[LOGO] The Guardian(R)
The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of The Guardian Life
Insurance Company of America
Annual Report to
Contractowners
THE
GUARDIAN
REAL ESTATE
ACCOUNT
Executive Offices
201 Park Avenue South
New York, New York 10003
Customer Service Office
P.O. Box 26100
Lehigh Valley, Pennsylvania 18002-6100
1-800-221-3253
DECEMBER 31, 1996
<PAGE>
Dear Accountowner:
[PHOTO]
Joseph D. Sargent, CLU
President & CEO
As President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc. (GIAC) and its parent, The Guardian Life Insurance Company
of America, I am pleased to introduce the 1996 annual report on the performance
results for the Guardian Real Estate Account.
I invite you to read an interview with The O'Connor Realty Advisors, the
Account's investment adviser for the real estate-related assets. They discuss
the Account's performance and the investment strategy during 1996.
Thank you for continuing to invest for your future through GIAC.
Regards,
/s/Joseph D. Sargent
Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
<PAGE>
Q. How did the Account perform in 1996?
A. The Guardian Real Estate Account had a positive 9.12% total return
(consisting of 98.3% income and 1.7% appreciation) for the year ended December
31, 1996.1
Q. How has the Account changed this year?
A. Since January 1, 1996 the Somerset Square properties have been managed by
Farley-Whittier Partners, a Hartford-based full service real estate firm. The
change in managers was made to improve tenant relations, operating performance
and reporting. The transition has had a positive financial impact on the
property. The buildings remain fully leased, except for the 3,124 square foot
space vacated by the previous manager in one of the buildings. Several prospects
for this unleased space are currently being explored.
Also, during 1996, Fisher Scientific/Curtin Matheson Scientific, the tenant
which leases 100% of the Account's building in the Atlanta area, has solicited
brokers to sublet their space for the remaining four year and nine-month lease
term. Under the terms of the lease, Fisher Scientific will remain liable for the
remaining lease obligations even if the space is sublet.
Q. What factors affected performance this year?
A. Generally, 1996 will be viewed as a turnaround year for the value of office
and industrial real estate in the U.S., with capitalization rates falling by
approximately 100 basis points. Unfortunately, while the economic environment
was improving elsewhere, Hartford's economy remained in a stall. The decline in
the economy offset the favorable pricing fundamentals leaving the value of the
properties unchanged.
Q. What are your expectations for the coming year?
A. Somerset Square Properties--The Greater Hartford area has bottomed out with
respect to declining real estate values. This project should have stable income
for the year with some potential for an increase in cash flow attributable to
the re-leasing of the space vacated by the previous manager.
Curtin Matheson Scientific--The property's cash flow is anticipated to remain
stable through the tenant's lease expiration in September, 2001.
1 Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Real Estate Account
expenses. The actual total returns for owners of the variable annuity
contracts or variable life insurance policies which provide for investment
in the Fund will be lower to reflect separate account and contract/policy
charges. Past performance is not a guarantee of future results. Investment
return and principal value will fluctuate so that the value of your
investment, when redeemed, may be worth more or less than the original
cost.
2
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
Investment properties at fair value (Cost basis: $22,240,600 and
$22,262,034, respectively) ................................... $ 10,950,000 $ 10,950,000
Long-term investments at fair value (Cost basis: $2,462,080 and
$2,467,984, respectively) .................................... 2,401,432 2,527,808
Cash ........................................................... 4,511 1,139
Short-term investments ......................................... 1,433,000 1,119,000
Receivables .................................................... 79,121 98,179
------------ ------------
TOTAL ASSETS ................................................. 14,868,064 14,696,126
============ ============
LIABILITIES:
Accrued management advisory fees ............................... 39,925 45,769
Accrued expenses ............................................... 65,812 115,205
Unearned rent .................................................. -- --
Annuitant mortality fluctuation fund ........................... 89,826 81,727
Other liabilities .............................................. 92,678 41,988
------------ ------------
TOTAL LIABILITIES ............................................ 288,241 284,689
------------ ------------
NET ASSETS REPRESENTING
CONTRACTOWNERS' EQUITY:
Value Guard II ................................................. 3,631,542 4,021,471
Guardian Investor .............................................. 4,621,039 4,606,301
ValuePlus ...................................................... 523,903 465,212
The Guardian Insurance & Annuity Co., Inc. ..................... 5,803,339 5,318,453
------------ ------------
TOTAL NET ASSETS ............................................. 14,579,823 14,411,437
------------ ------------
TOTAL LIABILITIES AND NET ASSETS ............................. $ 14,868,064 $ 14,696,126
============ ============
Number of Units Outstanding:
Variable Annuity Contractowners
Value Guard II ................................................. 387,874 464,336
Guardian Investor .............................................. 546,896 588,474
ValuePlus Contractowners ......................................... 54,070 52,127
The Guardian Insurance & Annuity Co., Inc. ....................... 568,614 568,614
Unit Value:
Variable Annuity Contractowners
Value Guard II ................................................. $ 9.3127 $ 8.6194
Guardian Investor .............................................. $ 8.3904 $ 7.7791
ValuePlus Contractowners ......................................... $ 9.6894 $ 8.9246
The Guardian Insurance & Annuity Company, Inc. ................... $ 10.2062 $ 9.3534
</TABLE>
See Notes to the financial statements
3
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Rental ........................................... $ 2,200,774 $ 2,115,716 $ 1,961,004
Interest ......................................... 217,711 215,641 200,592
------------ ------------ ------------
Total Income ................................. 2,418,485 2,331,357 2,161,596
------------ ------------ ------------
EXPENSES:
Real estate operating expenses ................... 451,808 462,811 401,239
Real estate taxes ................................ 239,353 266,119 265,622
Management advisory fees ......................... 127,332 140,196 139,344
Repairs and maintenance .......................... 240,064 213,737 222,849
Administrative expenses .......................... 105,899 106,212 111,070
------------ ------------ ------------
Total Expenses ............................... 1,164,456 1,189,075 1,140,124
------------ ------------ ------------
Net Investment Income Before Realized Gains and Net
Unrealized Depreciation .......................... 1,254,029 1,142,282 1,021,472
Net Unrealized Depreciation in Value of
Investments ...................................... (99,040) (850,911) (1,259,381)
------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting from
Operations ....................................... $ 1,154,989 $ 291,371 $ (237,910)
============ ============ ============
Net Increase/(Decrease) in Net Assets Per Unit:
Value Guard II Contractowners .................... $ 0.69 $ 0.12 $ (0.15)
============ ============ ============
Guardian Investor Contractowners ................. $ 0.61 $ 0.09 $ (0.16)
============ ============ ============
ValuePlus Contractowners ......................... $ 0.76 $ 0.16 $ (0.13)
============ ============ ============
The Guardian Insurance & Annuity Co., Inc. ....... $ 0.85 $ 0.22 $ (0.08)
============ ============ ============
Weighted Average Number of Units Outstanding:
Value Guard II Contractowners .................... 410,668 503,389 608,410
============ ============ ============
Guardian Investor Contractowners ................. 566,616 604,926 627,737
============ ============ ============
ValuePlus Contractowners ......................... 51,939 50,606 68,922
============ ============ ============
The Guardian Insurance & Annuity Co., Inc. ....... 568,614 568,614 498,989
============ ============ ============
</TABLE>
4
<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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Contractowners
--------------------------------------------------------------------------------------
Value Guard II Guardian Investor ValuePlus
--------------------------------------------------------------------------------------
Units Amount Units Amount Units Amount
-------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- January 1, 1994 ............... 672,070 $ 5,821,550 600,918 $ 4,713,854 83,145 $ 738,520
Equity contributed/(withdrawn) during 1994 (129,774) (1,108,091) 23,697 198,176 (33,627) (295,377)
Net (Decrease)/Increase in Net Assets .... -- (90,005) -- (99,286) -- (9,244)
-------- ------------ -------- ------------ -------- ------------
Balance-- December 31, 1994 .............. 542,296 4,623,454 624,615 4,812,744 49,518 433,899
Equity contributed/(withdrawn) during 1995 (77,960) (695,241) (36,141) (275,581) 2,609 24,940
Net (Decrease)/Increase in Net Assets .... -- 93,258 -- 69,138 -- 6,373
-------- ------------ -------- ------------ -------- ------------
Balance-- December 31, 1995 .............. 464,336 4,021,471 588,474 4,606,301 52,127 465,212
-------- ------------ -------- ------------ -------- ------------
Equity contributed/(withdrawn) during 1996 (76,462) (673,906) (41,578) (331,674) 1,943 18,977
Net (Decrease)/Increase in Net Assets .... -- 283,977 -- 346,412 -- 39,714
-------- ------------ -------- ------------ -------- ------------
Balance-- December 31, 1996 .............. 387,874 $ 3,631,542 546,896 $ 4,621,039 54,070 $ 523,903
======== ============ ======== ============ ======== ============
</TABLE>
<TABLE>
<CAPTION>
The Guardian Insurance
&
Annuity Company, Inc.
---------------------
Units Amount Total
-------- ------------ ------------
<S> <C> <C> <C>
Balance -- January 1, 1994 ............... 464,959 $ 4,285,226 $ 15,559,150
Equity contributed/(withdrawn) during 1994 103,655 950,000 (255,292)
Net (Decrease)/Increase in Net Assets .... -- (39,375) (237,910)
-------- ------------ ------------
Balance-- December 31, 1994 .............. 568,614 5,195,851 15,065,948
Equity contributed/(withdrawn) during 1995 -- -- (945,882)
Net (Decrease)/Increase in Net Assets .... -- 122,602 291,371
-------- ------------ ------------
Balance-- December 31, 1995 .............. 568,614 5,318,453 14,411,437
-------- ------------ ------------
Equity contributed/(withdrawn) during 1996 -- -- (986,603)
Net (Decrease)/Increase in Net Assets .... -- 484,886 1,154,989
-------- ------------ ------------
Balance-- December 31, 1996 .............. 568,614 $ 5,803,339 $ 14,579,823
======== ============ ============
</TABLE>
See notes to the financial statements
5
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Investment Income ..................................... $ 1,254,029 $ 1,142,282 $ 1,021,472
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in other receivables ............................. 19,058 (11,419) (45,247)
Change in unearned rent ................................. -- (149,457) (89,472)
Change in accrued management advisory fees .............. (5,844) 10,965 (802)
Change in accrued expenses .............................. (49,393) 3,716 36,312
Change in annuitant mortality fluctuation fund .......... 8,099 9,227 6,702
Amortization of premium ................................. 5,903 5,886 5,887
Change in other liabilities ............................. 50,690 4,620 (9,139)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 1,282,542 1,015,820 925,713
------------ ------------ ------------
INVESTING ACTIVITIES:
(Purchase)/Sale of Long-Term Investments .................. -- -- --
(Purchase)/Sale of Short-Term Investments ................. (314,000) (214,000) 295,000
Capital Improvements, Net of Dispositions ................. 21,433 143,799 (969,789)
------------ ------------ ------------
NET CASH PROVIDED BY/(USED IN)
INVESTING ACTIVITIES .................................... (292,567) (70,201) (674,789)
------------ ------------ ------------
FINANCING ACTIVITIES:
Contractowners' (Withdrawals)/Contributions ............. (986,603) (945,882) (1,205,292)
The Guardian Insurance & Annuity Co., Inc. (Withdrawals)/
Contributions ......................................... -- -- 950,000
------------ ------------ ------------
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES .................................... (986,603) (945,882) (255,292)
------------ ------------ ------------
INCREASE/(DECREASE) IN CASH ......................... 3,372 (263) (4,368)
CASH AT BEGINNING OF YEAR ........................... 1,139 1,402 5,770
------------ ------------ ------------
CASH AT END OF YEAR ................................. $ 4,511 $ 1,139 $ 1,402
============ ============ ============
</TABLE>
See notes to the financial statements
6
<PAGE>
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1 - Organization
Organization
The Guardian Real Estate Account (the "Account") of The Guardian Insurance
& Annuity Company, Inc. (GIAC) was established in 1987 under Delaware Insurance
Law as an insurance company separate account. Participating interests in the
Account are registered under the Securities Act of 1933 and are offered by GIAC
as an investment option under certain variable life insurance policies and
variable deferred annuity contracts (the "Contracts"). GIAC is a wholly owned
subsidiary of The Guardian Life Insurance Company of America ("The Guardian").
The obligations to Contractowners and beneficiaries arising under the
Contracts are general corporate obligations of GIAC. GIAC is the legal owner of
the assets in the Account. GIAC will at all times, however, maintain assets in
the Account with a total market value at least equal to the amounts credited
under each Contract which participates in the Account. These assets may not be
charged with liabilities which arise from any other business conducted by GIAC.
The Board of Directors of GIAC has authorized a total investment of up to
$25 million to enable the Account to acquire a portfolio of real estate-related
investments to meet its investment objectives and policies. Pursuant to this
authority, GIAC has contributed capital to the Account from time to time since
its inception to provide funds for acquisitions and to preserve liquidity. GIAC
has also withdrawn contributed funds when it has appeared that such withdrawals
would not adversely affect the interests of Contractowners and all legal
requirements have been met. GIAC's most recent contributions to the Account were
made on July 27, 1994 and October 28, 1994, when $400,000 and $550,000
respectively were invested. At December 31, 1996, GIAC maintained 40% 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.
7
<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 write-down of $1.5 million 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, 1996, the Account's short-term investments consisted of a
repurchase agreement with State Street Bank and Trust Co. which matures on
January 2, 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 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.
8
<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.
GIAC has been assuming certain operating expenses of the Account since the
Account's inception. The amount of this subsidy declined from 100% of such
expenses to 0%. For the year ended December 31, 1996, GIAC assumed no expenses
related to the Account. Total expenses assumed by GIAC were $25,573 for the year
ended December 31, 1995.
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. 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. 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.
9
<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 1994 and 1995 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,
------------
1997 $2,132,086
1998 1,760,050
1999 1,357,896
2000 699,897
2001 470,250
----------
Total $6,420,179
==========
Certain leases provide for additional rents based upon operating costs in
excess of given base amounts. For the year ended December 31, 1996, rental
income included approximately $106,019 of such additional rental income. For the
years ended December 31, 1995 and 1994, rental income included approximately
$79,089 and $86,757, 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.
10
<PAGE>
NOTE 8
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
REAL ESTATE
December 31, 1996
<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 Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
45 Somerset Square
Office Building--
Glastonbury, CT....... $ 0 $ 871,668 $ 7,050,186 $ 959,263 $ 8,009,449 $ 8,881,117
115 Somerset Square
Office Building--
Glastonbury, CT....... 0 843,441 6,800,945 551,485 7,352,430 8,195,871
955 Cobb Place Blvd.
Office Building
Warehouse Facility --
Kennesaw, GA.......... 0 751,187 4,382,881 29,544 4,412,425 5,163,612
- ------------------------------------------------------------------------------------------------------------------------------
Total .............. $ 0 $2,466,296 $18,234,012 $1,540,292 $19,774,304 $22,240,600
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Date of Date Fair
Description Construction Acquired Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
45 Somerset Square Construction completed
Office Building-- in late 1988 and early
Glastonbury, CT....... 1989 6/12/89 $ 2,900,000
115 Somerset Square Construction completed
Office Building-- in late 1988 and early
Glastonbury, CT....... 1989 6/12/89 2,850,000
955 Cobb Place Blvd.
Office Building
Warehouse Facility -- Construction completed
Kennesaw, GA.......... in late 1991 10/01/91 5,200,000
- -------------------------------------------------------------------------------------------
Total .............. $10,950,000
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31,
A) Reconciliation of investment property owned: 1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Real Estate at beginning of year ............ $ 22,262,034 $ 22,405,832 $ 21,436,043
Net Acquisitions (dispositions) ............. -- --
Capital Improvements and Carrying Costs ..... (21,434) (143,798) 969,789
----------------------------------------------
Balance at the end of the year .............. $ 22,240,600 $ 22,262,034 $ 22,405,832
==============================================
</TABLE>
B) Total tax basis for properties based on historical
cost:
45 Somerset Square Office Building --
Glastonbury, CT ......................................... $7,199,754
115 Somerset Square Office Building--
Glastonbury, CT ......................................... $6,620,653
955 Cobb Place Blvd. Office Building
Warehouse Facility --
Kennesaw, GA ............................................ $4,593,292
11
<PAGE>
NOTE 9
THE GUARDIAN REAL ESTATE ACCOUNT
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
MARKETABLE SECURITIES
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Market Value Amount Carried
Description Par Value Cost 12/31/96 on Balance Sheet
----------- --------- ---- -------- ----------------
<S> <C> <C> <C> <C>
Marketable Securities:
Repurchase Agreement
State Street Bank and Trust Company
repurchase agreement at 5.75%
due 1/2/97, maturity value $1,433,458
(collateralized by $1,450,000 U.S.
Treasury Notes plus accrued interest,
6.000% due 5/31/98, market value at
12/31/96 was $1,462,856) $ 1,433,000 $ 1,433,000 $ 1,433,000 $ 1,433,000
------------ ------------ ------------ ------------
Fixed Maturities:
Indianapolis Power & Light Company
7.375% due 8/1/07 1,000,000 1,060,790 1,035,760 1,035,760
GTE Southwest Inc.
6.54% due 12/1/05 1,400,000 1,401,291 1,365,672 1,365,672
------------ ------------ ------------ ------------
2,400,000 2,462,081 2,401,432 2,401,432
------------ ------------ ------------ ------------
Total Marketable Securities $ 3,833,000 $ 3,895,081 $ 3,834,432 $ 3,834,432
============ ============ ============ ============
</TABLE>
12
<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 statements of assets and liabilities and
the related statements of operations, of 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
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.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
February 11, 1997
13
<PAGE>
[LOGO] The Guardian(R) FIRST CLASS MAIL
U.S. POSTAGE PAID
NEWARK, NJ
The Guardian Insurance & Annuity Company, Inc. PERMIT NO. 45
201 Park Avenue South
New York, NY 10003
EB-011034 12/96 [GRAPHIC] Printed on recycled paper
