates and property values
increase. There can be no assurance, however, even allowing for inflation,
that the Account will benefit from participations.
3. Wraparound Mortgage Loans. Wraparounds are mortgage loans on
income-producing real properties which are already subject to prior
mortgage indebtedness. A wraparound mortgage loan's principal amount equals
the outstanding prior mortgage balance plus the amount advanced in the
wraparound transaction. This arrangement provides the owner of a property
with additional funds without disturbing the existing loan. The Account
will require its wraparound mortgagors to make all principal and interest
payments on their pre-existing loans to the Account, which will, in turn,
pay the holders of the prior mortgages. The lien of a wraparound mortgage
loan is necessarily junior to prior mortgage indebtedness.
4. Junior Mortgage Loans. Junior mortgage loans are subordinate to one
or more prior mortgage liens on a real property, and generally, but not in
all cases, provide for repayment before the senior mortgages are amortized.
Recourse on such loans can include the encumbered real property and may
also include other collateral or personal guarantees by the borrower.
B. Standards for Mortgage Loan Investments
Prior to authorizing the Account to make a mortgage loan, the Investment
Committee of GIAC's Board of Directors will have been provided with summary
information regarding the fair market value of the underlying real estate and
other matters, including the condition and use of any improvements to the
property; the property's operating history, tenant mix and income-producing
capacity; and the quality, experience and creditworthiness of the borrower. In
general, the amount of each mortgage loan made by the Account will not exceed,
when added to the amount of any pre-existing indebtedness, 75% of the property's
estimated or appraised value.
C. Managing Mortgage Loan Investments
The Account may sell its mortgage loans prior to maturity if such action is
approved by GIAC and is consistent with the Account's investment objectives.
GIAC may also extend the maturity of any mortgage loan made by the Account,
consent to the sale of a property that is subject to a mortgage loan provided by
the Account, finance the purchase of a mortgaged property by making a new
mortgage loan to another buyer (either with or without requiring the repayment
of the Account's prior mortgage loan), renegotiate the terms of a mortgage loan,
or otherwise manage the mortgage loans made by the Account.
Investments in Purchase-Leasebacks
In a real property purchase-leaseback transaction, the Account will
typically purchase the land on which income-producing improvements are
constructed and simultaneously lease the land back to the seller under a long-
term ground lease. The Account's leasebacks will involve properties similar to
those on which it will make mortgage loans. Ground leases may be for terms
ranging up to 99 years and may provide for base rental payments in escalating
amounts.
In addition to rental payments, the Account will seek additional income
from its leaseback transactions in the form of participations. The
participations may involve interests in specified increases in the ground
lessee's revenues, a percentage of the proceeds of certain mortgage financings
or refinancings (particularly those which are not used for construction or to
reduce existing mortgage indebtedness), or a percentage of the proceeds from the
eventual sale of the property.
The Account may invest in leasebacks which are subordinated to other
interests in the land, buildings, and improvements. In those situations, the
Account's leaseback interest will be subject to greater risks.
11
<PAGE>
Generally, under the terms of the ground lease, the land tenant will
operate, or provide for the operation of the property and be responsible for the
payment of all costs, including taxes, mortgage debt service, maintenance and
repair, and insurance. Upon termination of the ground lease, the improvements
may become the property of the Account, although as indicated above, the ground
lease may be for a substantial period of time, so there can be no assurance that
the improvements will then have value.
The Account may also grant to the ground lessee an option to acquire the
land after a period of years. The option's exercise price will typically reflect
the fair market value of the land, as encumbered by the lease, the property's
gross revenues, and other objective criteria.
The Investment Committee will analyze valuation, use, borrower and
operating information before authorizing the Account to enter into leaseback
transactions. The Account will not acquire the land if the purchase price plus
any acquisition expenses is more than 100% of the estimated or appraised value
of the land. The Account may dispose of its leasebacks if deemed advisable and
consistent with the Account's investment objectives.
Investments for Liquidity Purposes
The Account will maintain a certain percentage of its total assets, usually
10%-15%, in cash, cash equivalents, short-term debt instruments and
intermediate-term debt instruments. GIAC reserves the right to increase this
amount up to 30% of the Account's assets. Such an increase could occur, for
example, because of a rapid influx of Contractowners' funds, or as funds
accumulate pending investment in real estate-related assets, or because of a
perceived need to increase the Account's liquidity.
The short-term debt instruments held by the Account will be similar to
those bought and sold by The Guardian Cash Fund, Inc., which is a money market
mutual fund. The intermediate-term debt instruments held by the Account will be
similar to those bought and sold by The Guardian Bond Fund, Inc., which invests
in investment grade corporate and other debt instruments, and U.S. government
securities. The investment objectives, policies, risks and expenses of these
Funds are described in separate prospectuses. Like this prospectus, the
prospectuses for The Guardian Cash Fund, Inc. and The Guardian Bond Fund, Inc.
must accompany the prospectus for the Contract which a prospective purchaser
proposes to buy.
When suitable real estate-related assets cannot be found, the Account may
invest a significant portion of its assets in U.S. government instruments. Since
the Account is structured so it will not be subject to registration or
regulation under the 1940 Act, the Account may be precluded from making
investments in other types of securities even though such investments might
produce more favorable returns for the Account.
RISK FACTORS
The risks associated with allocating or transferring Contract values to the
Real Estate Account generally correspond to the risks associated with the types
of investments it makes. These risks are summarized below. In addition, see
"Valuation of Participating Interests and Assets" and "Conflicts of Interest."
Liquidity of Investments
Because the Account will invest primarily in real estate, its assets will
not be as liquid as the investments generally made by the other separate
accounts through which GIAC issues its variable life insurance policies and
variable annuity contracts. However, the Account will ordinarily hold 10%-15% of
its assets in the form of cash and
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<PAGE>
marketable short-term or intermediate-term debt instruments. The primary purpose
for such investments is to maintain sufficient liquidity to make any requested
or required payments under the Contracts and to meet the operational expenses of
the Account. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," for additional information about the Account's
liquid investments.) The Account may also borrow funds to meet its liquidity
needs. (See "Borrowing by the Account.") Any such borrowing will, of course,
cause the Account to bear interest expenses.
If the Account is not sufficiently liquid to meet its immediate
obligations, it may need to sell real estate- related assets. To attempt to
avoid any disposition on a commercially unreasonable basis, GIAC reserves the
right to defer payments of benefits funded by the Account, other than any
guaranteed death benefit, for up to six (6) months. (See "Restrictions on
Withdrawals.")
General Risks of the Account's Real Estate-Related Investments
A. Risks of Owning Real Properties
The Account will be subject to the risks inherent in owning real property
such as: fluctuations in fair market value, occupancy rates and operating
expenses, and variations in rental rates. Bad economic conditions, oversupply,
restrictive or unfavorable zoning laws and high real property tax rates can
adversely affect property values. (See "Valuation of Participating Interests and
Assets.") In addition, as the owner of real property, the Account may become
liable for the cost of removal or the remediation of hazardous or toxic
substances, or certain asbestos-containing materials on, under or in such real
property. Under federal, state or local environmental laws, even an unaware
owner or prior owner of real property can be strictly liable for the presence of
such hazardous or asbestos-containing materials. While the Account is not aware
of any such materials within the properties which it currently owns, and the
Account will exercise reasonable care in attempting to avoid any such
environmental liabilities in the future, there can be no assurance that the
Account will successfully avoid all liability for such environmental problems.
Properties owned by the Account will typically be leased to one or more
tenants. If a property is unable to attract and retain tenants at favorable or
market rents, it will suffer a consequent decline in rental income and typically
a reduction in its appraised value. In addition, sellers or tenants may renege
or default on rental agreements or rent guarantees to the Account's detriment.
If such parties seek the protection of the bankruptcy laws, their tenant leases
or other rental agreements may be prematurely terminated with little recourse by
the Account. There can be no assurance that the Account will be able to replace
any vacating tenants without incurring a loss.
The Account will take steps to insure its properties, as appropriate,
against most insurable risks. High insurance rates, coupled with reductions in
the scope of coverage, may increase the risk that a loss will not be insured.
This will be true particularly with respect to earthquake and flood coverage
which will not be procured if, in GIAC's view, it is not available on reasonable
terms after weighing the cost against the anticipated benefits. In addition,
there may be certain types of losses (such as from wars or from acts of God)
that generally are not insured because they are either uninsurable or are not
economically insurable. Should such an uninsured loss or a loss in excess of
insured limits occur, the Account could lose the capital invested in the subject
property, the anticipated future revenues from the property, as well as other
capital assets.
If the Account invests in joint venture partnerships which own properties,
instead of investing directly in the subject properties, it may become subject
to additional risks related to the co-venturer's financial condition and
economic or business goals. In connection with some joint ventures, a
co-venturer may have the right to determine whether and when the property will
be sold. Although the Account would generally have a right of first refusal to
purchase the co-venturer's interest or be entitled to receive a preferential
amount from the sale proceeds, the Account may not have the right to force or
block the sale.
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Since certain expenses related to real estate, such as property taxes,
utility costs, maintenance costs and insurance, tend to increase, there can be
no assurance that operating properties will produce a satisfactory profit. Also,
the Account may have to advance funds to third parties in order to protect its
investment, or may be required to sell properties on disadvantageous terms to
raise needed funds. The Account will seek to achieve geographic and functional
diversification of its real estate-related investments to attempt to minimize
the effects of changes in local economic conditions. Opportunities for such
diversification will depend upon the availability of suitable properties and the
amount available in the Account for investment in additional real estate-related
assets.
B. Risks of Mortgage Loan Investments
The Account's mortgage loan investments will be subject to the risk of
default by the borrowers. Upon a default, the Account must decide whether to
foreclose on or pursue other remedies involving the underlying property to
protect the value of its mortgage loan. A borrower's ability to meet its
mortgage loan payments will depend upon its financial condition and/or the
financial viability of the borrower's property. Mortgage loans made by the
Account will generally not be personal obligations of the borrowers, so the
Account will have to rely solely on the value of the underlying properties for
security. When property values decline, the value of an underlying property may
fail to provide sufficient security for a loan. Moreover, mechanics',
materialmen's, government and other liens may have priority over the Account's
security interest in a property.
The Account's mortgage loan investments will also be subject to prepayment
risks unless penalties for early payment can be imposed. If the proceeds of
pre-paid loans cannot be reinvested in loans that provide the same or more
favorable benefits to the Account, there may be an unfavorable change in the
Account's return. Conversely, if the Account accumulates a portfolio of low
interest rate mortgages, its performance will be adversely affected when
interest rates increase and borrowers become less inclined to retire their low
interest rate debts. It can be expected that in a rising interest rate
environment, the value of the Account's mortgage loan investments will decline.
Junior mortgage loans (including wraparounds) are subject to greater risk
than first mortgage loans, since they are subordinate to liens of senior
mortgagees. If a senior mortgage defaults, the Account may be required to make
payments or take other actions to cure the default to prevent foreclosure on the
senior mortgage and the possible loss of all or a portion of the Account's
investment. "Due on sale" clauses included in some senior mortgages, which
accelerate the amount due under the senior mortgage when a property is sold, may
be deemed to apply to the sale of the property upon foreclosure by the Account
of its junior mortgage loan.
The risk of using real estate to secure a loan increases as the loan to
value ratio increases. The Account will generally not make mortgage loans in
amounts that exceed 75% of the estimated or appraised value of the property as
determined at the time the loan is made. There can be no assurance, however,
that the initial loan to value ratio will remain stable or decline over time
because property values fluctuate. This means that if the Account must foreclose
on a property, it may not realize an amount equal to the outstanding balance of
the loan.
Mortgage loans made by the Account may be subject to state usury laws
imposing limits on interest charges and possible penalties for violation of
those limits, including restitution of excess interest, unenforceability of
debt, and treble damages. The Account does not intend to make mortgage loans at
usurious rates of interest, but uncertainties in determining the legality of
rates of interest and other borrowing charges under some statutes could result
in inadvertent violations, in which case the Account could incur the penalties
mentioned above.
C. Risks with Participations
If the Account negotiates a mortgage loan with a lower fixed interest rate
in return for certain participation rights, its returns may be adversely
affected if the underlying property fails to generate the revenues or to
appreciate in value sufficiently to activate the negotiated participation. In
that event, the Account will have foregone a potentially greater fixed return
without receiving the benefit of the participation. There may be limitations on
par-
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ticipations under state law. And a bankruptcy court might view the Account as a
failed borrower's partner or joint venturer if it has an interest in a
property's revenues or sale proceeds through a participating mortgage. Under
these circumstances, the Account could lose the priority of its security
interest, or be liable for the borrower's debts. The Account will seek to
structure its participations to avoid being characterized as a partner or joint
venturer with its borrowers.
D. Risks with Purchase-Leaseback Transactions
In purchase-leaseback transactions, the value of the land and improvements
will largely depend on prevailing economic factors and the performance and
financial stability of the ground lessee and its tenants. The ground lessee's
leases with its tenants will generally have shorter terms than the ground lease,
so the ground lessee's future ability to meet payment obligations to the Account
will depend on its ability to obtain renewals of such leases or to enter into
new leases upon satisfactory terms. The ability of the tenants to meet their
rental payments to the ground lessee will affect the ground lessee's ability to
pay the Account.
Generally, the sole assets of the ground lessee will be the improvements
constructed on the Account's land. The Account will therefore be required to
rely on the value of the land and the ground lessee's equity interest in the
improvements for its security. When the Account's leaseback interest is
subordinate to other interests in the land or improvements, such as a first
mortgage or other lien, the Account's leaseback will be subject to greater risk.
A default by a ground lessee or other premature termination of the ground lease
may result in the Account being unable to recover its investment unless the
property is sold or re-leased on favorable terms. The ability of the ground
lessee to meet its obligations under the ground lease, and the value of a
property, may be affected by a number of factors inherent in the ownership of
real property which are described above. Furthermore, the long- term nature of
ground leases may, in the future, result in the Account receiving below market
rentals from the ground lessee. However, this risk may be reduced if the Account
is able to obtain participations in connection with its leasebacks.
E. Risks of Not Acquiring a Diversified Portfolio of Real Estate-Related
Investments
It takes time to identify, evaluate and complete the acquisition of
suitable real estate-related investments, particularly during recessionary
periods. Presently, the Account owns three buildings in two geographic
locations. If these real estate-related investments are adversely affected by
any of the events highlighted in the subsection entitled "Risks of Owning Real
Properties," above, or if their values decline, the impact on the Account may be
more dramatic than it would be if the Account held a greater number of real
estate-related investments in its portfolio. It is expected, but cannot be
assured, that this risk will diminish if the Account achieves greater geographic
and functional diversification. However, opportunities for such diversification
will depend upon the availability of suitable real estate-related investments
and the amount of liquid assets which the Account has on hand to invest in real
estate-related investments as they become available.
F. Risks Associated with Economic Conditions
Prices and valuations for real properties and other real estate-related
assets generally respond to prevailing economic conditions. During recessionary
periods, prices and valuations for real estate usually decline. While price
declines may theoretically present acquisition opportunities, they may also have
the effect of constricting the market availability of desirable properties. If
the Account is unable to find properties which it deems desirable and suitable,
the Account will be frustrated in its attempts to add to its portfolio of real
estate-related investments. As a result, the Account may not be able to achieve
its investment objectives or avoid the risks of not acquiring a diversified
portfolio of real estate-related investments (see above). Reductions in the
valuations of real estate- related investments made by the Account will have an
adverse impact on Contract values because such values reflect the current value
of the Account's assets to the extent that a Contractowner has allocated values
to the Account.
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Reliance on GIAC, O'Connor Realty and GISC
Contractowners do not have a vote on the Account's investment or operating
policies. GIAC, in consultation with O'Connor Realty and GISC, will make all
decisions with respect to the Account's management, including identifying which
properties and investments to buy or sell. Contractowners have no right or power
to take part in the management of the Account, and may be unable to evaluate the
economic merit of many of the investments which may be acquired by the Account.
Contractowners must depend solely upon the ability of GIAC, O'Connor Realty and
GISC to select suitable investments.
The Account competes with many other individuals and entities, including
O'Connor Realty and its affiliates and Guardian Life and its affiliates, to
acquire real estate-related assets. (See "Conflicts of Interest.") Such
competition may result in increases in the costs of suitable investments, even
making them unattainable.
THE ACCOUNT'S REAL ESTATE-RELATED INVESTMENTS
The Account has acquired the following real estate-related investments.
Real estate-related investments made on behalf of the Account after the date of
this Prospectus will be described in supplements to the Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," below, for additional information about the Account's real
estate-related investments.
Office Buildings in Glastonbury, Connecticut
The Account owns two office buildings in Glastonbury, Connecticut. The
first, 45 Glastonbury Boulevard, contains nearly 40,000 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 also fully 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 $21.50 per square foot, which compares favorably with average local
asking rates of $17.00 to $19.50 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. During 1995, CMS was purchased by
Fisher Scientific International Inc. Fisher Scientific is an international
provider of scientific instruments, equipment and supplies. It is possible that
Fisher Scientific may choose to enter into a lease for another property and
vacate the building. If this occurs, it is not expected to have any adverse
impact on the valuation of
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<PAGE>
the property or the remaining lease obligations.
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 $4.00 to $7.50 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be considered in conjunction
with the Selected Financial Data appearing below and the Account's financial
statements and their related notes which also appear in this Prospectus.
Liquidity and Capital Resources
As of December 31, 1995, the Account's net assets totalled $14,411,437. Of
this amount, $9,092,984 was attributable to Contractowner interests and
$5,318,453 was attributable to GIAC. At December 31, 1994, the Account's net
assets totalled $15,065,948. 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, 1995, almost 75% of the Account's assets were invested
in real estate-related assets and the remainder was invested in permitted
fixed-income instruments. Throughout the year ended December 31, 1995, the
Account remained able to meet its obligations under GIAC'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 $2,800,000 and the building at
115 Glastonbury Boulevard has been valued at $2,950,000 as of December 31, 1995.
The 1995 year-end valuation for the building at 45 Glastonbury Boulevard
reflects a decrease of $750,000 over its 1994 year-end valuation. The 1995
year-end valuation for the building at 115 Glastonbury Boulevard also reflects a
decrease of $750,000 from its 1994 year-end valuation. 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. Although the buildings are
fully leased, 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 Glas-
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tonbury buildings. The declines in value at year-end 1995 are primarily
attributable to the long-term negative effects on the economy and office leasing
market in the Hartford area expected to result from the significant layoffs
announced by two major employers in the Hartford area in late 1995.
The Account's real estate-related investment located in Kennesaw, Georgia
was also appraised by an independent appraiser as of December 31, 1995. The
appraised value of $5,200,000 reflects an increase of $100,000 from its year-end
1994 value. Thus, the current appraised value is slightly higher than its
acquisition cost of $5,134,068. This valuation does not reflect any 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 increased during the year
ended December 31, 1995, largely as a result of net rental income.
Results of Operations
The Account's net assets increased as a result of operations for the year
ended December 31, 1995 by $291,371. This represents a significant improvement
over year-end 1994 and 1993 results when net operational losses were $237,910
and $2,101,375, respectively. Net investment income for the year ended December
31, 1995 was $1,142,282, which represents an increase from the Account's net
investment income of $1,021,472 for the year ended December 31, 1994. Unrealized
losses on the Account's assets have declined from $1,259,382 for the year ended
December 31, 1994 to $850,911 for the year ended December 31, 1995.
The Account's expenses for the year ended December 31, 1995 totalled
$1,189,075 as compared to $1,140,124 for the year ended December 31, 1994 and
$1,163,805 for the year ended December 31, 1993. For each of these years, GIAC
subsidized 25% of the Account's operating expenses. The foregoing expense
amounts include the effects of subsidization. GIAC has terminated the subsidy,
effective January 1, 1996. The termination of GIAC's subsidy will have the
effect of decreasing the ultimate return realized by Contractowners who have
interests in the Account.
Finally, the Account has experienced net withdrawals of Contractowner
contributions in each of the years ended December 31, 1993, 1994 and 1995. 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 that offer the Account
as an investment option.
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Selected Financial Data for The Guardian Real Estate Account
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues ........................................ $ 2,331,357 $ 2,161,596 $ 2,540,877 $ 2,644,553 $ 3,015,065
Net increase/(decrease) in net assets
from operations .............................. 291,371 (237,910) (2,101,375) (3,107,692) 597,299
Net increase/(decrease) in net assets
per unit**:
Variable Annuity
Contractowners
Value Guard II ............................ $ 0.12 $ (0.15) $ (1.22) $ (1.80) $ 0.21
Guardian Investor ......................... $ 0.09 $ (0.16) $ (1.17) $ (1.87) $ 0.09
Variable Life
Contractowners .......................... $ 0.16 $ (0.13) $ (1.16) $ (1.85) $ 0.24
GIAC ........................................ $ 0.22 $ (0.08) $ (1.58) $ (1.93) $ 0.33
<CAPTION>
As of December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Financial Position:
Total assets .................................... $14,696,126 $15,471,566 $16,021,167 $16,041,795 $21,177,088
Total liabilities ............................... $ 284,689 $ 405,618 $ 462,017 $ 165,758 $ 395,079
Total net assets ................................ $14,411,437 $15,065,948 $15,559,150 $15,876,037 $20,782,009
</TABLE>
- ----------
* The figures presented in this table for the year ended December 31, 1991
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.
** Net (decrease)/increase in net assets per unit reflects the effects of
GIAC's partial subsidization of the Account's expenses through December 31,
1995 and GISC's partial waiver of its management fee 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.
19
<PAGE>
INVESTMENT BY EMPLOYEE BENEFIT PLANS
Fiduciaries of pension plans, tax-sheltered annuity plans, IRAs and other
employee benefit arrangements should consider whether an investment in the Real
Estate Account satisfies the applicable fiduciary responsibility requirements of
Section 404 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). That section generally requires fiduciaries to act with undivided
loyalty to plan beneficiaries, to invest plan assets prudently, to diversify
plan investments and to comply with plan documents to the extent they are not
inconsistent with ERISA.With respect to the diversification requirements, the
Department of Labor has generally taken the position in litigation that an
employee benefit plan's overall investment in commercial real estate should be
limited to 30 percent of its assets.
In addition, the Department of Labor takes the position that when plan
assets are held in an insurance company separate account that is not registered
under the 1940 Act, the separate account's assets are considered assets of the
employee benefit plan for the purposes of ERISA. If that position is correct,
(1) the operation of the Account may be subject to ERISA's prudence and
diversification obligations; (2) certain parties, including GIAC, GISC and
O'Connor Realty, may be treated as fiduciaries for purposes of ERISA with
respect to the management of the Account; and (3) transactions involving the
Account and "parties in interest" to the employee benefit plan, including GIAC,
O'Connor Realty and certain of their affiliates, may be deemed to be "prohibited
transactions" within the meaning of Section 406 of ERISA and Section 4975 of the
Code. GIAC believes that, provided certain conditions are met, which GIAC will
monitor, neither transactions between the Account and the parties in interest
(unrelated to GIAC and O'Connor Realty) to any employee benefit plans that
participate in the Account, nor the services presently required to be performed
by GIAC, O'Connor Realty and their affiliates for the Account, will be
prohibited transactions within the meaning of Section 406 of ERISA and Section
4975 of the Code. Nevertheless, the matters discussed under "Conflicts of
Interest" should be reviewed by the fiduciary of any plan that wants to
participate in the Account. GIAC, O'Connor Realty and their affiliates will
refrain from engaging in any transactions with the Account which, in GIAC's
judgment (after consultation with O'Connor Realty where appropriate), would
constitute prohibited transactions. However, there can be no assurance that GIAC
or O'Connor Realty will identify every potential prohibited transaction.
Fiduciaries should be aware that the provisions of ERISA are complex and
that there are no definitive interpretations of the applicability of ERISA to an
investment in the Account or its operations. Any fiduciary of an employee
benefit plan considering participation in the Account should consult a tax
and/or legal advisor. Employee benefit plan participants and beneficiaries who
direct the investment of their plan accounts should similarly consider these
matters when evaluating the Account.
20
<PAGE>
INVESTMENT RESTRICTIONS
GIAC has adopted certain restrictions relating to the Account's investment
activities. GIAC's Board of Directors may change these restrictions, if the law
permits, at any time and without notice. Pursuant to these restrictions, the
Account may not:
1. Make any investments not related to real property, other than
short-term or intermediate-term debt instruments.
2. Engage in the underwriting of securities issued by others.
3. Invest in securities issued by any investment company.
4. Sell securities short.
5. Purchase or sell oil, gas or other mineral exploration or development
programs.
6. Make loans to GIAC or O'Connor Realty, or any of their affiliates, or
any investment program sponsored by such parties.
7. Enter into leaseback transactions or acquire any property in which the
lessee is GIAC or O'Connor Realty, or any of their affiliates, or any
investment program sponsored by such parties.
8. Purchase properties from, sell properties to, or enter into any joint
ownership arrangement with GIAC or O'Connor Realty or any of their
affiliates.
9. Borrow more than 50% of the value of the assets of the Account based
upon periodic valuations and appraisals. (See "Valuation of
Participating Interests and Assets," below.)
CONFLICTS OF INTEREST
Affiliates of O'Connor Realty, most notably The O'Connor Group (the
"O'Connor Entities"), and affiliates of GIAC, most notably Guardian Life (the
"Guardian Entities"), may compete with the Account as those Entities and the
Account each seek to acquire, sell or operate properties, or make mortgage
investments. The O'Connor Entities may also engage in other business activities
which compete with the Account or which may result in conflicts of interest as
they relate to the services to be provided for the Account.
None of the agreements and arrangements relating to compensation between
GIAC, on behalf of the Account, and GISC are the result of arm's-length
negotiations. Furthermore, to the extent that internal appraisals are used to
value the Account's assets, the investment management fees received by O'Connor
Realty and GISC will not be based on independent calculations.
Other potential conflicts involved in managing the Account include:
A. Fees and Other Compensation paid to the O'Connor and Guardian Entities
One or more of the O'Connor Entities may receive substantial fees,
compensation or other income as a result of the Account's real estate-related
transactions. If the Account invests in a real estate project for which one of
the O'Connor Entities is the developer, that Entity could also be entitled to
development or other fees from the Account. To the extent that one or more of
the O'Connor Entities are involved in any of the Account's real estate-related
transactions, the terms and fees will be no less favorable to the Account than
is otherwise customary.
21
<PAGE>
To the extent that the Account's investments are overvalued at any time,
the fees paid to the O'Connor Entities or GISC will be higher than the fees that
would be payable based on lower valuations. In addition, the fee paid to GISC
will increase or decrease depending on the percentage of the total assets of the
Account invested in short-term and intermediate-term debt instruments. (See
"Investment Management Fees and Expenses" and "Investments for Liquidity
Purposes.")
In limited circumstances, GIAC's management of the Account may affect
certain expenses it has agreed to bear. (See "Current Subsidization of the
Account's Expenses.")
B. Competition by the Account with O'Connor Entities and Guardian
Entities for Acquisition and Disposition of Investments
The O'Connor Entities and the Guardian Entities pursue real property
investment activities for their own accounts and, in the case of the O'Connor
Entities, on behalf of their other clients. If the investment objectives and
programs for these accounts and clients are similar to those of the Account,
they may compete with the Account for investments. None of the O'Connor Entities
or Guardian Entities is obligated to forego a particular investment opportunity
because it might be suitable for the Account. Nor are they obligated to present
opportunities to the Account prior to acting upon such opportunities for
themselves or any of their clients.
O'Connor Realty has, however, adopted the following procedures to resolve
any conflict of interest between the Account and the O'Connor Entities or the
other accounts which the O'Connor Entities may manage now or in the future:
1. O'Connor Realty will seek to locate an adequate supply of investments
for all of the accounts which it manages, including the Account, and
to allocate such investments equitably among such entities. In
addition, O'Connor Realty will not take on additional accounts that
will jeopardize its ability to supply the Account with adequate real
estate investment opportunities.
2. O'Connor Realty will carefully differentiate investment objectives
between accounts as it takes on additional accounts.
3. In those situations where an investment may be suitable for more than
one account, O'Connor Realty will first consider participating among
accounts.
4. In those situations where O'Connor Realty deems participating among
accounts imprudent, allocations will be made based upon such factors
as appropriate investment characteristics given each account's
objectives, currently available cash flow of each account or entity,
estimated future cash flows of such accounts or entities, the effect
of the acquisition on the diversification of each account or entity,
and other relevant legal or investment policy factors.
C. Possible Joint Venture Investments or Other Transactions
The Account may enter into joint ownership arrangements with entities
sponsored, advised or managed by O'Connor Entities or Guardian Entities which
are not affiliates of GIAC or O'Connor Realty. In connection with any such
investment, both joint owners could be required to approve any major decisions
concerning the property. Thus, there may be an impasse if the joint owners
disagree. GIAC will generally request that the Account receive a right of first
refusal to enable the Account to buy-out any joint owner's interest in a
property. However, there is no assurance that the Account can obtain this right.
Additionally, there can be no assurance that the Account will have sufficient
resources to exercise a right of first refusal when necessary or desired.
22
<PAGE>
D. Competition with the Account for the Time and Services of Management
Personnel
The personnel of GIAC, O'Connor Realty and GISC who perform services for
the Account have competing demands on their time, as they are typically
employees of other O'Connor and Guardian Entities. Although they will devote
such time to the affairs of the Account as they, within their sole discretion
exercised in good faith, determine to be necessary to carry out their
obligations to the Account, none of them will devote 100% of their working time
to the Account. Each of GIAC, O'Connor Realty and GISC believes it has
sufficient personnel to discharge its responsibilities to all entities,
including the Account, to which it is responsible.
E. Acquiring Investments Subject to Existing Financing Held by O'Connor
Entities or Guardian Entities
It is possible that the Account will acquire properties or leasebacks
which, prior to acquisition, were subject to mortgage financing provided by
O'Connor Entities or Guardian Entities. To mitigate the effects of any conflict
of interest between the Account and such mortgagee, the Account will not acquire
such a property if the loan has been in material default in any of the three
consecutive years immediately prior to the Account's acquisition of such
property. The Account will not obtain financing from O'Connor Entities or
Guardian Entities.
F. Competitive Properties
Properties that are owned or financed by O'Connor Entities or Guardian
Entities may compete with properties in which the Account has an interest for
prospective tenants or management services.
VALUATION OF PARTICIPATING INTERESTS AND ASSETS
Calculation of a Contractowner's Interest in the Account
A Contractowner's interest in the Account will initially be the amount that
the Contractowner allocates to the Account. Thereafter, that value will
fluctuate daily to reflect changes in the value of the Account's investments,
deductions of the Account's expenses, deductions of charges assessed under the
applicable Contract, additional allocations made by the Contractowner to the
Account, and withdrawals or redemptions from the Account by the Contractowner.
The value of a Contractowner's interest in the Account at the close of any
business day is equal to the value at the close of the preceding business day,
multiplied by the "net investment factor" and reduced or increased by any
Contract charges or Account-related Contract transactions. Contract charges are
deducted daily for certain Contracts and monthly for other Contracts. The
Contract prospectus describes the amount and method for deducting Contract
charges. GIAC has the right to withdraw accumulated Contract charges from the
Account, as those monies belong to GIAC.
The net investment factor is calculated on each business day and is
determined by dividing the estimated value of the assets of the Account for that
day (disregarding, for this purpose, changes resulting from new purchase
payments and withdrawals from the Account) by the estimated value of the assets
of the Account for the preceding business day. The value of the net assets of
the Account at the end of any business day is equal to the sum of (1) the value
of the Account's cash and short-term and intermediate-term debt instruments,
plus (2) the value of the real estate-related investments owned by the Account,
plus (3) an estimate of the accrued net operating income earned by the Account
from its real estate-related investments, minus (4) the liabilities of the
Account. (See "Calculation of the Value of the Account's Assets," below.) Such
liabilities will include accruals for the daily investment management fees and
certain other expenses attributable to the operation of the Account. Liabilities
also include the charges against the Account deducted in accordance with the
Contracts. (See "Charges Against the Account.")
23
<PAGE>
Calculation of the Value of the Account's Assets
Each real estate-related investment acquired by the Account is initially
valued at its purchase price, including all acquisition or placement fees and
closing costs, unless circumstances indicate that a different value is
appropriate. When acquiring a real estate-related investment, the Account may
not obtain an independent appraisal to ascertain a reasonable purchase price.
Instead, it can rely on internal analyses of the investment's fair market value.
After acquisition, each of the Account's real estate-related investments
will ordinarily be appraised by an independent appraiser at least annually, with
the cost of such appraisals charged to the Account. While GIAC and O'Connor
Realty reserve the right to appraise some or all of the Account's real
estate-related investments themselves, they intend to engage independent
appraisers for all such investments at least once each year. In addition to the
annual appraisals, each real estate-related investment will be reviewed
internally on at least a quarterly basis. If, as a result of a review, there is
reason to conclude that there has been a change in value, a valuation adjustment
will be recommended. Any such recommendation is subject to GIAC's approval. The
revised value will remain in effect and will be used in each day's calculation
of the net investment factor until the next review or appraisal.
It should be noted that appraisals are only estimates and do not
necessarily reflect the realizable value of an investment. In fact, there may be
a significant difference between the amount that the Account will receive when a
real estate-related asset is sold and the amount at which it had been valued. To
the extent that the Account's real estate-related investments are overvalued,
the Account will pay more in fees to O'Connor Realty than it would pay if
valuations were lower, and the amount paid to Contractowners who withdraw or
transfer their interests from the Account will be greater than the amount that
would have been otherwise paid to them. If a Contractowner allocates or
transfers into the Account when investments are overvalued, the Contractowner
will be credited with less of an interest than if the value had been correctly
stated. The converse will be true in all instances when the Account's assets are
undervalued.
Debt investments with remaining maturities of 60 days or less will be
valued on an amortized cost basis which approximates market value. An
investment's amortized cost is its purchase price as adjusted by amortizing any
discount or premium uniformly to maturity. Values based on amortized cost method
may be higher or lower than market value. GIAC will consider whether it should
adjust the values of securities carried at amortized cost if there is a material
deviation between market value and amortized cost value. All other debt
investments will be valued at their current market value when market quotations
are readily available. Prices for debt instruments may also be determined by
using independent pricing services. Pricing services evaluate securities prices,
yields, maturities, call features, ratings and economic factors to determine
fair values for debt instruments in the absence of market quotations.
The Account prepares month-by-month estimates of its revenues and expenses
("estimated net operating income") for each of its real estate-related
investments each year. Each day, GIAC adds a proportionate part of a month's
estimated net operating income to the value of the Account's assets. By doing
this, GIAC establishes a daily accrued receivable of the estimated net operating
income (the "daily accrued receivable"). Once the Account receives a report of
actual operating results for its real estate-related investments for a month, it
will adjust the then-outstanding daily accrued receivable. In addition, as
income from each real estate-related investment is actually received by the
Account, receivables and other accounting entries will be appropriately
adjusted.
24
<PAGE>
Periodically, but not less than every three months, the prospective estimates of
net operating income will be viewed in light of actual experience, and
adjustments to such estimates will be made if circumstances indicate that they
are warranted. The Account estimates and accrues net operating income from real
estate-related investments because actual net operating income is generally
received intermittently, not daily, and GIAC believes it is more equitable to
participating Contractowners if a portion of the Account's net operating income
can be recognized daily. However, the daily accrual may not reflect actual
revenues and expenses, because it is estimated. Accordingly, Contractowners bear
the risk that this practice will result in under- or over-recognition of net
operating income until the estimates are adjusted to reflect actual experience.
The value of any real estate-related investment held by the Account may be
adjusted by GIAC, typically in consultation with O'Connor Realty, whenever
either of them believes that the investment's realizable value has changed. For
example, adjustments may be made when a borrower's or a lessee's financial
condition worsens or improves, or when local property values increase or
decline. There can be no assurance that O'Connor Realty or GIAC will become
aware of these circumstances as they occur. Nor can there be any assurance that
adjustments will be made when the value of the Account's investments are
affected by such circumstances. All valuation adjustments will be on a
prospective basis only.
The valuation methods described above may be changed at any time and
without the consent of Contractowners should GIAC determine that another method
would be more accurate. Changes in the valuation methods could have favorable or
unfavorable effects on Contract values that are allocated to the Account.
Information about any material change in a valuation method will be given to all
Contractowners in the Account's annual report.
BORROWING BY THE ACCOUNT
The Account may borrow from unaffiliated lenders to meet its liquidity
requirements and the Account will bear the costs of all such borrowings.
Although the Account will generally make unleveraged investments, it reserves
the right to borrow up to 75% of the value of a property for purposes of
increasing its investment portfolio. Increasing the Account's assets through
leveraged real estate-related investments will increase the compensation paid to
O'Connor Realty (up to the specified limit described below), since O'Connor
Realty's investment management fee is 1.0% of the value of the real
estate-related assets which it manages. Any borrowing will also increase the
Account's risk of loss because the Account must pay debt service, regardless of
the profitability of its leveraged investments. The aggregate indebtedness of
the Account for all purposes will not exceed 50% of the appraised or estimated
value of the Account's real estate-related assets.
CHARGES AGAINST THE ACCOUNT
Investment Management Fees and Expenses
The Account pays O'Connor Realty a daily investment management fee at an
annual rate of 1.0% of the value of the Account's average daily assets which are
real estate-related and managed by O'Connor Realty. This fee will be reduced by
the amount of any borrowings related to such assets to the extent that such
borrowings exceed 40% of the value of the Account's real estate-related assets.
The Account also reimburses O'Connor Realty for its reasonable out-of-pocket
expenses incurred in connection with certain services provided under its
investment management agreement with GIAC on behalf of the Account, or for a
reasonable allocation of expenses if the service is provided by O'Connor
Entities. These reimbursable expenses generally include the costs of appraisals,
accounting fees and expenses, legal fees and expenses, and expenses relating to
travel and communication. The cost to O'Connor Realty of its employees' time and
other overhead expenses incurred to evaluate investment opportunities or
supervise property managers is not reimbursed. The investment management
agreement with O'Connor Realty can be terminated by either party on 90 days'
notice. GIAC is required to pay O'Connor Realty a termination charge based on
the value of the real estate-related assets then held by the Account if GIAC
terminates the investment management agreement. The Account will not pay any
portion of this termination charge.
25
<PAGE>
The Account pays GISC a daily investment management fee at an annual rate
of 0.50% of the value of the Account's average daily assets which consist of the
cash and short-term and intermediate-term debt instruments. The Account also
pays any brokerage commissions, custodian and legal fees, and other costs which
may arise as such investments are bought and sold. GISC does not charge the
Account or GIAC for any overhead expenses, or for the time and services of its
personnel.
Assuming that a certain percentage of the Account's assets will always
consist of cash and other liquid investments, the Account will pay less than
1.0% of its average daily assets for the services provided by its investment
managers, O'Connor Realty and GISC, each year. The fees and expenses paid by the
Account reduce its assets.
See "General Operating Expenses" for more information about the charges and
expenses paid by the Account.
General Operating Expenses
The Account pays all of the costs related to buying, administering and
selling its assets. These costs include brokerage fees, appraisal fees,
attorneys' fees, architects' fees, engineers' fees and accountants' fees. The
Account also incurs recurring expenses for preparing annual reports, obtaining
appraisals, servicing any mortgages, and procuring accounting and legal
services. Other expenses, such as insurance costs, taxes, and property
management fees, are typically deducted from rental income, which reduces the
Account's gross income.
Contract charges are accumulated in the Account's subdivisions. These
amounts are liabilities of the Account, and GIAC has the right to withdraw any
such accumulated Contract charges from the Account.
Federal, State and Local Taxes
The Account's earnings are taxable as part of GIAC's operations. Under the
current provisions of the Code, GIAC does not expect to incur federal income
taxes on these earnings to the extent that they are credited under the
Contracts. Accordingly, the Account is not being charged for any portion of
GIAC's federal income taxes. GIAC periodically evaluates whether the Account
should be charged for federal income taxes that are attributable to the
Account's earnings. GIAC may impose such a charge in the future.
Under current laws, GIAC may incur state and local taxes. These taxes are
not presently significant, so they are not charged against the Contracts or the
Account. GIAC reserves the right to charge the Account if its liability for
state and local taxes that are attributable to the Account increases materially.
GIAC charges Contractowners for state premium taxes in the manner described in
the prospectuses for GIAC's variable Contracts.
RESTRICTIONS ON WITHDRAWALS
GIAC reserves the right to defer payment of any Contract benefits (other
than guaranteed death benefits) funded by the Account (such as cash surrender
values, loan proceeds, partial withdrawals and death benefits in excess of the
guaranteed death benefit under a Contract) for up to six (6) months, and to
restrict transfers into or out of the Account. GIAC will exercise its right to
defer payments and restrict transfers out of the Account (beyond the rules
limiting transfers described below) only if there appears to be insufficient
cash available to meet Contractowners' requests and prompt disposition of the
Account's investments to meet such requests could not be made on commercially
reasonable terms.
In the unlikely event that GIAC delays a payment for 30 days or more, it
will pay interest on the delayed amount at an annual rate of at least 3.5%. The
value to be paid in response to a withdrawal or surrender request will be
determined as of the date GIAC receives the request, whether or not payment is
to be deferred. Thus, even if
26
<PAGE>
payment is deferred, the Contractowner's investment in the Account will be
redeemed when requested.
Despite its right to defer payments from the Account, GIAC expects that it
will ordinarily pay any death benefit, cash surrender value, partial withdrawal,
or loan proceeds within seven (7) days after it receives all the documents it
requires to process the payment. GIAC will determine the payable amount as of
the date it receives the payment request and any required supporting
documentation, except in the case of a death benefit under the variable life
policies, which will be determined as of the date of death.
The funds necessary to pay Contract benefits will normally be obtained from
cash flows provided by the Account's net investment income. If GIAC determines
that such cash flows are insufficient to pay such benefits, the Account may
borrow up to 50% of the value of its real estate-related assets to avoid being
forced to sell assets at disadvantageous prices or on commercially unreasonable
terms to raise cash. (See "Borrowing by the Account.")
If a Contractowner requests a loan or partial withdrawal under the terms of
his or her Contract, GIAC will not use amounts allocated to the Account to pay
the loan or withdrawal proceeds until the amounts invested in all the other
variable investment options selected by the Contractowner have been exhausted.
GIAC permits withdrawals from and transfers out of the Account to the other
options offered under a Contract only during the thirty (30)day period beginning
on the Contractowner's Contract anniversary. The maximum amount that may be
withdrawn or transferred out of the Account each year is the greater of: (1)
331/3% of the amount invested in the Account as of the Contract anniversary or
(2) $10,000. The prospectuses for GIAC's Contracts describe each Contract's
transfer and withdrawal provisions, if any.
RESTRICTIONS ON CONTRACTOWNERS' INVESTMENT IN THE ACCOUNT
Finding and buying suitable real estate-related investments is a
time-consuming process that is affected by the market for real estate, the
amount of money available in the Account to make such investments, and general
economic conditions. In addition, the Account must meet strict diversification
standards under the Code and limits its investments in securities to preclude
registration or regulation under the 1940 Act. For these reasons, GIAC reserves
the right to restrict or prevent Contractowners from making allocations to the
Account through premium payments, loan repayments or incoming transfers.
FEDERAL INCOME TAX CONSIDERATIONS
The prospectuses for GIAC's variable Contracts describe the tax-deferral
benefits provided by such Contracts and the federal income tax treatment of
distributions from such Contracts, including distributions that are attributable
to Contract values that had been allocated to the Real Estate Account. The
Account's continued compliance with the diversification standards for the
investments made by insurance company separate accounts is essential to ensure
the continued availability of any tax-deferral benefits. (See "General
Investment and Operating Policies of the Account.") Contractowners should
consult a qualified tax advisor for advice about their particular circumstances.
Please note that it is impossible to predict whether future federal tax law
changes will affect the income tax treatment of the Contracts or amounts
allocated to the Account through such Contracts.
The Account is not a separate taxpayer under the Code. Its investment
income is includible in GIAC's gross income, but GIAC does not expect to incur
federal income tax liability for such investment income because GIAC credits
such income to its Contractowners. If GIAC does incur federal income taxes that
are attributable to the Account's income, it may make a corresponding charge
against the Account. (See "Charges Against the Account.")
27
<PAGE>
DISTRIBUTION OF THE CONTRACTS
GISC is the principal underwriter and distributor of the Contracts. The
prospectuses for GIAC's variable Contracts describe how the Contracts are sold
and the compensation paid for Contract sales.
STATE REGULATION
GIAC is regulated by the Delaware Commissioner of Insurance and the
insurance departments of all the other states and jurisdictions where it is
licensed to do business. GIAC must file an annual statement in a form
promulgated by the National Association of Insurance Commissioners. This annual
statement is reviewed and analyzed by the office of the Delaware Commissioner of
Insurance, which periodically examines GIAC's financial condition and
operations.
EXPERTS
The financial statements of the Guardian Real Estate Account at December
31, 1995, 1994 and 1993, and for the years then ended, that appear in this
Prospectus and registration statement have been audited by Price Waterhouse,
LLP, independent accountants. The audits of these financial statements were
conducted as set forth in Price Waterhouse's report thereon, which appears
elsewhere herein and in the registration statement, and are included in reliance
upon such report given upon the authority of such firm as an expert in
accounting and auditing.
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
has been provided by Richard T. Potter, Jr., Counsel of GIAC and Vice President
and Equity Counsel of Guardian Life.
LITIGATION
No litigation is pending, and no litigation is known to be contemplated by
governmental authorities, that would have a material effect upon the Account.
ADDITIONAL INFORMATION
On the Account's behalf, GIAC has filed a registration statement under the
Securities Act of 1933 with the SEC. This Prospectus does not include all the
information set forth in the registration statement. The omitted information may
be obtained at the SEC's principal office in Washington, D.C., upon payment of
the prescribed fee.
Further information may also be obtained from GIAC's Customer Service
Office. Its address and telephone number appear on the first page of this
Prospectus.
FINANCIAL STATEMENTS
The following financial statements of the Account and accompanying notes to
the financial statements are as of December 31, 1995 and 1994 and for the years
ended December 31, 1995, 1994 and 1993.
28
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS:
Investment Properties at fair value (Cost basis: $22,262,034 and
$22,405,832, respectively) ................................................ $10,950,000 $12,350,000
Long-term Investments at fair value (Cost basis: $2,467,984 and
$2,473,870, respectively) ................................................. 2,527,808 2,128,404
Cash ........................................................................ 1,139 1,402
Short-term Investments ...................................................... 1,119,000 905,000
Receivables ................................................................. 98,179 86,760
----------- -----------
TOTAL ASSETS .............................................................. 14,696,126 15,471,566
=========== ===========
LIABILITIES:
Accrued Management Advisory Fees ............................................ 45,769 34,804
Accrued Expenses ............................................................ 115,205 111,489
Unearned Rent ............................................................... -- 149,457
Annuitant Mortality Fluctuation Fund ........................................ 81,727 72,500
Other Liabilities ........................................................... 41,988 37,368
----------- -----------
TOTAL LIABILITIES ......................................................... 284,689 405,618
----------- -----------
NET ASSETS REPRESENTING
CONTRACTOWNERS' EQUITY:
Value Guard II .............................................................. 4,021,471 4,623,454
Guardian Investor ........................................................... 4,606,301 4,812,744
ValuePlus ................................................................... 465,212 433,899
The Guardian Insurance & Annuity Co., Inc. .................................. 5,318,453 5,195,851
----------- -----------
TOTAL NET ASSETS .......................................................... 14,411,437 15,065,948
----------- -----------
TOTAL LIABILITIES AND NET ASSETS .......................................... $14,696,126 $15,471,566
=========== ===========
Number of Units Outstanding:
Variable Annuity Contractowners
Value Guard II .............................................................. 464,336 542,296
Guardian Investor ........................................................... 588,474 624,615
ValuePlus Contractowners ...................................................... 52,127 49,518
The Guardian Insurance & Annuity Co., Inc. .................................... 568,614 568,614
Unit Value:
Variable Annuity Contractowners
Value Guard II .............................................................. $8.6194 $8.5039
Guardian Investor ........................................................... $7.7791 $7.6880
ValuePlus Contractowners ...................................................... $8.9246 $8.7625
The Guardian Insurance &Annuity Company, Inc. ................................. $9.3534 $9.1377
</TABLE>
See Notes to the Financial Statements
29
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Rental ............................................. $ 2,115,716 $ 1,961,004 $ 2,490,806
Interest ........................................... 215,641 200,592 50,071
----------- ----------- -----------
Total Income ................................... 2,331,357 2,161,596 2,540,877
----------- ----------- -----------
EXPENSES:
Real Estate Operating Expenses ..................... 462,811 401,239 441,262
Real Estate Taxes .................................. 266,119 265,622 268,860
Management Advisory Fees ........................... 140,196 139,344 144,789
Repairs and Maintenance ............................ 213,737 222,849 193,859
Administrative Expenses ............................ 106,212 111,070 115,035
----------- ----------- -----------
Total Expenses ................................. 1,189,075 1,140,124 1,163,805
----------- ----------- -----------
Net Investment Income Before Realized Gains and Net
Unrealized (Depreciation)/Appreciation ............. 1,142,282 1,021,472 1,377,072
Net Unrealized (Depreciation)/Appreciation in Value of
Investments ........................................ (850,911) (1,259,381) (3,478,447)
----------- ----------- -----------
Net (Decrease)/Increase in Net Assets Resulting from
Operations ......................................... $ 291,371 $ (237,910) $(2,101,375)
=========== =========== ===========
Net (Decrease)/Increase in Net Assets Per Unit:
Value Guard II Contractowners ...................... $ 0.12 $ (0.15) $ (1.22)
=========== =========== ===========
Guardian Investor Contractowners ................... $ 0.09 $ (0.16) $ (1.17)
=========== =========== ===========
ValuePlus Contractowners ........................... $ 0.16 $ (0.13) $ (1.16)
=========== =========== ===========
The Guardian Insurance & Annuity Co., Inc. ......... $ 0.22 $ (0.08) $ (1.58)
=========== =========== ===========
Weighted Average Number of Units Outstanding:
Value Guard II Contractowners ...................... 503,389 608,410 735,018
=========== =========== ===========
Guardian Investor Contractowners ................... 604,926 627,737 559,546
=========== =========== ===========
ValuePlus Contractowners ........................... 50,606 68,922 67,526
=========== =========== ===========
The Guardian Insurance & Annuity Co., Inc. ......... 568,614 498,989 297,141
=========== =========== ===========
</TABLE>
30
<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, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Contractowners The Guardian 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, 1993 .... 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
Equity contributed/
(withdrawn) during 1995 ... (77,960) (695,241) (36,141) (275,581) 2,609 24,940 -- -- (945,882)
Net (Decrease)/Increase
in Net Assets ............. -- 93,258 -- 69,138 -- 6,373 -- 122,602 291,371
-------- ---------- ------- ---------- ------- -------- ------- ---------- -----------
Balance--December 31, 1995 .. 464,336 $4,021,471 588,474 $4,606,301 52,127 $465,212 568,614 $5,318,453 $14,411,437
======== ========== ======= ========== ======= ======== ======= ========== ===========
</TABLE>
See Notes to the Financial Statements
31
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Investment Income ..................................... $ 1,142,282 $ 1,021,472 $ 1,377,072
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in Other Receivables ............................. (11,419) (45,247) (14,626)
Change in Unearned Rent ................................. (149,457) (89,472) 238,929
Change in Accrued Management Advisory Fees .............. 10,965 (802) 19,718
Change in Accrued Expenses .............................. 3,716 36,312 2,644
Change in Annuitant Mortality Fluctuation Fund .......... 9,227 6,702 10,536
Amortization of Premium ................................. 5,886 5,887 --
Change in Other Liabilities ............................. 4,620 (9,139) 24,432
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 1,015,820 925,713 1,658,705
----------- ----------- -----------
INVESTING ACTIVITIES:
(Purchase)/Sale of Long-Term Investments .................. -- -- (2,479,757)
(Purchase)/Sale of Short-Term Investments ................. (214,000) 295,000 (240,000)
Capital Improvements, Net of Dispositions ................. 143,799 (969,789) (722,574)
----------- ----------- -----------
NET CASH PROVIDED BY/(USED IN)
INVESTING ACTIVITIES .................................... (70,201) (674,789) (3,442,331)
----------- ----------- -----------
FINANCING ACTIVITIES:
Contractowners' (Withdrawals)/Contributions ............. (945,882) (1,205,292) (15,512)
The Guardian Insurance & Annuity Co., Inc. (Withdrawals)/
Contributions ......................................... -- 950,000 1,800,000
----------- ----------- -----------
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES .................................... (945,882) (255,292) 1,784,488
----------- ----------- -----------
INCREASE/(DECREASE) IN CASH ......................... (263) (4,368) 862
CASH AT BEGINNING OF YEAR ........................... 1,402 5,770 4,908
----------- ----------- -----------
CASH AT END OF YEAR ................................. $ 1,139 $ 1,402 $ 5,770
=========== =========== ===========
</TABLE>
See Notes to the Financial Statements
32
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note 1 - 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, 1995, GIAC
maintained 37% 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 has 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.
33
<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. The value of the Account's real estate
holdings was negatively affected by a $1.5 million write-down in the value of
Somerset Square properties at the end of 1995.
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, 1995, the Account's short-term investments consisted of a
repurchase agreement with State Street Bank and Trust Co. which matures on
January 2, 1996. 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.
34
<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, 1995, GIAC assumed expenses of $25,573 related to the
Account. Total expenses assumed by GIAC were $32,362 and $31,440 for the years
ended December 31, 1994 and 1993, respectively.
For the year ended December 31, 1995, investment management fees earned by
GISC totalled $16,702 and investment management fees earned by O'Connor Realty
totalled $123,495. 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 $136,472. 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
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, appraisal fees, 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.
35
<PAGE>
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,
------------
1996 2,113,057
1997 2,189,861
1998 1,817,825
1999 1,362,710
2000 699,897
2001 470,250
----------
Total $8,653,600
==========
Certain leases provide for additional rents based upon operating costs in
excess of given base amounts. For the year ended December 31, 1995, rental
income included approximately $79,089 of such additional rental income. For the
years ended December 31, 1994 and 1993, rental income included approximately
$86,757 and $243,000, 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.
36
<PAGE>
NOTE 8
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
REAL ESTATE
December 31, 1995
<TABLE>
<CAPTION>
Costs
capitalized
subsequent
to Gross cost
Initial cost to Account acquisitions at close of period
----------------------- ------------ ------------------
Buildings Improvements Buildings
and and Carrying and
Description Encumbrances Land Improvements Costs Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
45 Somerset Square
Office Building--
Glastonbury, CT ....... $0 $ 871,668 $ 7,050,186 $ 994,982 $ 871,668 $ 8,045,168 $ 8,916,836
115 Somerset Square
Office Building--
Glastonbury, CT ....... 0 843,441 6,800,945 566,744 843,441 7,367,689 8,211,130
955 Cobb Place Blvd
Office Building
Warehouse Facility--
Kennesaw, GA .......... 0 751,187 4,382,881 0 751,187 4,382,881 5,134,0680
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............... $0 $2,466,296 $18,234,012 $1,561,726 $2,466,296 $19,795,738 $22,262,034
====================================================================================================================================
</TABLE>
Date of Date Fair
Description Construction Acquired Value
- --------------------------------------------------------------------------------
45 Somerset Square Construction completed
Office Building-- in late 1988 and early
Glastonbury, CT ....... 1989 6/12/89 $2,800,000
115 Somerset Square Construction completed
Office Building-- in late 1988 and early
Glastonbury, CT ....... 1989 6/12/89 2,950,000
955 Cobb Place Blvd
Office Building
Warehouse Facility-- Construction completed
Kennesaw, GA .......... in late 1991 10/01/91 5,200,00
- --------------------------------------------------------------------------------
Total ............... $10,950,000
================================================================================
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C>
A) Reconciliation of investment property owned:
Real Estate at beginning of year ................. 22,405,832 $21,436,043 $20,713,469
Net Acquisitions (dispositions) .................. -- -- --
Capital Improvements and Carrying Costs .......... (143,798) 969,789 722,574
----------------------------------------------------
Balance at the end of the year ................... 22,262,034 $22,405,832 $21,436,043
====================================================
</TABLE>
B) Total tax basis for properties based on historical
cost:
45 Somerset Square Office Building --
Glastonbury, CT ....................................... $7,552,189
115 Somerset Square Office Building --
Glastonbury, CT ....................................... 6,889,584
955 Cobb Place Blvd. Office Building
Warehouse Facility --
Kennesaw, GA .......................................... 4,673,248
37
<PAGE>
NOTE 9
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
MARKETABLE SECURITIES
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Market Value Amount Carried
Description Par Value Cost 12/31/95 on Balance Sheet
----------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Marketable Securities:
Repurchase Agreement
State Street Bank and Trust Company
repurchase agreement at 5.60%
due 1/2/96, maturity value $1,119,696
(collateralized by $1,050,000 U.S.
Treasury Notes plus accrued interest,
7.125% due 2/29/00, market value at
12/29/95 was $1,141,765) ............ $1,119,000 $1,119,000 $1,119,000 $1,119,000
---------- ---------- ---------- ----------
Fixed Maturities:
Indianapolis Power & Light Company
7.375% due 8/1/07 ................... 1,000,000 1,066,548 1,090,400 1,090,400
GTE Southwest Inc.
6.54% due 12/1/05 ................... 1,400,000 1,401,436 1,437,408 1,437,408
---------- ---------- ---------- ----------
2,400,000 2,467,984 2,527,808 2,527,808
---------- ---------- ---------- ----------
Total Marketable Securities ............... $3,519,000 $3,586,984 $3,646,808 $3,646,808
========== ========== ========== ==========
</TABLE>
See Notes to the Financial Statements
38
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
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, 1995 and 1994 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, 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 16, 1996
39
<PAGE>
APPENDIX A
MANAGEMENT OF O'CONNOR REALTY
Name Position
---- --------
Jeremiah W. O'Connor, Jr. Chairman of the Board
Benjamin G. Gifford President
Douglas R. Gardiner Director of Portfolio Management
Scott M. MacDonald Senior Vice President
Glenn J. Rufrano Director
JEREMIAH W. O'CONNOR, JR. -- Chairman of the Board. Founder of J.W.
O'Connor & Co., Inc., O'Connor Realty's corporate parent. Mr. O'Connor was a
founder of Corporate Property Investors, a real estate investment trust, and
served as a Trustee, Executive Vice President and member of the Investment
Committee of Corporate Property Investors from 1971 to 1983.
BENJAMIN G. GIFFORD -- President. Mr. Gifford, who joined J.W. O'Connor &
Co., Inc. in 1983, has primary responsibility for the creation of balanced
commercial real estate portfolios composed of properties owned in fee simple as
well as structured debt and equity joint ventures for O'Connor Realty.
GLENN J. RUFRANO -- Director. Mr. Rufrano joined J.W. O'Connor & Co., Inc.
in 1983. Presently, he is its President and Chief Operating Officer.
DOUGLAS R. GARDINER -- Senior Vice President and Director of Portfolio
Management. Mr. Gardiner is responsible for portfolio management of office,
industrial and retail properties. He has been involved in real estate
transactions and property management for 20 years.
SCOTT M. MACDONALD -- Senior Vice President and Portfolio Manager. Mr.
MacDonald manages office, industrial and retail properties. Prior to joining
O'Connor Realty, Mr. MacDonald was Vice President of Development and Partner of
Sammis Company, where he worked closely with Copley Real Estate Advisors and
other prominent developers.
A-1
<PAGE>
APPENDIX B
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>
Joseph D. Sargent* ................. Director, President Director
and Chief Executive Officer
Arthur V. Ferrara** ................ Director Director
Leo R. Futia ....................... Director 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
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
Thomas R. Hickey, Jr. .............. Vice President, Operations Vice President, Operations
Richard T. Potter, Jr. ............. Vice President and Counsel Vice President and 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
Gary B. Lenderink .................. Vice President, Group Pensions --
</TABLE>
- ----------
* Member of Investment Committee of GIAC Board of Directors.
** Alternate member of Investment Committee of GIAC Board of Directors.
B-1
<PAGE>
JOSEPH D. SARGENT -- President and Chief Executive Officer of The Guardian
Life Insurance Company of America since January 1996; President from January
1993 to December 1995; Executive Vice President prior thereto.
ARTHUR V. FERRARA -- Retired Chairman of the Board and Chief Executive
Officer of The Guardian Life Insurance Company of America; Director since
January 1981.
LEO R. FUTIA -- Retired Chairman of the Board and Chief Executive Officer
of The Guardian Life Insurance Company of America; Director since May 1970.
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.
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.
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.
GARY B. LENDERINK -- Vice President, Group Pensions of The Guardian Life
Insurance Company of America since January 1995; Second Vice President prior
thereto.
NIKOLAOS D. MONOYIOS -- Vice President, Equity Securities of The Guardian
Life Insurance Company of America since March 1991.
FRANK L. PEPE -- Vice President, Equity Products of The Guardian Life
Insurance Company of America since January 1996; Second Vice President, Equity
Products prior thereto.
JOHN M. EMANUELE -- Treasurer of The Guardian Life Insurance Company of
America since January 1984.
B-2
<PAGE>
JOSEPH A. CARUSO -- Vice President & Corporate Secretary of The Guardian
Life Insurance Company of America since March 1996; Second Vice President and
Corporate Secretary from January 1995 to February 1996; Corporate Secretary from
October 1992 to December 1994; Assistant Secretary 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. -- Vice President and Equity Counsel of The Guardian
Life Insurance Company of America since January 1996; Second Vice President and
Equity Counsel from January 1993 to December 1995; 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 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.
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Indemnification of Directors and Officers.
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 stockholders 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 a
Covered Person's office. This provision does protect a director of GIAC against
any liability to GIAC or its stockholders for monetary damages 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 stockholders, (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.
Item 15. Recent Sales of Unregistered Securities.
Not applicable.
Item 16. Exhibits and Financial Statements.
(a) Exhibits:
(1) Underwriting Agreement*.
(2) None.
(3) (a) Certificate of Incorporation of The Guardian Insurance &
Annuity Company, Inc.*
(b) By-laws of The Guardian Insurance & Annuity Company, Inc.*
(c) Certified copy of resolution of the Board of Directors of
The Guardian Insurance & Annuity Company, Inc. establishing
The Guardian Real Estate Account.*
(4) (a) Specimen of Single Premium Variable Life Insurance Policy
including Rider pertaining to The Guardian Real Estate
Account.**
(b) Specimen of Variable Annuity Contract including Rider
pertaining to The Guardian Real Estate Account.**
(c) Specimen of Variable Annuity Contract which provides for
allocations to The Guardian Real Estate Account.***
(d) Specimen of Group Unallocated Deferred Variable Annuity
Contract which provides for allocations to The Guardian Real
Estate Account+.
(5) Opinion Re Legality.**
- ----------
* Incorporated by reference to the Registration Statement on Form S-1 for the
Registrant as filed on June 15, 1988 (Reg. No. 33-22548).
** Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 for the Registrant as filed on October
3, 1988 (Reg. No. 33-22548).
*** Incorporated by reference to the Registration Statement on Form S-1 for the
Registrant as filed on March 7, 1990 (Reg. No. 33-33686).
+ Incorporated by reference to the Registration Statement on Form S-1 for the
Registrant as filed on March 6, 1991 (Reg. No. 33-33686).
II-1
<PAGE>
(6) None.
(7) None.
(8) None.
(9) None.
(10) (a) 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.*
(b) 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.*
(11) None.
(12) None.
(13) Not Applicable.
(14) None.
(15) None.
(16) None.
(17) Not Applicable.
(18) Not Applicable.
(19) Not Applicable.
(20) Not Applicable.
(21) Not Applicable.
(22) None.
(23) Not Applicable.
(24) (a) Consent of Price Waterhouse LLP.
(b) Consent of Richard T. Potter, Jr.
(25) (a) Certified copy of resolution of 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.+
(b) Powers of Attorney executed by directors and officers of The
Guardian Insurance & Annuity Company, Inc.+ (26) None. (27)
(26) None.
(27) Financial Data Schedule.
(28) None.
(29) None.
(b) Financial Statements:
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Statements of Cash Flows
Notes to Financial Statements
Report of Independent Accountants
- ----------
* Incorporated by reference to the Registration Statement on Form S-1 for the
Registrant as filed on June 15, 1988 (Reg. No. 33-22548).
+ Incorporated by reference to the Registration Statement on Form S-1 for the
Registrant as filed on March 6, 1991 (Reg. No. 33-33686).
II-2
<PAGE>
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement,
including (but not limited to) any addition or deletion of a managing
underwriter.
(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(d) Insofar as indemnification for liabilities 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 Act
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, 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 Act and will
be governed by the final adjudication of such issue.
II-3
<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 officers of The Guardian Insurance & Annuity
Company, Inc. in the capacities and on the dates indicated.
S/ JOSEPH D. SARGENT* PRESIDENT, CHIEF EXECUTIVE OFFICER
- ------------------------------------ AND DIRECTOR
JOSEPH D. SARGENT
(PRINCIPLE EXECUTIVE OFFICER)
S/ FRANK J. JONES EXECUTIVE VICE PRESIDENT,
- ------------------------------------ CHIEF INVESTMENT OFFICER AND
FRANK J. JONES DIRECTOR
S/ FRANK L. PEPE* VICE PRESIDENT AND CONTROLLER
- ------------------------------------
FRANK L. PEPE*
(PRINCIPAL ACCOUNTING OFFICER)
S/ JOHN M. SMITH* EXECUTIVE VICE PRESIDENT
- ------------------------------------ AND DIRECTOR
JOHN M. SMITH
S/ EDWARD K. KANE* SENIOR VICE PRESIDENT,
- ------------------------------------ GENERAL COUNSEL AND DIRECTOR
EDWARD K. KANE
S/ ARTHUR V. FERRARA* DIRECTOR
- ------------------------------------
ARTHUR V. FERRARA
DIRECTOR
- ------------------------------------
PETER L. HUTCHINGS
S/ LEO R. FUTIA* DIRECTOR
- ------------------------------------
LEO R. FUTIA
S/ WILLIAM C. WARREN* DIRECTOR
- ------------------------------------
WILLIAM C. WARREN
S/ PHILIP H. DUTTER* DIRECTOR
- ------------------------------------
PHILIP H. DUTTER
* BY: S/ THOMAS R. HICKEY, JR. DATE: MARCH 8, 1996
- ------------------------------------
THOMAS R. HICKEY, JR.,
VICE PRESIDENT, OPERATIONS
PURSUANT TO A POWER OF ATTORNEY
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
The Guardian Real Estate Account of The Guardian Insurance & Annuity Company,
Inc., has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York, on the 8th day of
March, 1996.
THE GUARDIAN REAL ESTATE ACCOUNT OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BY: S/ THOMAS R. HICKEY, JR.
-------------------------------
S/ THOMAS R. HICKEY, JR.
VICE PRESIDENT, OPERATIONS
II-5
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
EXHIBIT INDEX
Number Description Page
- ------ ----------- ----
24(a) Consent of Price Waterhouse LLP.
24(b) Consent of Richard T. Potter, Jr., Esq.
27 Financial Date Schedule.
Exhibit 24(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 6 to the registration statement on Form S-1 of our
report dated February 16, 1996 relating to the financial statements of The
Guardian Real Estate Account of The Guardian Insurance & Annuity Company, Inc.,
which appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" in the Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, NY
March 8, 1996
Exhibit 24(b)
CONSENT OF COUNSEL
I hereby consent both to the reference to my name under the caption "Legal
Opinion" included in the prospectus contained in this post-effective amendment
to the registration statement on Form S-1 filed by the Guardian Insurance &
Annuity Company, Inc. on behalf of The Guardian Real Estate Account (File No.
33-33686) with the Securities and Exchange Commission 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
March 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,139
<SECURITIES> 3,646,808
<RECEIVABLES> 98,179
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,746,126
<PP&E> 10,950,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,696,126
<CURRENT-LIABILITIES> 254,689
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,411,437
<TOTAL-LIABILITY-AND-EQUITY> 14,696,126
<SALES> 2,331,357
<TOTAL-REVENUES> 2,331,357
<CGS> 835,142
<TOTAL-COSTS> 835,142
<OTHER-EXPENSES> 353,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 291,371
<INCOME-TAX> 0
<INCOME-CONTINUING> 291,371
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