SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Year Ended Commission File Nos.
September 30, 1997 33-22548, 33-33686
- --------------------------- --------------------
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
----------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-2656036
- -------------------------------- --------------------
(State of incorporation) (IRS Employer
Identification No.)
201 Park Avenue South, New York, New York 10003
-----------------------------------------------
(Address of principal executive offices)
(212) 598-8000
-------------------------------
(Registrant's Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_| .
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Registrant)
INDEX TO
REPORT ON FORM 10-Q
-------------------
PART I - Financial Information Page
- ------------------------------- ----
Item 1. Financial Statements
Statements of Assets and Liabilities as of September 30, 1997
(Unaudited) and December 31, 1996 (Audited) .................. 3
Statements of Operations for the nine months ended
September 30, 1997, 1996 and 1995 (Unaudited) ................ 4
Statement of Changes in Net Assets for the
nine months ended September 30, 1997 (Unaudited)
and for the years ended December 31, 1996
and 1995 (Audited) ........................................... 5
Notes to Financial Statements (Unaudited) ...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 11
PART II - Other Information
- -----------------------------
Item 1. Legal Proceedings .............................................. 13
Item 2. Changes in Securities .......................................... 13
Item 3. Defaults Upon Senior Securities ................................ 13
Item 4. Submission of Matter to a Vote
of Security Holders .......................................... 13
Item 5. Other Information .............................................. 13
Item 6. Exhibits and Reports on Form 8-K ............................... 13
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<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
ASSETS: (Unaudited) (Audited)
----------- ------------
<S> <C> <C>
Investment Properties at Fair Value -- $10,950,000
Long-Term Investments at Fair Value
(Original cost: $2,457,677) 2,440,302 2,401,432
Cash 4,521 4,511
Short-Term Investments 13,555,000 1,433,000
Other Receivables 74,440 79,121
----------- -----------
TOTAL ASSETS $16,074,263 $14,868,064
=========== ===========
LIABILITIES:
Accrued Management Advisory Fees $ 36,063 $ 39,925
Accrued Expenses 48,568 65,812
Unearned Rent -- --
Annuitant Mortality Fluctuation Fund 95,460 89,826
Other Liabilities 47,656 92,678
----------- -----------
TOTAL LIABILITIES 227,747 288,241
----------- -----------
NET ASSETS REPRESENTING
CONTRACTOWNERS' EQUITY:
Value Guard 3,630,415 3,631,542
Guardian Investor 4,970,307 4,621,039
ValuePlus 576,047 523,903
Guardian Insurance & Annuity Co., Inc. 6,669,747 5,803,339
----------- -----------
TOTAL NET ASSETS 15,846,516 14,579,823
----------- -----------
TOTAL LIABILITIES AND NET ASSETS $16,074,263 $14,868,064
=========== ===========
Number of Units Outstanding:
Variable Annuity Contractowners
Value Guard 339,742 387,874
Guardian Investor 516,202 546,896
ValuePlus Contractowners 51,923 54,070
The Guardian Insurance & Annuity Co., Inc. 568,614 568,614
Unit Value:
Variable Annuity Contractowners
Value Guard $10.6244 $ 9.3127
Guardian Investor $ 9.5599 $ 8.3904
ValuePlus Contractowners $11.0942 $ 9.6894
The Guardian Insurance & Annuity Co., Inc. $11.7298 $10.2062
</TABLE>
See Notes to the Financial Statements
-3-
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997, 1996, and 1995 (Unaudited)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Investment Income:
Rental $ 895,459 $ 1,600,097 $ 1,567,253
Interest 366,982 160,968 159,844
Other Income -- -- --
----------- ----------- -----------
Total Income 1,262,441 1,761,065 1,727,097
----------- ----------- -----------
Expenses:
Real Estate Operating Expenses 217,060 473,145 444,777
Real Estate Taxes 84,167 186,732 198,705
Management Advisory Fees 86,433 95,069 104,316
Repairs and Maintenance 54,544 50,110 61,846
Administrative Expenses 103,429 77,656 87,810
----------- ----------- -----------
Total Expenses 545,633 882,712 897,454
----------- ----------- -----------
Net Investment Income Before Realized Gains
And Net Unrealized (Depreciation)/Appreciation $ 716,808 $ 878,353 $ 829,643
Realized Gains/(Losses) (9,950,345) -- --
Net Unrealized (Depreciation)/Appreciation in
Value of Investments 11,333,874 (145,612) 428,658
----------- ----------- -----------
Net (Decrease)/Increase in Net Assets
Resulting from Operations $ 2,100,337 $ 732,741 $ 1,258,301
=========== =========== ===========
</TABLE>
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<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1997 (Unaudited) and the
Years Ended December 31, 1996, and 1995 (Audited)
<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 31, 1995 ... 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
Equity contributed/(withdrawn)
during 1996 ................. (76,462) (673,906) (41,578) (331,674) 1,943 18,977 -- -- (986,603)
Net (Decrease)/Increase in
Net Assets .................. -- 283,977 -- 346,412 -- 39,714 -- 484,886 1,154,989
-------- ---------- ------- ---------- ------ -------- ------- ---------- -----------
Balance -- December 31, 1996 .. 387,874 $3,631,542 546,896 $4,621,039 54,070 $523,903 568,614 $5,803,339 $14,579,823
Equity contributed/(withdrawn)
during 1997 ................. (48,132) (492,933) (30,694) (316,925) (2,147) (24,602) -- -- (834,460)
Net (Decrease)/Increase in
Net Assets .................. -- 491,806 -- 666,193 -- 76,746 -- 866,408 2,101,153
-------- ---------- ------- ---------- ------ -------- ------- ---------- -----------
Balance -- September 30, 1997 . 339,742 $3,630,415 516,202 $4,970,307 51,923 $576,047 568,614 $6,669,747 $15,846,516
======= ========== ======= ========== ====== ======== ======= ========== ===========
</TABLE>
See Notes to the Financial Statements
-5-
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
Note 1 - Organization
Organization
The Guardian Real Estate Account (the "Account") of The Guardian Insurance
& Annuity Company, Inc. (GIAC) was established in 1987 under Delaware Insurance
Law as an insurance company separate account. Participating interests in the
Account are registered under the Securities Act of 1933 and were 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.
At September 30, 1997 GIAC's net contribution totaled $6.7 million and
GIAC maintained 42% ownership of the Account.
On February 27, 1997, the Board of Directors of GIAC voted to cease
offering the Account as an investment option under GIAC's Contracts, effective
immediately. The GIAC Board of Directors also voted to liquidate the Account on
or before December 31, 1997 and the liquidation date is now scheduled for
December 19, 1997. See Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A").
As of September 30, 1997 the Account owned no real estate property.
-6-
<PAGE>
Note 2 - Summary of Significant Accounting Policies
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 September 30, 1997, the Account's short-term investments consisted of a
repurchase agreement with State Street Bank and Trust Co. which matures on
October 1, 1997. 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 7). 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.
-7-
<PAGE>
Revenue Recognition
Income from properties and other investments, as well as expenses, are
recorded on the accrual basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under tax law, no federal income taxes are payable by GIAC with respect to
the operations of the Account. However, GIAC reserves the right to charge taxes
attributable to the Account in the future.
Note 3 - Investment Advisory Agreements And Related Parties Transactions
The investment managers of the Account are O'Connor Realty Advisors
Incorporated ("O'Connor Realty") and Guardian Investor Services Corporation
("GISC"). O'Connor Realty, a wholly owned subsidiary of The O'Connor Group,
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.
For the nine months ended September 30, 1997, investment management fees
earned by GISC totalled $20,403 and investment management fees earned by
O'Connor Realty totalled $66,030. For the year ended December 31, 1996,
investment management fees earned by GISC totalled $17,532 and investment
management fees earned by O'Connor Realty totalled $109,800. 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. 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
-8-
<PAGE>
charged to the account. These costs include brokerage fees, appraisal fees,
attorneys' fees, architects' fees, engineers' fees and accountants' fees
incurred in connection with the investment process. In addition, the Account
will incur recurring costs such as mortgage servicing fees, annual audit
charges, accounting and legal fees and various administrative expenses. Other
expenses, such as insurance costs, taxes, and property management fees, will
ordinarily be deducted from rental income, thereby reducing the gross income of
the Account. As of September 30, 1997, the Account has disposed of all of its
real estate-related assets in anticipation of its liquidation on December 19,
1997.
Note 5 - 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 6 - 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.
-9-
<PAGE>
NOTE 7
THE GUARDIAN REAL ESTATE ACCOUNT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
MARKETABLE SECURITIES
For Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Market Value Amount Carried
Description Par Value Cost 9/30/97 on Balance Sheet
----------- --------- ---- -------- ----------------
<S> <C> <C> <C> <C>
Marketable Securities:
Repurchase Agreement:
State Street Bank and Trust Company
repurchase agreement at 5.80% due
10/1/97, maturity value $13,557,184
(collateralized by $13,525,000 U.S. Treasury
Notes plus accrued interest, 6.000% due
5/31/98, market value at 9/30/97 was
$13,829,313) $13,555,000 $13,555,000 $13,555,000 $13,555,000
----------- ----------- ----------- -----------
Fixed Maturities:
Indianapolis Power & Light Company
7.375% due 8/01/07 1,000,000 1,056,495 1,051,180 1,051,180
GTE Southwest Inc.
6.54% due 12/01/05 1,400,000 1,401,182 1,389,122 1,389,122
----------- ----------- ----------- -----------
2,400,000 2,457,677 2,440,302 2,440,302
----------- ----------- ----------- -----------
Total Marketable Securities $15,955,000 $16,012,677 $15,995,302 $15,995,302
=========== =========== =========== ===========
</TABLE>
See Notes to the Financial Statements
-10-
<PAGE>
Item 2. 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 September 30, 1997, the Account's net assets totalled $15,846,516.
Of this amount, $9,176,769 was attributable to Contractowner interests and
$6,669,747 was attributable to GIAC. At December 31, 1996, the Account's
net assets totalled $14,579,823. The Account is currently not accepting
additional Contractowner contributions.
As of September 30, 1997, the Account's assets were invested in permitted
fixed-income instruments. Through September 30, 1997, the Account remained
able to meet its obligations under GIAC's variable Contracts to pay
benefits and effect transfers.
At a meeting on February 27, 1997, the Board of Directors of The Guardian
Insurance & Annuity Company, Inc. ("GIAC") adopted a plan pursuant to
which the Account will be terminated on December 31, 1997 (or such earlier
date as may be determined by the Executive Committee of the GIAC Board of
Directors). Effective February 28, 1997, units of the Account are no
longer being offered, and are no longer available for allocations of net
premiums through the various variable insurance contracts and policies
issued by GIAC, or for transfers of contract or policy values. GIAC has
completed the sale of the Account's real estate-related assets and expects
to invest the proceeds of such sales in short-term U.S. government
securities and highly rated money market instruments prior to the
termination date, which has been established as December 19, 1997.
On April 16, 1997, the Glastonbury, Connecticut properties were sold to
MGI Glastonbury Corporation for a cash purchase price of $7,196,000. This
was an increase of $296,000 over the aggregate value of the properties as
of March 31, 1997.
On September 26, 1997 the Kennesaw, Georgia property was sold to First
Industrial, L.P. for a cash purchase price of $4,964,407. This was
$136,593 below the property value at June 30, 1997.
Cash and liquid securities held by the Account increased by $12.2 million
during the nine months ended September 30, 1997 due to short term
investments acquired after the sale of the properties.
Results of Operations
The Account's net assets as a result of operations for the period ended
September 30, 1997 increased by $2,100,337 mainly as a result of
unrealized appreciation on revaluation of the Account's properties prior
to sale. For the nine months ended September 30, 1996, net assets from
operations increased by $732,741. Total revenues for the same time
periods were $1,262,441, and $1,761,065, respectively. For the nine months
ended September 30, 1995, total revenues were $1,727,097.
The Account's expenses for the nine months ended September 30, 1997
totalled $545,633 as compared to $882,712 for the nine months ended
September 30, 1996 and $897,454 for the nine months ended September 30,
1995.
-11-
<PAGE>
Item 3. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in the accompanying
Index to Financial Statements and Supplementary Data are incorporated
herein by reference and filed as a part of this report.
Item 4. Disagreements on Accounting and Financial Disclosure
None.
-12-
<PAGE>
PART II
-------
Item 1. Legal Proceedings
- - -------------------------
None.
Item 2. Changes in Securities
- - -----------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Contractowners participating in the Account have no voting rights with
respects to the Account.
Item 5. Other Information
- --------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits to the Report
----------------------
27. Financial Data Schedule
(b) Reports filed on Form 8-K
-------------------------
The Registrant did not file any reports on Form 8-K during the
quarter ended September 30, 1997. However, the Registrant did file
an 8-K on October 8, 1997 covering the sale of the Georgia property
on September 26, 1997.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Guardian Real Estate Account
of
The Guardian Insurance & Annuity
Company, Inc.
(Registrant)
By /s/ Thomas R. Hickey November 12, 1997
---------------------------------
Thomas R. Hickey, Jr.
Vice President
By /s/ Frank L. Pepe November 12, 1997
---------------------------------
Frank L. Pepe
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,521
<SECURITIES> 15,995,302
<RECEIVABLES> 74,440
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,074,263
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,074,263
<CURRENT-LIABILITIES> 227,747
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,846,516
<TOTAL-LIABILITY-AND-EQUITY> 16,074,263
<SALES> 1,262,441
<TOTAL-REVENUES> 1,262,441
<CGS> 404,656
<TOTAL-COSTS> 404,656
<OTHER-EXPENSES> 140,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,100,337
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,100,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,100,337
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
