As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 33-25153
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 9
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
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THE GUARDIAN SEPARATE ACCOUNT C
(Exact Name of Trust)
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
201 Park Avenue South, New York, New York 10003
(Complete Address of Principal Executive Offices)
------------
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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It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b)
|X| on May 1, 1997 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on (date) pursuant to paragraph (a)(i) of Rule 485
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The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such rule for the Registrant's most recent
fiscal year was filed on February 26, 1997.
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<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Heading in Prospectus
- ----------- ---------------------
1,2,51(a) ............................. Cover Page
3...................................... The Guardian Separate Account C (the
"Account")
4...................................... Distribution of the Policies
5...................................... What Is The Guardian Insurance &
Annuity Company, Inc. ("GIAC")?
6(a)................................... What Is The Guardian Separate
Account C (the "Account") and How
Does It Operate?
6(b)................................... The Guardian Separate Account C (the
"Account")
7...................................... Not Applicable
8...................................... Financial Statements
9...................................... Legal Proceedings
10(a),(b).............................. Not Applicable
10(c).................................. Right to Examine and Return a Policy
("Free-Look"); Cash Value Benefits
of the Policy; Surrender of the
Policy
10(d).................................. Right to Exchange for Fixed-Benefit
Life Insurance; Changes in
Allocations or Transfers Among
Investment Divisions; Policy Loans
10(e).................................. Grace Period; Reinstatement of the
Policy
10(f).................................. Voting Rights
10(g),(h).............................. Substitution of Investments
10(i),44(a),51(g)...................... Premiums; Death Benefit Under the
Policy; Variable Insurance Amount;
Investment Base and Excess
Investment Return; Other Important
Policy Provisions
11..................................... The Investment Options; The Guardian
Separate Account C (the "Account")
12..................................... The Investment Options; The Funds
13(a),(b),(c),51(g).................... Charges Deducted from Premiums;
Charges Deducted from the Account
13(d),(g).............................. Not Applicable
13(e),(f).............................. Charges Deducted from Premiums;
Charges Deducted from the Account
14..................................... Requirements for Insurance; Premiums
15..................................... Allocation of Net Premiums to the
Account
16..................................... Allocation of Net Premiums to the
Account; Changes in Allocations or
Transfers Among Investment Divisions
17..................................... Death Benefit Under the Policy; Cash
Value Benefits of the Policy
18..................................... The Guardian Separate Account C
("the Account")
19..................................... Reports to Policyowners
20..................................... Not Applicable
21(a),(b).............................. Policy Loans
21(c),22,23............................ Not Applicable
24..................................... Other Important Policy Provisions
25,27,29,48............................ What Is The Guardian Insurance &
Annuity Company, Inc. ("GIAC")?
26..................................... Not Applicable
28..................................... Management of GIAC
30,31,32,33,34,35,36,37................ Not Applicable
38,39,41(a)............................ Distribution of the Policies
40..................................... The Investment Options; The Funds
41(b),(c),42,43........................ Not Applicable
44(b).................................. Not Applicable
44(c).................................. Premiums
45..................................... Not Applicable
46(a),47............................... The Investment Options; The Funds
46(b).................................. Not Applicable
49,50.................................. Not Applicable
51(b).................................. What is a Variable Life Insurance
Policy and How Does it Differ from a
Traditional Life Insurance Policy?
51(c),(d).............................. Death Benefit Under the Policy
51(e),(f).............................. Other Important Policy Provisions
51(h),(i),(j).......................... Not Applicable
52(a),(c).............................. Substitution of Investments
52(b),(d).............................. Not Applicable
53(a).................................. Charges Deducted from the Account
53(b),54,55,56,57,58................... Not Applicable
59..................................... Financial Statements
1
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Part A
Item 1. Cover Page.............................. Cover
Item 2. Synopsis................................ Not Applicable
Item 3. Condensed Financial Information......... Condensed Financial
Information
Item 4. General Description of Registrant....... Cover Page; Investment
Objectives and Policies;
Other Information
Item 5. Management of the Fund.................. Fund Management and the
Investment Adviser;
Performance of the Fund;
Other Information
Item 5a. Management's Discussion of Fund
Performance........................... Performance Results
Item 6. Capital Stock and Other Securities...... Dividends, Distributions and
Taxes; Other Information
Item 7. Purchase of Securities Being Offered.... Purchase and Redemption of
Shares; Calculation of Net
Asset Value
Item 8. Redemption or Repurchase................ Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings............... Not Applicable
Part B
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Table of Contents
Item 12. General Information and History......... Not Applicable
Item 13. Investment Objectives and Policies...... Investment Restrictions;
Special Investment
Techniques
Item 14. Management of the Fund.................. Fund Management
Item 15. Control Persons and Principal Holders
of Securities......................... Guardian Life and Other Fund
Affiliates
Item 16. Investment Advisory and Other Services.. Investment Adviser and
Distributor; Custodian and
Transfer Agent; Independent
Auditors and Financial
Statements
Item 17. Brokerage Allocation.................... Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities...... Dividends, Distributions and
Taxes; Other Information
(Prospectus)
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Purchase and Redemption of
Shares; Calculation of Net
Asset Value (Prospectus)
Item 20. Tax Status.............................. Dividends, Distributions and
Taxes; Other Information
(Prospectus)
Item 21. Underwriters............................ Fund Management and the
Investment Adviser
(Prospectus)
Item 22. Calculations of Performance Data........ Performance Data
Item 23. Financial Statements.................... Independent Auditors and
Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
2
<PAGE>
PROSPECTUS
May 1, 1997
SELECT GUARD
ANNUAL PREMIUM VARIABLE LIFE
INSURANCE POLICY
Issued by
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
Executive Office:
201 Park Avenue South
New York, New York 10003
Customer Service Office:
P. O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
Distributed by
GUARDIAN INVESTOR SERVICES CORPORATION
201 Park Avenue South
New York, New York 10003
Telephone: 1-800-221-3253
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY ALL OF THE CURRENT
PROSPECTUSES FOR THE FOLLOWING: THE GUARDIAN STOCK FUND, INC.; THE GUARDIAN BOND
FUND, INC.; THE GUARDIAN CASH FUND, INC.; BAILLIE GIFFORD INTERNATIONAL FUND;
VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST; AND VALUE LINE CENTURION FUND, INC.
1
<PAGE>
PROSPECTUS
May 1, 1997
ANNUAL PREMIUM VARIABLE LIFE INSURANCE POLICY
This Prospectus describes the Annual Premium Variable Life Insurance
Policy (the "Policy") offered by The Guardian Insurance & Annuity Company, Inc.
("GIAC"). The Policy is designed to provide lifetime insurance coverage on the
insured named in the Policy as long as premiums are paid on time. The Policy
also may be surrendered for its cash surrender value (if any) while the insured
is living, in which case, all insurance coverage ends. The death benefit and
cash values under the Policy will vary based on the performance of the
investment divisions which comprise The Guardian Separate Account C (the
"Account"). The Policy is no longer available for distribution to new
Policyowners.
The investment divisions of the Account use their assets to buy shares at
net asset value in the following corresponding mutual funds: The Guardian Stock
Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Bond Fund, Inc., Baillie
Gifford International Fund, Value Line Strategic Asset Management Trust and
Value Line Centurion Fund, Inc. (collectively, the "Funds," and individually, a
"Fund").
Death benefits and cash values under the Policies will vary based on the
investment performance of the Account's investment divisions. Regardless of a
Policy's investment performance, the death benefit can never be less than the
Guaranteed Insurance Amount if premiums are paid on time (with the proceeds
payable reduced by any outstanding loan amount). During the first Policy month,
the death benefit equals the Guaranteed Insurance Amount. Afterwards, the death
benefit may increase or decrease on a monthly basis, depending on a Policy's
investment performance, but it will never decrease below the Guaranteed
Insurance Amount. However, death benefit proceeds may be less than the
Guaranteed Insurance Amount if a Policy loan is outstanding when the insured
dies or if a premium is then due and unpaid because such amounts will be
deducted from the death benefit before payment. The Policy's cash value may
increase or decrease on any day, depending on the Policy's investment
performance. No minimum amount of cash value is guaranteed. Therefore, a Policy
should be purchased only if the Policyowner intends to keep it in effect for a
reasonably long period of time.
The Policy may be returned during a limited period of time for a full
refund according to the terms of its "free look" provision or may be exchanged
for fixed life insurance under certain conditions.
It may not be advantageous to replace existing insurance with a new
Policy.
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.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
2
<PAGE>
CONTENTS
Page
INDEX OF DEFINED TERMS............................................ 4
SUMMARY OF THE POLICY AND THE
UNDERLYING INVESTMENT OPTIONS................................... 5
THE POLICY........................................................ 9
Requirements for Insurance...................................... 9
Premiums........................................................ 9
Grace Period.................................................... 9
Charges Deducted from Premiums.................................. 10
Charges Deducted from the Account............................... 11
Allocation of Net Premiums to the Account....................... 11
Changes in Allocations or Transfers Among Investment Divisions.. 12
Death Benefit Under the Policy.................................. 12
Cash Value Benefits of the Policy............................... 14
Payment of Death Benefit and Cash Value Proceeds................ 14
Investment Base and Excess Investment Return.................... 15
Policy Loans.................................................... 15
Surrender of the Policy......................................... 16
Continued Insurance Coverage Following Policy Lapse............. 16
Additional Coverage Riders to the Policy........................ 17
Right to Exchange for Fixed-Benefit Life Insurance.............. 21
Right to Examine and Return a Policy ("Free-Look").............. 21
Reinstatement of the Policy..................................... 21
Distribution of the Policies.................................... 21
Federal Tax Considerations...................................... 22
Legal Considerations for Employers.............................. 24
Voting Rights................................................... 24
Reports to Policyowners......................................... 24
Other Important Policy Provisions............................... 25
THE INVESTMENT OPTIONS............................................ 27
The Guardian Separate Account C (the "Account")................. 27
The Funds....................................................... 27
Substitution of Investments..................................... 28
OTHER INFORMATION................................................. 29
Management of GIAC.............................................. 29
State Regulation................................................ 31
Legal Proceedings............................................... 31
Legal Matters................................................... 31
Registration Statement.......................................... 32
Independent Accountants......................................... 32
Experts......................................................... 32
Financial Statements............................................ 32
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES................. 57
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE POLICIES MAY NOT BE AVAILABLE IN ALL STATES AND ARE NOT AVAILABLE IN CERTAIN
MUNICIPALITIES IN KENTUCKY. THE ADDITIONAL COVERAGE RIDERS MAY NOT BE AVAILABLE
IN ALL STATES OR MUNICIPALITIES IN WHICH THE POLICIES ARE AVAILABLE.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN EACH POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY
WAY SIMILAR OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
3
<PAGE>
INDEX OF DEFINED TERMS
The following is a list of certain important terms used in this
Prospectus, together with identification of the page(s) on which each is defined
or explained:
Page(s)
Account....................................................... 8,27
Actual Investment Rate........................................ 15
Additional Coverage Riders.................................... 7,17
Administrative Charge......................................... 10
Assignment.................................................... 26
Basic Premium................................................. 10
Beneficiary................................................... 25
Cash Surrender Value.......................................... 14,16
Cash Value.................................................... 6,14
Customer Service Office....................................... 8
Death Benefit................................................. 6,12
Excess Investment Return...................................... 15
Free-Look Provision........................................... 7,21
Funds......................................................... 8,27
GIAC.......................................................... 8
Grace Period.................................................. 9
Guaranteed Insurance Amount ("GIA") or Face Amount............ 5,12
Investment Base............................................... 15
Investment Division........................................... 8,27
Loan Collateral Balance....................................... 16
Modified Endowment Contracts.................................. 22
Mortality and Expense Risks................................... 6,11
Net Premium................................................... 6,10,11
Owner or Policyowner.......................................... 25
Payment Options............................................... 25
Policy Fee.................................................... 6,10
Policy Lapse.................................................. 9,16
Policy Value Options.......................................... 16
Premium Class................................................. 5
Risk Charge................................................... 6,10
Sales Load.................................................... 6,10
Sex Classification............................................ 5,9,24
State Premium Tax Charge...................................... 6,10
Variable Insurance Amount ("VIA")............................. 12
4
<PAGE>
SUMMARY OF THE POLICY AND THE UNDERLYING INVESTMENT OPTIONS
The following questions and answers summarize general information about
the Policy and its underlying investment options, each of which is a mutual fund
("Fund"). The answers refer to sections within this Prospectus where more
detailed information about the Policy or its investment options may be found.
These answers are qualified by reference to a specimen of the Policy which has
been filed as an exhibit to the Registration Statement for The Guardian Separate
Account C and by reference to the accompanying prospectuses for the underlying
Funds. Unless otherwise noted, the term "Policy," as used in this Prospectus,
refers to the Policy exclusive of any of the Additional Coverage Riders
described in the subsection "Additional Coverage Riders to the Policy."
What is a Variable Life Insurance Policy and How Does it Differ from a
Traditional Life Insurance Policy?
GIAC's Annual Premium Variable Life Insurance Policies are similar to
traditional fixed-benefit whole life insurance policies in many respects, but
also contain some important differences.
Like traditional fixed-benefit whole life insurance policies, the Policies
provide lifetime insurance coverage on the named insured so long as Policy
premiums are paid according to schedule. Also like traditional policies, the
Policies have a cash surrender value which is payable if the Policy is
terminated (but this value during the early years will be substantially lower
than premiums paid), and a variety of optional benefits and riders may be
purchased for an additional premium. The Policy, like traditional policies,
provides a death benefit that is payable to the beneficiary upon the insured's
death.
Under traditional fixed-benefit policies, levels of death benefits and
cash values are fixed and guaranteed at issue. However, under the Policies,
these values may vary up or down depending on the investment experience of the
Account's investment divisions to which a Policy's net premiums are allocated.
The Policies provide a guaranteed minimum death benefit (known as the
"Guaranteed Insurance Amount" or "face amount") but do not provide a guaranteed
minimum cash value.
To Whom Is This Policy Available?
A Policy can be issued on the life of anyone 80 years old or under who
meets GIAC's underwriting requirements. The Policy is no longer available for
distribution to new Policyowners. The Additional Coverage Riders may not be
available in all states or municipalities in which the Policies were previously
available.
How Are Premium Payments Determined?
In return for insurance benefits and other rights under the Policy, the
Policyowner makes premium payments (including premiums for any optional
insurance benefits) according to a schedule -- annually, semi-annually,
quarterly or any other payment schedule acceptable to GIAC. The premium amount
depends on a Policy's face amount (Guaranteed Insurance Amount) and the
insured's sex classification, insurance age and premium class. Sex
classification is either male, female or, where required by applicable law,
"unisex." An insured is classified as "unisex" if Policy charges and values do
not vary according to the sex of the insured. (See "Legal Considerations for
Employers.") The premium class is the underwriting classification assigned to
the insured. It is based on the insured's general health and smoking status. The
initial Guaranteed Insurance Amount of any Policy purchased must be at least
$25,000.
How Are the Premiums Invested?
After deducting certain charges from gross premiums, GIAC places the net
premiums under the Policy in the Account. These net premiums are allocated at
the Policyowner's direction in up to four of the Account's investment divisions.
Each investment division invests in shares of a corresponding Fund -- The
Guardian Stock Fund, The Guardian Bond Fund, The Guardian Cash Fund, Baillie
Gifford International Fund, Value Line Centurion Fund or Value Line Strategic
Asset Management Trust. Each of these Funds has a different investment
objective. (See "The Investment Options.")
When Are Net Premiums Placed in the Account?
The first net premium under the Policy is allocated to the Account on the
Policy date. Each subsequent net annual premium is allocated to the Account on
the Policy anniversary regardless of when the gross premiums are received. Each
allocation of net premium to the Account has the effect of adding to the
Policy's investment base. (See "Allocation of Net Premiums to the Account.")
5
<PAGE>
What Charges Are Deducted from the Policy?
(a) Charges Deducted from Premiums
Every year, a net annual premium ("net premium") under the Policy is
allocated to the Account. The net premium depends on the Policy's Guaranteed
Insurance Amount, and the insured's age and sex classification. The net premium
does not vary according to the insured's premium class. The net premium is
defined as the gross annual premium ("gross premium"), excluding any premiums
for optional insurance benefits that may be chosen, less certain charges
deducted by GIAC.
In the first Policy year, the charges that are deducted from the gross
premium to reach the net premium consist of: (1) a charge for sales expenses
equal to no more than 30% of the basic premium; (2) a charge for administrative
expenses equal to $5.00 per $1,000 of the Policy's face amount; (3) a charge for
state premium taxes equal to 2.5% of the basic premium; (4) a risk charge equal
to 1.5% of the basic premium; and (5) a Policy fee of $50.00. If the premium
class is either smoker or substandard, an additional charge will be subtracted
from the gross premium to support the higher anticipated mortality. (See
"Charges Deducted from Premiums.")
For all Policy years after the first, the charge for sales expenses will
be a constant percentage. This percentage depends on the issue age and sex
classification of the insured. For the period of time which is the lesser of 20
years or the life expectancy of the insured, the total charges for sales expense
will never be more than 9% of the sum of the basic premiums to be paid in that
time period.
For all Policy years after the first, the charge for state premium taxes,
risk charge, Policy fee and any applicable charge for additional mortality will
be the same as in the first Policy year. There will not be any charge for
administrative expenses after the first Policy year.
If premiums are paid semi-annually or quarterly, the gross premium payable
on each premium due date will be calculated by multiplying the gross annual
premium by .515 or .26265, respectively. This results in an additional charge of
3.0% and 5.06% of the annual premium for semi-annual and quarterly premiums,
respectively. This charge covers the expense of processing premiums as well as
the loss of interest incurred by GIAC. If another modal payment schedule is
acceptable to GIAC, a different factor will be used to assess this charge.
(b) Other Charges
A charge for the cost of insurance is calculated and deducted daily in
determining a Policy's cash value. The cost of insurance charge varies based on
a number of factors, including the age and sex classification of the insured. In
addition, a daily charge for mortality and expense risks is made against the
assets of all divisions in the Account. The effective annual rate of this daily
charge is 0.50% of the value of each division's assets. In addition, investment
advisory fees and other expenses are deducted from the assets of each of the
Funds. (See "Charges Deducted from the Account.")
Currently, GIAC makes no charge against the Account for Federal, state or
local taxes which it may incur and which are attributable to the Account or the
Policies. However, GIAC reserves the right to make a charge for such taxes. (See
"Possible Charge for Income Taxes.")
How Does the Policy's Death Benefit Vary?
The death benefit under the Policy increases or decreases each Policy
month to reflect the investment experience of the investment divisions to which
net premiums are allocated. This, in turn, depends upon the performance of the
Fund in which each investment division invests. However, the death benefit,
prior to the deduction of any outstanding Policy loan amount, is guaranteed by
GIAC to be not less than the Guaranteed Insurance Amount (initial face amount of
the Policy), as long as premiums are paid on time. (See "Death Benefit Under the
Policy.")
How Does the Policy's Cash Value Vary?
Cash value under the Policy varies daily to reflect the investment
experience of the investment divisions to which net premiums are allocated, and,
ultimately, the performance of the Funds. Allocating net premiums to the
investment divisions of the Account which hold Fund shares offers the
opportunity for the cash value to appreciate more rapidly than it would under a
comparable fixed-benefit whole life insurance policy. However, if there is
unfavorable investment performance, the cash value may not appreciate as
rapidly, or may decrease. The Policyowner receives the benefits of good
investment performance and will bear the risk of poor performance. There is no
guaranteed minimum cash value. (See "Cash Value Benefits of the Policy.")
6
<PAGE>
What Is the Loan Privilege?
The Policyowner may borrow up to 90% of the Policy's cash value (less any
outstanding loans, loan interest, and interest on the requested loan to the end
of the current Policy year) from GIAC. A Policy will be the only security
required for the loan. The Policyowner may repay all or part of the loan at any
time while the insured is living or within 60 days after the date of death of
the insured, as long as the death benefit has not been paid. Policyowners should
seek competent tax advice about the tax consequences of taking loans. (See
"Federal Tax Considerations.")
The interest rate on a loan is 8.0% per year, payable in advance at a rate
of 7.407% on each Policy anniversary. If interest is not paid when due, it will
be added to the amount of the loan and will bear interest at the same rate.
The Policy's death benefit and cash value are permanently affected by a
loan, whether or not fully repaid. If the amount of all outstanding loans and
loan interest exceeds the cash value, GIAC will terminate the Policy. If the
Policy lapses with a loan outstanding, adverse tax consequences may result. (See
"Policy Loans" and "Federal Tax Considerations.")
What Are the Additional Coverage Riders?
At the time of the Policy's purchase and subject to certain conditions,
the Policyowner may purchase variable paid-up whole life insurance coverage on
the insured's life (the "Additional Coverage Riders"). Purchase payments made in
accordance with any Additional Coverage Rider can be made as a single payment,
scheduled payments or flexible payments. Each purchase payment, less (a) any
applicable rating charge, (b) the charge for any waiver of premium benefit, and
(c) a charge equal to 8% of such payment net of (a) and (b), will be allocated
to the Account.
The charge of 8% is comprised of the following: (a) sales load of 4%; (b)
state premium tax charge of 2.5%; and (c) risk charge of 1.5%. Any Additional
Coverage Rider purchased in connection with the Policy will have a cash value
which may increase or decrease daily and which is not guaranteed. Such cash
value will be included in the Policy's cash surrender or loan value. The
additional coverage which is in effect under any in-force Additional Coverage
Rider at the time of the insured's death will be included in the death proceeds
of the Policy. (See "Additional Coverage Riders to the Policy.") Depending on
the circumstances, the purchase of an Additional Coverage Rider may cause the
Policy to which it is attached to be treated as a modified endowment contract
under Section 7702A of the Internal Revenue Code of 1986, as amended (the
"Code"). A Policyowner should consult a competent tax adviser before purchasing
an Additional Coverage Rider to determine the tax effect of the purchase. (See
"What Is the Federal Income Tax Treatment of Cash Value Increases?" below and
"Federal Tax Considerations.")
When and How May the Policy Be Cancelled?
A Policyowner may obtain a refund of the entire premium paid if the Policy
is returned to GIAC within 45 days after the application for the Policy is
signed, or within 10 days after the Policy is received by the Policyowner, or
within 10 days after the Notice of Withdrawal Right is mailed to the
Policyowner, whichever date is latest. (See "Right to Examine and Return a
Policy.") Longer periods may apply in a limited number of states. Policies
issued in such states will set forth the applicable period.
When May the Policy Be Exchanged for a Fixed-Benefit Life Insurance Policy?
A Policyowner may exchange this Policy for a fixed-benefit whole life
insurance policy on the life of the insured, without evidence of insurability,
within 24 months of this Policy's issue date subject to certain conditions. (See
"Right to Exchange for Fixed-Benefit Life Insurance.") Under certain
circumstances, a Policy may also be exchanged in accordance with state insurance
regulations. (See "Substitution of Investments.")
Is the Death Benefit Excludable from Gross Income for Federal Income Tax
Purposes?
The death benefit under a Policy is currently subject to the same Federal
income tax treatment as proceeds of fixed-benefit life insurance. Therefore, the
death benefit will be fully excludable from the gross income of the beneficiary
under Section 101(a) of the Code. (See "Federal Tax Considerations.")
What Is the Federal Income Tax Treatment of Cash Value Increases?
The cash value under a Policy is currently subject to the same Federal
income tax treatment as the increases in cash value under fixed-benefit life
insurance. Therefore, the Policyowner should not be deemed to be in constructive
receipt of the increases in cash values unless and until there is a distribution
from a Policy.
GIAC believes that the Policy will generally not be treated as a modified
endowment contract under Section 7702A of the Code. Accordingly, distributions
will generally be treated first as a return of the investment in the
7
<PAGE>
Policy and then as disbursing taxable income (i.e., cash value increases).
Policy loans should not be treated as distributions, and neither distributions
nor loans should be subject to a penalty tax. However, if a Policy is treated as
a modified endowment contract, then all pre-death distributions, including
Policy loans, will be treated first as distributions of taxable income and then
as a return of the investment in the Policy. In addition, distributions prior to
age 59 1/2 will generally be subject to a 10% penalty tax. (See "Cash Value
Benefits of the Policy" and "Federal Tax Considerations.")
What Is The Guardian Separate Account C (the "Account") and How Does It Operate?
The Account is organized and registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust which is a type of investment
company under the Investment Company Act of 1940 (the "1940 Act"). The Account
is a separate investment account of GIAC and meets the definition of "separate
account" under the Federal securities laws. The assets equal to the Account's
reserves and other liabilities are used to support the variable life insurance
policies issued through the Account. Delaware insurance law provides that the
assets of the Account are not chargeable with liabilities arising out of any
other business GIAC may conduct. The Account's financial statements can be found
in this Prospectus.
The Account has six investment divisions. Each division invests in shares
of a corresponding mutual fund, as described below:
Account Investment Division Primary Investment Objective of Fund
--------------------------- ------------------------------------
Stock Fund Division which invests in The Long-term growth of capital
Guardian Stock Fund (the "Stock Fund")
Cash Fund Division which invests in High current income with preservation
The Guardian Cash Fund (the "Cash of capital and liquidity
Fund")
Bond Fund Division which invests in The Maximum income without undue risk of
Guardian Bond Fund (the "Bond Fund") principal
International Fund Division which Long-term capital appreciation
invests in Baillie Gifford
International Fund ("BG International
Fund")
Strategic Trust Division which invests High total investment return with
in Value Line Strategic Asset reasonable risk
Management Trust (the "Strategic
Trust")
Centurion Fund Division which invests Long-term growth of capital
in Value Line Centurion Fund (the
"Centurion Fund")
More complete information about the Funds, including all fees and
expenses, appear in the prospectuses which accompany this Prospectus.
What Is The Guardian Insurance & Annuity Company, Inc. ("GIAC")?
GIAC is the issuer of the Policies described in this Prospectus. GIAC is a
Delaware insurance company. It was organized in 1970 and is licensed to sell
life insurance and annuities in all 50 states of the United States and the
District of Columbia. GIAC's executive offices are located at 201 Park Avenue
South, New York, New York 10003. The underwriting and administration of the
Policies is conducted at GIAC's Customer Service Office, P.O. Box 26210, Lehigh
Valley, Pennsylvania 18002-6210, or 3900 Burgess Place, Bethlehem, Pennsylvania
18017. GIAC had total assets (statutory basis) of over $6.0 billion as of
December 31, 1996.
GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company
of America ("Guardian Life"). Guardian Life maintains its executive offices at
201 Park Avenue South, New York, New York 10003. Guardian Life had total assets
(statutory basis) in excess of $12.1 billion as of December 31, 1996. The assets
of Guardian Life do not back any liabilities of GIAC for benefits payable under
the Policies.
GIAC's statutory basis financial statements can be found in this
Prospectus.
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THE POLICY
This section of the Prospectus provides an overview of the more
significant provisions of the Policy, exclusive of any of the Additional
Coverage Riders described in the subsection "Additional Coverage Riders to the
Policy." These descriptions are qualified by reference to a specimen of the
Policy which has been filed as an exhibit to the Registration Statement for the
Account. The provisions of the Policy may vary slightly from state to state due
to variations in state regulatory requirements.
Information about the Account and its investment divisions is contained in
the following section entitled "The Investment Options."
Requirements for Insurance
GIAC will issue a Policy with an initial Guaranteed Insurance Amount of
$25,000, or more. The Policyowner must reside in a state or jurisdiction where
the policy may be issued. The insured must be age 80 or under (as of the nearest
birthday) when the Policy is issued. The Policyowner and the insured may be the
same person or different individuals. GIAC requires satisfactory evidence of
insurability before it issues a Policy.
Premiums
Premiums for the Policy are level, fixed and payable during the insured's
lifetime, or until age 100. They may be paid annually, semi-annually, quarterly,
or in any other manner acceptable to GIAC on or before their due date, or within
a 31-day grace period after the due date. (See "Grace Period," below.)
Coverage under the Policy begins when all underwriting requirements have
been met, all premiums due have been paid, and the Policy has been delivered
while the insured is living.
The amount of the gross premium, payable on each due date, depends upon
the initial Guaranteed Insurance Amount, the age of the insured at the time the
Policy is issued, the insured's premium class, the insured's sex classification,
and the frequency of premium payment. Sex classification is either male, female
or, where required by applicable law, "unisex." An insured is classified as
"unisex" if Policy charges and values do not vary according to the sex of the
insured. (See "Legal Considerations for Employers.")
Standard premium rates are discounted for proposed insureds who meet
GIAC's preferred underwriting requirements. Non-smokers with issue ages 20 and
above receive a discount in all premium classes. A higher premium will be
charged for insureds who do not qualify as standard risks pursuant to GIAC's
underwriting requirements.
The table below shows representative preferred and standard non-smoker
("NS") annual premium amounts for various Guaranteed Insurance Amounts.
Preferred-NS and standard-NS are both non-smoker premium classes. Preferred
class Policies are expected to produce better than standard class experience;
consequently, for otherwise identical Policies, preferred premiums are lower
than standard.
$100,000 Guaranteed $250,000 Guaranteed
Insurance Amount Insurance Amount
---------------- ----------------
Standard-NS Preferred-NS Standard-NS Preferred-NS
----------- ------------ ----------- ------------
Male, Age 35... $1,559.00 $1,505.00 $3,822.50 $3,687.50
Female, Age 35. 1,282.00 1,238.00 3,130.00 3,020.00
Total premiums are higher if premiums are paid more frequently than
annually, reflecting a charge for loss of interest to GIAC and additional
billing and collection expenses. Frequency of premium payment may be changed
upon proper written request to GIAC.
Grace Period
After the due date of a premium payment, the Policy provides a grace
period of 31 days during which the Policy remains in effect.
If the overdue premium is paid during the grace period, Policy benefits
will be the same as if the premium had been paid on or before its due date. If
the insured dies during the grace period before the premium is paid, the death
benefit will still be payable but any overdue premium will be deducted from the
proceeds.
If an overdue premium has not been paid by the end of the grace period,
the Policy lapses as of the date the premium was due. If there is no cash
surrender value, all coverage stops and the Policy terminates. If the Policy has
a cash surrender value, the Policyowner may continue coverage in the form of
fixed-benefit extended term insurance or variable paid-up insurance.
Alternatively, the Policyowner may surrender the Policy for its cash surrender
value.
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<PAGE>
(See "Surrender of the Policy.")
A lapsed Policy may be reinstated under certain conditions. (See
"Reinstatement of the Policy.")
Charges Deducted from Premiums
The net premium for the Policy is the gross annual premium minus any
premium for any optional insurance benefits that may be chosen, less the charges
described below:
(a) Policy Fee. This annual $50 charge covers the cost of administering
a Policy each year, including billing, collecting premiums,
processing claims, paying cash surrender values, making Policy
changes, establishing Policy records and communicating with the
Policyowner.
(b) Administrative Charge. This charge is $5.00 per $1,000 of the
Policy's Guaranteed Insurance Amount. It is assessed against the
first gross annual premium only. This charge covers the cost of
underwriting the insured and issuing the Policy.
(c) Sales Load. This charge compensates GIAC for the cost of selling the
Policies. This cost includes agents' commissions, advertising, and
the printing of prospectuses and sales literature. In the first
Policy year, the sales load for most insureds will be equal to 30%
of the basic premium. However, for certain insureds under issue age
30, the sales load will be less than 30% of the basic premium. The
sales load will be a constant percentage for all Policy years after
the first. This percentage depends on the issue age and sex
classification of the insured. Regardless of the issue age of the
insured, for the period of time which is the lesser of 20 years or
the life expectancy of the insured, the total charge for sales load
will never be more than 9% of the sum of the basic premiums to be
paid in that time period.
The basic premium is the gross annual premium for the Policy less
the Policy fee and less any additional premiums for any optional
insurance benefits that may be chosen and any additional premium
amounts for substandard class risks or smokers. The amount of sales
load in a Policy year is not specifically related to sales expenses
for that year. GIAC expects to recover its total sales expenses over
the periods the Policies are in force. To the extent that sales
expenses are not recovered from the sales load, GIAC will recover
them from sources other than deductions from premiums, including
indirectly from the charge for mortality and expense risks and from
mortality gains.
(d) Additional Charge for Other than Standard Non-Smoker Risk. If the
premium class is either smoker or substandard, an additional annual
charge will be subtracted from the gross annual premium to support
the higher anticipated mortality.
(e) State Premium Tax Charge. There is an annual charge of 2.5% of the
basic premium (defined above) to pay state premium taxes. Premium
taxes differ from state to state, and 2.5% is an approximate average
rate reflecting taxes to be paid on premiums from all states.
(f) Risk Charge. There is an annual charge of 1.5% of the basic premium
to compensate GIAC for the risk that an insured may die at a time
when the Guaranteed Insurance Amount exceeds the benefit that would
have been payable in the absence of the minimum death benefit
guarantee.
The net premium is allocated to the investment divisions of the Account
selected by the Policyowner.
If premiums are paid under the Policy either semi-annually or quarterly,
the gross premium payable on each premium due date will be calculated by
multiplying the gross annual premium by .515 or .26265, respectively. This
results in an additional charge of 3.0% and 5.06% of the annual premium for
semi-annual and quarterly premiums, respectively. This charge covers the expense
of processing premiums as well as the loss of interest incurred by GIAC. If
another modal payment schedule is acceptable to GIAC, a different factor will be
used to assess this charge. The net premium will be allocated to the Account on
the Policy date or Policy anniversary, as the case may be, even if premiums are
paid more frequently than annually. (See "Allocation of Net Premiums to the
Account.")
For any Policy in effect, GIAC guarantees and may not increase the charges
deducted from premiums described above.
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Charges Deducted from the Account
In addition to the charges deducted from premiums, the following amounts
are charged against the Account:
(a) Charge for Mortality and Expense Risks. GIAC makes a daily charge
against each Account investment division at an effective annual rate
of 0.50% of the average daily value of the division's aggregate
assets for the mortality and expense risks assumed by GIAC.
The mortality risk assumed is that insureds as a group may live for
a shorter period of time than GIAC estimated. The expense risk
assumed is that expenses incurred in issuing and administering the
Policies will be greater than GIAC estimated. GIAC will realize a
gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policies. If GIAC's costs exceed
the amount of mortality and expense risk charges collected, it will
bear the loss.
(b) Cost of Life Insurance. GIAC makes a daily charge for the cost of
life insurance in determining a Policy's cash value and deducts it
from the investment base at the end of each Policy month. Cost of
insurance charges enable GIAC to pay death benefits, particularly in
early Policy years when the death benefit payable to the Beneficiary
will be significantly larger than the amount of net premiums paid.
The amount of the charge is calculated based upon (1) the assumption
that the actual number of deaths during the month will be accurately
predicted by the 1980 Commissioners Standard Ordinary Mortality
Table, male, female or unisex, as appropriate, with continuous
functions; (2) the sum of the Guaranteed Insurance Amount and the
Variable Insurance Amount provided during the month; and (3) the
insured's age, risk class and, unless prohibited, sex. The cost of
insurance rate generally increases with the attained age of the
insured.
(c) Charges Applicable to the Funds Underlying the Policy. Charges for
investment advisory fees and operational expenses are deducted daily
from the assets of the Funds offered through the Account. Each Fund,
with the exception of the BG International Fund, pays an annual
investment advisory fee to its investment adviser that equals 0.50%
of such Fund's average daily net assets. The BG International Fund
pays an annual investment advisory fee to its investment adviser
that equals 0.80% of its average daily net assets. (See "The
Funds.") The advisory fees and other expenses incurred by the Funds
are more fully described in the accompanying prospectuses for the
Funds.
(d) Possible Charge for Income Taxes. GIAC currently makes no charge for
federal, state or local taxes attributable to the Account or the
Policies. However, GIAC reserves the right to impose such a charge
if the income tax treatment of variable life insurance changes at
the insurance company level, or if there is a change in GIAC's tax
status, or due to other tax-related economic burdens that are
attributable to the Account and incurred by GIAC.
GIAC guarantees that it will not increase the maximum charge for the cost
of insurance as applied to each age, sex (unless prohibited) and risk class, or
the amount of the charge to the Account for mortality and expense risks while a
Policy is in effect.
Allocation of Net Premiums to the Account
GIAC allocates the initial net premium due under the Policy to the Account
on the Policy date regardless of whether the initial gross premium payment
(based on the frequency of payments selected by the Policyowner) has been
received by GIAC. If the initial gross premium is received on or before the
Policy date, GIAC will allocate the Policy's net premium directly to the
investment divisions chosen by the Policyowner as of the Policy date. However,
if the initial gross premium is received after the Policy date, GIAC will credit
interest to the Policy's net premium at a rate of 4% annually from the Policy
date until such time as the initial gross premium is received by GIAC. Upon
receipt of such payment, GIAC will allocate the Policy's net premium, plus
interest credited and less any charges for the cost of insurance, to the
investment divisions chosen by the Policyowner as of the date of receipt of the
initial gross premium. At that time, GIAC will cease crediting interest to the
Policy's net premium.
The net premium under the Policy is the amount of the gross premium less
the amounts described under "Charges Deducted from Premiums."
Net annual premiums under the Policy after the first net premium will be
placed in the Account on the Policy anniversary, regardless of when the gross
premiums are received by GIAC. This means that net premiums will be invested in
the Account once each year on the Policy anniversary and will not be affected by
the frequency of payment of the gross premium.
In the application for a Policy, the prospective Policyowner designates
how the net premiums are to be allocated among the Account's investment
divisions. The Policyowner may select up to four investment divisions. If
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<PAGE>
more than one investment division is selected, at least 10% of the total
allocation must be directed to each selection. All percentage allocations must
be in whole numbers, with the total adding up to 100%.
Changes in Allocations or Transfers Among Investment Divisions
The Policyowner may change the allocation instructions for net premium
payments or transfer part or all of the current investment base under the Policy
from one investment division to one or more of the other investment divisions of
the Account. Such reallocations (or transfers) will take effect in accordance
with the specific instructions of the Policyowner when a proper written request
is received by GIAC at the following address: The Guardian Insurance & Annuity
Company, Inc., Customer Service Office, P.O. Box 26210, Lehigh Valley,
Pennsylvania 18002-6210 (registered, certified or express mail should be sent to
such office at 3900 Burgess Place, Bethlehem, Pennsylvania 18017).
GIAC transfers amounts attributable to the investment base under a Policy
among the Account's investment divisions before transferring amounts
attributable to the investment base under any Additional Coverage Riders.
Accordingly, amounts allocated to an investment division under an Additional
Coverage Rider can remain in that investment division even though the entire
amount allocated there under the Policy has been transferred out. (See
"Additional Coverage Riders to the Policy" and "Investment Base and Excess
Investment Return for Additional Coverage Riders.")
The Policyowner may be invested in only four investment divisions under a
Policy and its Additional Coverage Riders after giving effect to any changes in
the allocation instructions or transfers.
GIAC reserves the right to limit the frequency of changes in allocation
instructions or transfers among the investment divisions to not more than once
every 30 days. GIAC also reserves the right to modify, change or suspend these
procedures at any time without notice.
Death Benefit Under the Policy
Death benefit proceeds under a Policy equal the Guaranteed Insurance
Amount plus the Variable Insurance Amount, if positive, less any Policy debt,
and less any overdue premium if death occurs during the grace period.
(a) Guaranteed Insurance Amount
The Guaranteed Insurance Amount equals the Policy's face amount. Death
benefit proceeds will never be less than the Guaranteed Insurance Amount if
premiums are paid on time and no loans are taken from the Policy.
(b) Variable Insurance Amount
The Variable Insurance Amount is that portion of the death benefit which
reflects, among other factors, the investment experience of the investment
divisions in which the Policy is invested. On the Policy date, the Variable
Insurance Amount is zero. Thereafter, the Variable Insurance Amount increases or
decreases on the first day of each succeeding Policy month. The first Policy
month starts on the Policy date indicated in the application for the Policy, and
each succeeding Policy month starts on the same date in succeeding months. On
each monthly anniversary, GIAC will determine the Variable Insurance Amount for
the following month by combining (1) the Variable Insurance Amount (positive or
negative) for the preceding month; and (2) the variable amount of paid-up
insurance purchased or cancelled by the Policy's investment return for the
preceding month.
The exact amount by which the Variable Insurance Amount changes is
determined by an actuarial computation that is based, among other things, upon
the age and sex classification of the insured, the size of the Policy and the
number of years it has been in effect, as well as by the investment results of
the investment divisions in which the Policy is invested.
Example: Using Policy Illustration #2 and assuming the 12% hypothetical
gross annual investment return (equivalent to a hypothetical net annual
investment return of 10.69%), the death benefit shown at the end of Policy year
5 would be affected in the following manner:
Guaranteed Variable
Insurance Insurance Death
Amount Amount Benefit
------ ------ -------
End of Policy Year 5.. $100,000 $3,453 $103,453
Change................ 0 $1,618 $ 1,618
-------- ------ --------
End of Policy Year 6.. $100,000 $5,071 $105,071
If, instead, in the preceding example, the hypothetical gross annual
investment return during Policy year 6 had been 0% (equivalent to a hypothetical
net annual investment return of -1.25%), the death benefit at the end of Policy
year 5 would be affected as follows:
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Guaranteed Variable
Insurance Insurance Death
Amount Amount Benefit
------ ------ -------
End of Policy Year 5.. $100,000 $ 3,453 $103,453
Change................ 0 $(1,270) $ (1,270)
-------- ------ --------
End of Policy Year 6.. $100,000 $ 2,183 $102,183
The Variable Insurance Amount purchased or cancelled for a Policy month
will depend on the prior month's investment return. The Policy assumes a net
rate of return of 4% on the cash value. Therefore, if the actual rate of return
exceeds 4% on an annualized basis, the excess investment return will be
positive. If it is less than 4%, the excess investment return will be negative.
If the excess investment return is positive, the Variable Insurance Amount
increases. If the excess investment return is negative, the Variable Insurance
Amount decreases. A zero excess investment return results in no change in the
Variable Insurance Amount.
If the Variable Insurance Amount is negative at the end of a Policy month,
the death benefit will equal the Guaranteed Insurance Amount. The death benefit
will increase above the Guaranteed Insurance Amount on the next monthly Policy
anniversary only if the investment return for the ensuing Policy month is
sufficiently positive to offset the negative Variable Insurance Amount in the
prior Policy month.
Example: Using Policy Illustration #2 and assuming a 0% hypothetical gross
annual investment return (equivalent to a hypothetical net annual
investment return of -1.25%) for the first five Policy years, the Variable
Insurance Amount is -$2,365 at the end of Policy year 5. In order for
there to be an increase in the death benefit above the Guaranteed
Insurance Amount at the end of Policy year 6, the actual rate of return in
Policy year 6 would have to be at least 18.06%.
Note: Death benefit proceeds may be less than the Guaranteed Insurance
Amount if the Variable Insurance Amount is zero or negative, and a Policy loan
is outstanding or a premium is overdue when the insured dies.
To calculate the Variable Insurance Amount purchased or cancelled for any
month, GIAC uses a net single premium per $1 of paid-up whole life insurance
based on the insured's age at the yearly Policy anniversary. For intermediate
months, GIAC interpolates to arrive at net single premiums. Since the dollar
amount of a Policy's excess investment return depends on the investment base
supporting a Policy, which will tend to be larger in later years, the increase
or decrease in the Variable Insurance Amount will tend to be larger in later
years.
Example: Using Policy Illustration #2 and assuming a 12% hypothetical
gross annual investment return (equivalent to a hypothetical net annual
investment return of 10.69% which, due to the effects of compounding,
translates into a monthly return of 0.8500%) the Variable Insurance Amount
purchased or cancelled in Policy year 6 is less than the change occurring
during Policy year 20. The following represents such calculation for the
first month of the 6th and 20th Policy years:
Calculation of Change in Variable Insurance
Amount for the First Month of Policy Year
<TABLE>
<CAPTION>
6th 20th
Policy Policy
Year Year
---- ----
<S> <C> <C>
(1) Account Value at Beginning of Current Policy Year...... $7,566.12 $56,104.97
....................................................... x .0085 x .0085
--------- ----------
(2) Investment Return...................................... $64.31 $ 476.89
....................................................... $7,566.12 $56,104.97
....................................................... x .003274 x .003274
--------- ----------
(3) Assumed Interest Earned at an Annual Rate of 4%........ $24.77 $ 183.69
(4) Excess Investment Return [Subtract (3) from (2)]....... $39.54 $ 293.20
(5) Net Single Premium..................................... .29740 .45523
(6) Change in Variable Insurance Amount at the end of the
first month in the 6th and 20th Policy Years.......... $ 132.95 $ 644.07
</TABLE>
It should be noted that the net single premium used to calculate the
Variable Insurance Amount increases as the insured advances in age and thus
larger dollar amounts of investment return are required each year to result in
the same increases in the Variable Insurance Amount.
The Policy includes a table of net single premiums for Policy
anniversaries. This table is used to convert the excess investment return for a
Policy into increases or decreases in the Variable Insurance Amount. For other
monthly anniversaries, the net single premium is obtained by linear
interpolation. This purchase basis does not
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<PAGE>
depend upon any changes in the insured's health after a Policy is issued. The
net single premium will be lower for a Policy issued to a female than for a
Policy issued to a male except when such premiums must be identical. (See "Legal
Considerations for Employers.")
Cash Value Benefits of the Policy
The Policy has a cash value that may increase or decrease daily depending
on the performance of the investment divisions in which the Policy is invested.
No minimum cash value is guaranteed, and the cash value cannot be known in
advance even if it is assumed all premiums are paid when due. Cash values also
reflect the imposition of charges deducted from the Account. (See "Charges
Deducted from the Account.")
If the Policyowner surrenders a Policy while the insured is alive, the
Policyowner receives the Policy's cash surrender value, which is the cash value
minus any unpaid Policy loan(s) and accrued loan interest. Partial surrenders
are not permitted.
The following discussion of cash values assumes that there are no
outstanding Policy loans, that all premiums have been paid when due, and that
all net premiums have been allocated to a single investment division.
During the first Policy year, the cash value will be very small or zero
because of the charges made in connection with issuance of the Policy. When the
first gross premium has been paid and the Policy is in effect, the investment
base is equal to the first net premium. Thereafter, the investment base on any
given date will equal the investment base on the preceding date, increased or
decreased by the change in the value of the investment division's assets, less
the amount GIAC needs to provide life insurance protection for the period
between the two dates. The change in the value of the assets relating to a
Policy will reflect investment performance since the preceding date and any net
premium allocated to the Account since the preceding date. During a Policy year,
the cash value will approximately equal the investment base, if all premiums due
are paid on an annual basis. The amount which GIAC needs to provide life
insurance protection will depend on the amount of insurance in force and the age
and sex classification of the insured.
While the Variable Insurance Amount increases if the value of the assets
in the Account relating to a Policy increases at a net rate of more than 4% a
year, the rate of increase in the value of those assets that is needed to
project an increase in the cash value cannot be predicted. It differs for
insureds of different ages, or different sexes, or both. For Policies on
comparable insureds, it differs if those Policies have been in effect for
different lengths of time. Moreover, the crediting of the net premium on the due
date (even if the gross premium has not yet been paid) does not result in any
change in the death benefit. If, by the end of the grace period, the premium has
not been paid and the Policy lapses, the cash value is adjusted downward to take
into account the failure to pay the premium. A similar adjustment will be made
if the Policy is surrendered during the grace period. (See "Grace Period.")
The following example shows how the cash value will change under the
stated assumptions.
Example: In Illustration #2 a Policy was issued to a male, age 35, with an
initial face amount of $100,000. At the beginning of the last month of the
20th Policy year, assuming 20 years of growth at a hypothetical gross
annual rate of 6% (a hypothetical net rate of 4.72%), the cash value is
$30,470.87. Assume that during that month the investment division(s) in
which the cash value is held increase at a hypothetical gross annual rate
of 6% (a hypothetical net rate of 4.72%). At the beginning of the next
Policy month, the cash value will be $30,524.51.
Because a part of each premium is used to provide life insurance
protection, the cash values cannot meaningfully be compared with the amounts
that would have been available had the gross premiums been invested without
obtaining life insurance protection.
Payment of Death Benefit and Cash Value Proceeds
As long as the Policy is in force, other than as fixed-benefit extended
term insurance, GIAC will ordinarily pay any death benefit, cash surrender
value, or loan proceeds within seven days after its receipt of all the documents
(including documents necessary to comply with Federal and state tax laws)
required for such a payment. The amount of cash surrender value payable is
determined on the date GIAC receives a properly completed request for payment.
The amount of death benefit is determined as of the date of death. However, GIAC
may delay payment if (a) the New York Stock Exchange is closed for trading or
trading has been suspended, or (b) the Securities and Exchange Commission
("SEC") restricts trading or determines that a state of emergency exists which
may make such payment impracticable.
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<PAGE>
As with any life insurance policy, GIAC may delay payment of death
benefits if there is a question about entitlement to benefits.
Under a Policy which is being continued as fixed-benefit extended term
insurance (see "Continued Insurance Coverage Following Policy Lapse"), GIAC
expects to pay any cash surrender value promptly. However, it has the right to
delay payment of the cash surrender value of any fixed-benefit extended term
insurance for up to six months.
GIAC will pay interest on death benefits which are paid in a lump sum from
the date of death to the date of payment, at a rate set from time to time by
GIAC. This rate is guaranteed to be at least 3% per year, and not less than
required by law.
Investment Base and Excess Investment Return
The Policy's investment base is the amount available for investment at any
time. It represents the sum of the amounts invested in each of the Account's
investment divisions and any amounts in the loan collateral balance. The
Policy's investment base will vary daily with the performance of the investment
divisions to which it is allocated.
On the Policy date, the investment base equals the net annual premium for
the first Policy year. The investment base at the beginning of each Policy month
is equal to the cash value on that date, assuming premiums for the Policy are
paid to the end of the year. On each date during the Policy month, the portion
of the investment base allocated to any particular investment division will be
adjusted to reflect the investment experience of that division.
The investment base will reflect the effects of changes in premium
allocations, transfers and any outstanding loans. Any outstanding loans will
reduce the portion of the investment base in each investment division, but will
not affect the Policy's total investment base. Any loan repayments will increase
the portion of the investment base in the investment divisions. Investment
results will be permanently affected by any outstanding loans and any loan
repayments. The effect could be favorable or unfavorable, depending on the
performance of the investment divisions from which the loan amount was
transferred while the loan is outstanding.
The determination of the excess investment return for the Policy, which is
the dollar amount used to purchase the Variable Insurance Amount (see "Death
Benefit Under the Policy"), is based on the Policy's actual investment rate. The
Policy's actual investment rate is determined on each monthly anniversary. This
rate varies depending on the experience of the investment divisions of the
Account selected by the Policyowner. The actual investment rate for a particular
Policy will reflect the investment income and any realized or unrealized capital
gains in the value of the assets in the investment divisions during the previous
month, minus the sum of (a) any realized or unrealized capital losses; (b) any
charges for taxes or amounts set aside as a reserve for taxes attributable to
the income and gains of the investment divisions; and (c) a charge at an annual
rate of 0.50% for mortality risks and expense risks. Amounts held in the loan
collateral balance earn interest at the loan collateral interest rate. The loan
collateral interest rate is a variable rate which will never be less than our
current loan interest rate of 8.0% per year; less a 2% expense charge and any
charge which may be required due to changes in the Federal income tax law. The
Policy's actual investment rate is the weighted average of the actual investment
rates of all the investment divisions and the loan collateral balance.
If the Policy's actual investment rate during a Policy month is greater
than the assumed investment rate of 4.0%, the Policy will earn a positive excess
investment return which, in turn, means an increase in the Variable Insurance
Amount. Conversely, if the Policy's actual investment rate is less than 4.0%
during a Policy month, there will be a negative excess investment return which
will have the effect of reducing the Policy's Variable Insurance Amount.
Policy Loans
After the first Policy year, the Policyowner may borrow any amount up to
the Policy's loan value from GIAC using the Policy as the only security for the
loan. The maximum loan value equals 90% of the Policy's cash value less (a) any
outstanding loans; (b) outstanding loan interest; and (c) interest on the
requested loan to the end of the current Policy year (since interest is deducted
in advance). A Policyowner may elect in advance to have GIAC automatically make
a loan against the Policy in order to pay a premium which has not been paid by
the end of a grace period, provided the Policy has sufficient loan value. The
Policyowner may repay all or part of the loan at any time while the insured is
living.
The interest rate on loans is at a rate of 8.0% per year payable in
advance at a rate of 7.407%.
Loan requests must be made in writing to GIAC's Customer Service Office. A
loan collateral balance will be established within GIAC's general account for
each loan under a Policy. The loan amount will be transferred to the
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general account from the Account's investment divisions in proportion to the
investment base in each division as of the date of the loan. A loan, whether or
not repaid, will have a permanent effect on the Policy's death benefit and cash
values because the amount in the loan collateral balance does not share in the
investment experience of the Separate Account's investment divisions. (See
"Investment Base and Excess Investment Return.")
The loan collateral balance earns interest as described under "Investment
Base and Excess Investment Return." Loan repayments will be allocated among the
investment divisions in proportion to the investment base in each division as of
the date of repayment. Policy proceeds will be reduced by any unpaid Policy
loan.
Example: Using Policy Illustration #2 and assuming the 12% hypothetical
gross annual investment return (equivalent to a hypothetical net annual
investment return of 10.69%), and further assuming a loan of $5,000 at the
end of Policy year 5, the death benefit and cash value at the end of
Policy year 6 would be as follows:
Guaranteed Variable
Insurance Insurance Death Cash
Amount Amount Benefit Value
------ ------ ------- -----
End of Policy Year 5.. $100,000 $3,452.71 $103,452.71 $6,229.04
Increase.............. 0 $978.62 $978.62 $1,642.28
-------- -------- ---------- --------
End of Policy Year 6.. $100,000 $4,431.33 $104,431.33 $7,871.32
The increase is only $978.62 as compared to the $1,618.00 increase shown
in the example on page 12. The difference reflects the fact that a portion
of the cash value equal to the loan was transferred to GIAC's general
account where it was credited with 6.5%, rather than the 10.69% actual
rate of return.
The Policyowner's loan amount, in this example, equals $5,000. If death
occurred during the 6th Policy year, this amount would be deducted from
the proceeds. However, the beneficiary would be entitled to a refund of
any unearned loan interest from the date of death until the end of the
Policy year.
If the Policy's outstanding loans and loan interest exceed the cash value,
GIAC will terminate the Policy. GIAC will not do this, however, until 31 days
after it mails to the Policyowner written notice of its intent to terminate the
Policy. The Policy will not terminate if all premiums and Policy loan interest
due have been paid on time. If the Policy lapses with a loan outstanding,
adverse tax consequences may result. (See "Federal Tax Considerations.")
Surrender of the Policy
A Policy may be surrendered for its cash surrender value, which is the
cash value less any outstanding loans and accrued loan interest, by submitting a
proper written request to GIAC. The cash value of a surrendered Policy will be
determined as of the date GIAC receives the request for surrender.
If a premium is overdue, the cash value on any date after the due date and
before the end of the grace period is the sum of:
(a) the cash value on the due date of the overdue premium (computed as
described above); and
(b) the difference between the investment base on the due date and the
amount the investment base would have been if the actual investment
rate from the last monthly date had been the assumed investment
rate. This difference may be positive or negative.
If GIAC receives a surrender request while a Policy is in full force (or
is in force as variable paid-up insurance), the cash surrender value will depend
on the investment performance of the applicable investment divisions of the
Account. If the Policy is in force as extended term insurance, the amount
received upon surrender will be the cash surrender value of any extended term
insurance. (See below.)
Federal law requires GIAC to withhold and remit all Federal income taxes
attributable to the taxable portion of any surrender if the Policyowner has not
provided GIAC with a written election not to have such taxes withheld.
Continued Insurance Coverage Following Policy Lapse
A Policy lapses if a premium remains unpaid at the end of the grace
period. (See "Grace Period.") If a Policy has no cash surrender value when it
lapses, all insurance coverage will cease. If a lapsed Policy has cash surrender
value, insurance may be continued under one of the following Policy value
options, but any insurance or benefits from riders, other than the Additional
Coverage Riders, will cease. Alternatively, the Policyowner may surrender the
Policy and receive the cash surrender value.
(a) Extended Term Insurance
If the Policyowner has not elected within two months after an overdue
premium's due date to continue the
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Policy as variable paid-up insurance (discussed below), extended term insurance
is the applicable continued insurance coverage benefit. The length of time such
insurance will remain in effect depends on the cash surrender value on the date
the extended term insurance goes into effect, the amount of insurance, and the
attained age and sex classification of the insured. The amount of insurance will
be the amount in force on the premium's due date, less any outstanding Policy
loan(s) plus accrued interest. Extended term insurance is fixed-benefit term
life insurance, so amounts relating to the Policy will be transferred to GIAC's
general account and the amount of insurance will not change while the insurance
remains in force. This insurance can be surrendered at any time for its cash
surrender value (at which time all insurance coverage ends), but it has no loan
value.
Extended term insurance is not available for certain older insureds and
those in high-risk rating classes. For these insureds, variable paid-up
insurance will be the automatic benefit on lapse.
(b) Variable Paid-Up Insurance
This Policy value option provides a variable amount of insurance coverage
for the lifetime of the insured, in an amount lower than that which would be
provided for a limited time as extended term insurance. (See above.) The initial
amount of insurance will depend upon the cash value on the due date of the
overdue premium, and the attained age and sex classification of the insured.
Thereafter, the variable paid-up insurance amount will be adjusted up or down
monthly based on the same actuarial computation described on page 13 and the
investment experience of the investment divisions selected by the Policyowner.
(See "Death Benefit Under the Policy, Variable Insurance Amount.") Variable
paid-up insurance has cash value and loan value. There is no Guaranteed
Insurance Amount for variable paid-up insurance. Any existing Policy loans may
remain outstanding.
Example: In Illustration #2 a Policy was issued to a male age 35, with an
initial face amount of $100,000. Assuming a hypothetical gross annual rate
of return of 6% (corresponding to a hypothetical net annual investment
return of 4.72%) each year for 15 years, at the end of the 15th Policy
year the death benefit is $102,946.36 and the cash value is $20,926.51. If
the Policy lapses at the end of the 15th Policy year, the Policyowner may
elect extended term insurance of $102,946.36 for 21 years and 58 days, or
he may elect variable paid-up insurance for life in an initial amount of
$51,747.
Additional Coverage Riders to the Policy
(a) General
This subsection describes certain riders which give the Policyowner the
right to purchase variable paid-up whole life insurance on the insured's life.
These riders (collectively referred to in this Prospectus as the "Additional
Coverage Riders") do not affect the operations of the Policy. Rather, the death
benefits and cash values attributable to the Additional Coverage Riders will be
calculated separately from the death benefits and cash values attributable to
the Policy. The overall death benefit and cash value proceeds of a given Policy
will be the sum of the values attributable to the Policy and to any Additional
Coverage Rider.
There are three types of Additional Coverage Riders which provide for the
purchase of variable paid-up whole life insurance as follows:
(1) Single Payment version -- to purchase this Additional Coverage
Rider, the Policyowner makes one additional payment when the initial
premium for the Policy is paid, or during the 60 days thereafter.
The maximum purchase payment allowable under this rider is the
lesser of 300% of the Policy's gross annual premium (excluding the
premiums paid for any other riders to the Policy) or $200,000.
(2) Flexible Payment version -- to purchase this Additional Coverage
Rider, the Policyowner makes annual payments which may be flexible
in amount. The initial payment for this rider is paid with the
initial premium for the Policy, or during the 60 days thereafter.
Subsequent purchase payments are due on each Policy anniversary, or
during the 60 days thereafter. The maximum initial purchase payment
under this rider is identical to the maximum under the single
purchase payment version described above. The maximum subsequent
purchase payment is the lesser of: (A) 125% of the preceding
purchase payment; (B) $200,000; or (C) three times the gross annual
premium for the Policy (excluding the premiums paid for any other
riders to the Policy). The maximum payment may be exceeded only with
GIAC's written consent.
(3) Scheduled Payment version -- to purchase this Additional Coverage
Rider, the Policyowner pays a level premium, according to the
payment schedule applicable to the Policy. This rider's premium may
not exceed the lesser of 300% of the Policy's gross annual premium
(excluding the premiums paid for any other riders to the Policy) or
$200,000 annually. (Payments made under this rider on a semi-annual
and quarterly basis will be assessed an additional charge as
described below.)
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The maximum amounts allowable under the Single Payment and Flexible
Payment versions will be reduced by any payments made within the previous
eighteen months to purchase either variable or non-variable paid-up whole life
insurance under any other policy issued by GIAC or an affiliate on the insured's
life. Only one Additional Coverage Rider may be purchased with the Policy,
except that purchasers of a Single Payment version may also purchase the
Scheduled Payment version under the same Policy.
(b) Conditions of Making Payments Under the Additional Coverage Riders
The following conditions apply to making purchase payments under the
Additional Coverage Riders:
(1) The minimum annual purchase payment is $100. Any purchase
payment amount paid in excess of the applicable maximum limit
(as set forth above) without the consent of GIAC will not be
accepted and will be refunded to the Policyowner. Failure to
make a timely purchase payment terminates the rider. (See the
subsection "Termination," below.)
(2) Under the Flexible Payment version, additional coverage may
not be purchased if a premium under the Policy is being waived
in accordance with the provisions of a waiver of premium
rider. Purchase payments may be resumed when such Policy
premiums are no longer being waived. Under the Scheduled
Payment version, rider payments will also be waived if Policy
premiums are being waived.
(3) Under the Flexible Payment version, a purchase payment must be
made on an annual basis. Such payment will not be advanced by
GIAC under the Policy's "Automatic Premium Loan" provision.
(c) Charges Deducted Under the Additional Coverage Riders
If the insured is not in the standard premium class or preferred premium
class, GIAC will deduct a rating charge from each purchase payment made under
the riders. This charge will depend on the premium class, the insured's attained
age and sex classification, and the amount of the purchase payment. For the
Scheduled Payment version, GIAC will deduct a charge for any waiver of premium
benefit applicable to such rider.
After deducting any applicable rating charge and the charge for any waiver
of premium benefit, GIAC will deduct a charge equal to 8% of the remainder of
each payment under an Additional Coverage Rider to arrive at the net purchase
payment. This charge is comprised of the following: (1) sales load of 4%; (2)
state premium tax charge of 2.5%; and (3) risk charge of 1.5%.
Under the Scheduled Payment version, if payments are made semi-annually or
quarterly, the gross purchase payment payable on each payment due date will be
calculated by multiplying the gross scheduled annual payment by .515 or .26265,
respectively. This will result in an additional charge for semi-annual and
quarterly payments equal to 3.0% and 5.06%, respectively, of the gross scheduled
annual payment under the rider. (See "Charges Deducted from Premiums" for more
information about the nature of the charges described above.)
(d) Allocations of Net Purchase Payments
The net purchase payment under the Single Payment version and the initial
net payment under the Flexible Payment version will be allocated to the
Account's investment divisions when received, in accordance with the premium
allocation instructions that are in effect on the date GIAC receives such
payment.
A subsequent net purchase payment made under the Flexible Payment version
which is received by GIAC prior to a Policy anniversary will be allocated to the
Account on the anniversary date in accordance with the premium allocation
instructions that are in effect on the anniversary date. If such payment is
received on a Policy anniversary or within 60 days after such anniversary, GIAC
will allocate the payment (plus any interest credited from the prior monthly
anniversary) to the Account on the date it is received, in accordance with the
premium instructions that are in effect on that date.
A net purchase payment made under the Scheduled Payment rider will be
allocated to the Account on the Policy date and on each subsequent Policy
anniversary regardless of how frequently such payments are made, provided such
payments are made in a timely manner. (See "Termination.") Allocations will be
made in accordance with the premium allocation instructions that are in effect
on the aforesaid dates.
In addition to the conditions mentioned above, allocations of net purchase
payments under the Additional Coverage Riders will be administered in the same
manner as described in the subsection "Allocation of Net Premiums to the
Account."
(e) Investment Base and Excess Investment Return for Additional Coverage
Riders
A separate investment base will be calculated for each rider which may
increase or decrease depending on investment performance. The investment base
initially will equal the initial net purchase payment received under the
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Additional Coverage Rider. Thereafter, the investment base for a rider will be
calculated in the same manner as described in the subsection "Investment Base
and Excess Investment Return." The excess investment return, actual investment
rate and Variable Insurance Amount are calculated separately for each of these
riders. The excess investment return and actual investment rate for the Policy
could be significantly different from the excess investment returns and actual
investment rates for these riders because the investment base for each rider may
be allocated to the Account's investment divisions in different proportions than
the investment base for the Policy.
Transfers of the investment base attributable to the Additional Coverage
Riders are subject to the same restrictions as apply to transfers of the
investment base under the Policy. In addition, GIAC will not transfer amounts
attributable to the Additional Coverage Rider(s) among the Account's investment
divisions until amounts necessary to satisfy a requested transfer that are
attributable to the Policy have been exhausted. (See "Changes in Allocations or
Transfers Among Investment Divisions.")
GIAC will deduct a charge for the cost of the life insurance coverage
provided by a rider from the investment base for the rider. (See "Cost of Life
Insurance.")
(f) Guaranteed Insurance Amount Under Additional Coverage Riders
The Additional Coverage Riders each have a death benefit that will never
be less than the Guaranteed Insurance Amount (GIA) for these riders. If payments
under these riders are discontinued, any additional coverage which has already
been purchased will remain in force. If payments under the Scheduled Payment
version are discontinued during a Policy year, the GIA will be reduced.
Under the Single Payment version of the rider, the GIA is fixed at the
time of purchase and will not increase thereafter. Under the Flexible and
Scheduled Payment versions, the GIA will increase on the effective date of
coverage relating to each purchase payment so long as the purchase payment is
made on a timely basis and the rider has not been surrendered for its cash
surrender value. (See "Effective Date of Coverage.")
(g) Variable Insurance Amount Under Additional Coverage Riders
The Additional Coverage Riders each have a Variable Insurance Amount (VIA)
which may increase or decrease each Policy month depending upon the investment
experience of the net purchase payments for the riders which are allocated to
the Account. The VIA for each rider may be positive or negative. Because the
investment base is separately calculated for each rider, changes in the VIA for
a given rider will not necessarily correspond to changes in the VIA for the
Policy. The VIA for each Additional Coverage Rider is calculated in the same
manner as the VIA for the Policy. (See "Variable Insurance Amount.")
The death benefit for the Additional Coverage Riders is the sum of all the
GIAs plus all the VIAs, if the sum of the VIAs is positive. The death benefit
for the riders will never be less than the sum of all the GIAs if rider premiums
are paid on time and no loans are taken.
(h) Cash Value Under Additional Coverage Riders
The Additional Coverage Riders each have a cash value which may increase
or decrease depending upon the investment experience of the net purchase
payments for the riders which are allocated to the Account. There is no minimum
guaranteed cash value under these riders. Each rider may be surrendered for its
cash surrender value, which is equal to its cash value less any Policy loans
attributable to that rider. The cash value or loan value for each rider will be
calculated separately from the cash value or loan value for the Policy, but will
be added to the Policy's cash value and loan value for purposes of a Policy
surrender or Policy loan.
The cash value of the Single and Flexible Payment versions at any time
during a Policy year is the sum of (1) the GIA and the VIA for the preceding
Policy month multiplied by the net single premium at the insured's attained age
on the date of computation; and (2) the excess investment return under such
rider on that date (the excess investment return will be computed separately for
each rider but in the same manner as the excess investment return for the
Policy; see "Investment Base and Excess Investment Return").
The cash value under a Scheduled Payment rider on any Policy anniversary
(assuming no rider payments are overdue and no outstanding Policy loans are
attributable to such rider) is the sum of items (1) and (2) in the preceding
paragraph. An adjustment to the cash value will be made if a Scheduled Premium
rider is surrendered on any date other than the Policy anniversary.
(i) Loan Value and Loan Collateral Balance
The Additional Coverage Riders have no loan value during the first Policy
year. Thereafter, the maximum loan value of the riders on any given date is 90%
of the riders' cash value on that date minus any existing Policy loans
attributable to such riders and any interest on the portion of such loan
attributable to such riders to the end of the current Policy year.
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GIAC will allocate a portion of any Policy loan to the Additional Coverage
Riders if the requested loan amount, plus interest, exceeds the Policy's loan
value. (See "Policy Loans.") A single loan collateral balance will be
established for the portion of any loan allocated to Additional Coverage Riders.
Loan repayments will be allocated by GIAC first to the loan collateral balance
attributable to the Additional Coverage Riders and then to the loan collateral
balance attributable to the Policy.
See "Policy Loans" for more information regarding the administration of
Policy loans and loan collateral balances.
(j) Effective Date of Coverage
Coverage under the Single Payment version and coverage provided by the
initial payment under the Flexible Payment rider will take effect on the date
when coverage under the Policy becomes effective, if: (1) the purchase payment
is received on or before the Policy's effective date; (2) the insured is then
living; and (3) there has been no change in the insured's health as described in
the application for the Policy. If the purchase payment is not received on or
before the Policy's effective date, coverage under the Single Payment version
and coverage provided by the initial payment under the Flexible Payment version
will take effect on the date payment is received, if: (1) the insured is living
on such date; and (2) there has been no change in the insured's health as
described in the application for the Policy.
Coverage provided by each subsequent payment under the Flexible Payment
version will take effect on each Policy anniversary if each payment is received
by GIAC on or before such anniversary while the insured is living. If GIAC
receives the payment before the Policy anniversary and the insured is not living
on such anniversary, GIAC will refund the purchase payment. If GIAC receives the
payment within the 60 days following the Policy anniversary while the insured is
still living, the coverage will take effect on the date received.
Under the Scheduled Payment version, coverage will increase on the Policy
anniversary if GIAC receives the scheduled payment due within 31 days of the
anniversary, and the insured is living. If any payments during the year are not
made within 31 days of their due date, the Scheduled Payment version will
terminate and coverage will be reduced to reflect non-payment of the amounts for
the balance of the Policy year.
(k) Termination
If payments under any Additional Coverage Rider are discontinued, any
additional coverage which has already been purchased will remain in force,
except as set forth in subsection (j) above. No further purchase payments will
be permitted under the Additional Coverage Riders under the following
circumstances:
(1) Under the Single Payment version, when a single payment has
already been received during the period ending 60 days after
the Policy's issue date.
(2) Under the Flexible Payment and Scheduled Payment versions,
when: (A) any premium for the Policy is in default beyond the
end of its grace period; (B) the Policy terminates; (C) a
Policy value option is implemented; (D) a purchase payment is
not made under the rider in any year, or is not made in a
timely manner (unless premiums are then being waived for the
Policy under a waiver of premium benefit); or (E) GIAC has
received a written request to cancel the rider on or before
the Policy anniversary on which the coverage provided by the
payment would have been effective.
Flexible Payment and Scheduled Payment riders may be reinstated only upon
GIAC's written consent. Termination of any Additional Coverage Rider will not,
in and of itself, cause termination of the Policy and will not affect any
insurance already in force under such riders, except as set forth in subsection
(j) above.
(l) Effect of Exchange of the Policy on Additional Coverage Riders
If a Policy with an in-force Additional Coverage Rider is exchanged for
fixed-benefit life insurance, then the following rules apply:
(1) Any Additional Coverage Rider may be attached to the new plan
of insurance as a fixed-benefit rider, having the same payment
schedule (i.e., flexible or scheduled), without evidence of
insurability;
(2) The face amount of any such fixed-benefit rider will equal the
death benefit of the Additional Coverage Rider on the date of
the exchange; and
(3) The cash surrender value of the Additional Coverage Rider will
be added to the new policy's cash surrender value, as the
value of the fixed-benefit rider.
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(m) Tax Consequences of Purchasing an Additional Coverage Rider
The purchase of an Additional Coverage Rider may cause the Policy to which
it is attached to be treated as a modified endowment contract. (See "Federal Tax
Considerations.") Before purchasing an Additional Coverage Rider, a Policyowner
should consult a competent tax adviser to determine the tax effect of adding
such a rider to the Policy.
Right to Exchange for Fixed-Benefit Life Insurance
The Policyowner may exchange a Policy for an annual premium fixed-benefit
whole life insurance policy within 24 months from the Policy's issue date. GIAC
or an affiliate will issue the new policy on the insured's life effective upon
GIAC's receipt of: (a) a proper written request for an exchange; (b) the Policy;
and (c) any amount due to GIAC on exchange. No evidence of insurability will be
required.
A cash adjustment on exchange will be calculated based on the Policy's
cash surrender value minus the new policy's cash value. If the result is
positive, GIAC will pay the Policyowner. If the result is negative, the
Policyowner must pay GIAC. Under some circumstances, it may be less advantageous
to exchange a Policy for a fixed-benefit life insurance policy than to purchase
a fixed-benefit life insurance policy in the first instance.
The new policy's owner and beneficiary will be the same as those of the
Policy on the effective date of the exchange. The new policy will have the same
policy date, risk class and face amount as the original Policy or, at the
discretion of the Policyowner, the face amount of the original Policy plus the
Variable Insurance Amount, if positive. (See "Federal Tax Considerations" for a
discussion of the tax implications of an exchange.)
Right to Examine and Return a Policy ("Free-Look")
The Policyowner has the right to examine and return a Policy for
cancellation at any time within: (a) 10 days after receiving it; or (b) 45 days
from the date that he or she completed and signed Part I of the application; or
(c) 10 days from the date of the mailing of the Notice of Withdrawal Right, as
determined by its postmark, whichever date is latest. Longer periods may apply
in certain states. The Policy may be mailed or delivered to the agent who sold
it, or to the agency office through which it was delivered, or to GIAC's
Customer Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002-6210.
Certified, registered or express mail deliveries should be addressed to GIAC's
Customer Service Office at 3900 Burgess Place, Bethlehem, Pennsylvania 18017. A
properly returned Policy will be treated as if GIAC never issued it and GIAC
will promptly refund the entire premium paid and any payment made for Additional
Coverage Riders.
GIAC reserves the right to allow a period of six months to elapse before
it will accept an application for a new Policy which specifies the same
Policyowner and the same insured as that of a Policy which has previously been
returned to GIAC under the "free-look" provision.
Reinstatement of the Policy
A Policy may be reinstated within five years after it lapsed, unless it
was surrendered for its cash surrender value. Evidence of insurability
satisfactory to GIAC is required for reinstatement. A payment is required in an
amount equal to the greater of: (a) overdue premiums plus interest at 6%
annually from each of their due dates to the date of reinstatement; or (b) 110%
of the amount needed to restore the cash value to what it would have been if all
premiums had been paid when due and each investment division had grown at a net
rate of exactly 4% per year from the date of lapse to the date of reinstatement.
Upon reinstatement, the Policy will have the same Guaranteed Insurance Amount
and Variable Insurance Amount as it had when it lapsed. On the date of
reinstatement, the loan value will reflect any loan which, with interest,
remains unpaid.
Distribution of the Policies
Applications for the Policies will be solicited by agents who are licensed
by state insurance authorities and by the National Association of Securities
Dealers, Inc. ("NASD"). They must also be agents of GIAC and registered
representatives of GISC.
Pursuant to a distribution agreement between GIAC and GISC, GISC acts as
principal underwriter, or distributor, of the Policies, as defined in the
Securities Act of 1933 and the Investment Company Act of 1940. GISC is
registered with the SEC as a broker-dealer and is a member of the NASD. GISC is
compensated by GIAC for acting as principal underwriter for the Policies and
certain other variable life insurance policies and variable annuity contracts
under the agreement with GIAC. The amounts paid or accrued to GISC by GIAC under
said agreement totalled $1,709,799, $1,409,708 and $1,851,368 in 1994, 1995 and
1996 respectively.
Commissions paid to agents on sales of the Policies will not exceed 50% of
the premium for the first year and
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5% of the premium for each of the second through tenth years. Thereafter, a
persistency fee of 2% of premiums may be paid to the agent. Commissions in the
amount of 3% will be paid to agents on all purchase payments made under the
Additional Coverage Riders. General agents who have supervisory responsibility
for sales of the Policies receive commission overrides and other compensation.
Federal Tax Considerations
The following is a general discussion of Federal income tax considerations
relating to the Policies and the Additional Coverage Riders. This discussion is
based upon GIAC's understanding of the Federal income tax laws as they are
currently interpreted by the Internal Revenue Service ("IRS"). These laws are
complex, and tax results may vary among individuals. A person contemplating the
purchase of a Policy or the exercise of elections under the Policy should seek
competent tax advice.
It should be understood that this is not an exhaustive discussion of all
tax questions that might arise under the Policies. No attempt has been made to
address any Federal estate tax or state and local income tax considerations
which may arise in connection with a Policy. For complete information, a
qualified tax adviser should be consulted. GIAC does not guarantee the tax
status of any Policy and the following tax discussion is not intended as tax
advice.
(a) Tax Character of the Policy
Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"), defines the term "life insurance contract" for Federal income tax
purposes. Although there is only limited official guidance on Section 7702, GIAC
believes that the Policy meets the statutory definition of a life insurance
contract.
If a Policy does not qualify as "life insurance" under the Code, the
Policyowner can become immediately subject to federal income tax on the income
under his or her Policy. For variable life insurance policies to qualify as life
insurance, section 817(h) of the Code requires their underlying investments to
be adequately diversified. Treasury Department regulations specify the
diversification requirements. GIAC believes that the investment divisions of the
Account, through their corresponding Funds, comply fully with such requirements.
To date, no regulations or rulings have been issued to provide guidance
regarding the circumstances under which a variable life insurance policyowner's
ability to control investments by exercising premium allocation and transfer
privileges would cause him or her to be treated as the owner of a pro-rata
portion of the assets in an insurance company's separate account. If a
Policyowner was considered the owner of assets in the Account, the income and
gains attributable to his or her Policy would be included in the Policyowner's
gross income. GIAC currently believes that it, and not its Policyowners, is
considered to own the Account's assets. However, GIAC cannot predict when the
IRS will issue guidance regarding the extent to which variable life insurance
policyowners may control their investments, nor the nature of such guidance.
GIAC may, to the extent it deems necessary, make changes to the Policy (1)
to assure that the Policy continues to qualify as life insurance under the Code;
or (2) to attempt to prevent a Policyowner from being considered the owner of a
pro-rata portion of the Account's assets. Any such change will apply uniformly
to all Policies that are affected. If required by state insurance regulatory
authorities, advance written notice of any such change will be provided.
From time to time the United States Congress considers legislation that,
if enacted, could change the tax treatment of life insurance policies
prospectively or even retroactively. In addition, the Treasury Department and
Internal Revenue Service may amend existing regulations, issue new regulations,
or adopt new interpretations of existing laws or regulations. Also, state or
local tax laws which relate to owning or benefiting from a Policy can be changed
from time to time without notice. It is impossible to predict whether, when or
how any such change would be adopted. Anyone with questions about such matters
should consult a legal or tax adviser.
The remaining tax discussion assumes that the Policy qualifies as a life
insurance contract for Federal income tax purposes.
(b) Tax Treatment of Policy Benefits
In General. GIAC believes that the Policy should receive the same Federal
income tax treatment as fixed- benefit life insurance. Thus, the death benefit
should be excludable from the beneficiary's gross income under Section 101(a)(1)
of the Code, and cash value increases should not be subject to Federal income
tax unless they are distributed from the Policy before the insured's death. The
tax consequences of taking distributions from a Policy depend on whether the
Policy is classified as a "modified endowment contract." In general, however,
income recognized upon a pre-death distribution will generally be taxed as
"ordinary income."
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The Policy Generally Should Not be Treated as a Modified Endowment
Contract. Because of the premium levels contemplated under the Policy, GIAC
believes that a Policy will generally not be treated as a modified endowment
contract. However, a Policy will be a modified endowment contract if the
cumulative amount paid under it at any time during the first seven Policy years
exceeds the sum of the net level premiums which would have been paid on or
before such time if the Policy provided for paid-up future benefits after the
payment of seven level annual premiums (the "7-pay test").
Purchasing Additional Coverage Riders continuing insurance coverage under
the Variable Paid-Up Insurance Option or receiving a Policy pursuant to a
Section 1035 exchange of another life insurance contract that is classified as a
modified endowment contract may cause the Policy to be treated as a modified
endowment contract. The rules for determining when a Policy will be treated as a
modified endowment contract are extremely complex, so a competent tax adviser
should be consulted to determine whether a Policy transaction will cause the
Policy to be treated as a modified endowment contract.
If a Policy is classified as a modified endowment contract, any life
insurance contract received in exchange for it will be treated as a modified
endowment contract. Thus, the exchange rights described elsewhere in this
Prospectus may have tax consequences.
Distributions From Policies Not Classified as Modified Endowment
Contracts. As noted, GIAC believes that the Policy generally should not be
treated as a modified endowment contract. Thus, distributions from a Policy
should generally be treated as first recovering the investment in the Policy
(described below) and then, as distributing taxable income. However, if the
Policy's death benefit decreases or if any other change reduces benefits under
the Policy during the first 15 Policy years, and a cash distribution is made to
the Policyowner to comply with the Section 7702 definitional limits, such
distribution could be taxed, in whole or in part, as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from a Policy that is not modified endowment contract are not
treated as distributions. Instead, such loans are treated as indebtedness of the
Policyowner. However, if such a Policy lapses with an outstanding loan,
cancellation of the loan will be treated as a distribution and may be taxed.
Finally, the 10% penalty tax that is discussed below with respect to
distributions from modified endowment contracts does not apply to distributions
(including loans and distributions upon surrender or lapse) from a Policy that
is not a modified endowment contract.
Distributions from Policies Classified as Modified Endowment Contracts. If
a Policy should become classified as a modified endowment contract, the Policy
will be subject to the following tax rules: First, each distribution will be
taxed on an "income-first" basis to the extent that the cash value immediately
before the distribution exceeds the investment in the Policy. Second, loans
(including past due loan interest that is added to the loan amount), surrenders,
assignments and benefits paid at maturity are treated as taxable distributions.
Third, a 10% penalty tax will be imposed on the income portion of any
distribution, unless the distribution is made on or after the Policyowner
attains age 5911/42, or is attributable to the Policyowner's becoming disabled,
or is part of a series of substantially equal periodic payments for the life (or
life expectancy) of the Policyowner or the joint lives (or joint life
expectancies) of the Policyowner and the Policyowner's beneficiary.
All modified endowment contracts issued by GIAC (or its affiliates) to the
same person during any calendar year are treated as one modified endowment
contract for purposes of determining the amount of a distribution that is
includible in gross income under Section 72(e) of the Code.
Policy Loan Interest. Generally, interest paid on any Policy loan under a
Policy is not deductible. A qualified tax adviser should be consulted before
deducting any policy loan interest.
Investment in the Policy. Investment in the Policy means (1) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (2) the
aggregate amount received under the Policy which is excluded from gross income
of the Policyowner, plus (3) the amount of any loan from, or secured by, a
Policy that has been classified as a modified endowment contract to the extent
that such amount is included in the gross income of the owner.
(c) Other Considerations
Presently, GIAC makes no charge to the Separate Account for any Federal,
state or local taxes that it incurs which may be attributable to the Account or
to the Policies. GIAC, however, reserves the right to make a charge for any such
taxes or other economic burden which may result from the application of the tax
laws and that GIAC
23
<PAGE>
determines to be attributable to the Account or to the Policies. If any tax
charges are made in the future, they will be accumulated daily and transferred
from the Separate Account to GIAC's general account.
Legal Considerations for Employers
(a) Gender Neutrality
In a 1983 decision in the case of Arizona Governing Committee v. Norris,
the United States Supreme Court held that optional annuity benefits provided
under an employee's deferred compensation plan could not, under Title VII of the
Civil Rights Act of 1964, vary between men and women on the basis of gender. In
that case, the Court applied its decision only to benefits derived from
contributions made on or after August 1, 1983. Subsequent decisions of lower
federal courts indicate that in other factual circumstances the Title VII
prohibition of gender-distinct benefits may apply at an earlier date. In
addition, legislative, regulatory or decisional authority of some states may
prohibit using gender-distinct mortality tables.
A version of the Policy offered by this Prospectus is based upon
gender-neutral actuarial tables. However, the "unisex" version of the Policy is
only available in those states where gender-based distinctions are prohibited.
Employers and employee organizations should consider, in consultation with legal
counsel, the impact of these authorities on any employment-related insurance or
benefits program before purchasing the Policy described in this Prospectus.
(b) Taxation
The tax attributes of deferred compensation and salary continuance plans
differ depending on the terms of each arrangement. If the value of a plan
depends wholly or partially on its tax consequences, a qualified tax adviser
should be consulted before a Policy is used in connection with the plan.
Voting Rights
(a) A Policyowner's Right to Instruct Voting
In accordance with its view of present applicable law, GIAC will vote the
shares of each of the Funds held in the Account at meetings of the shareholders
of the Funds. GIAC will seek voting instructions from Policyowners who have some
or all of their Policies' investment base allocated to the investment division
which corresponds to the Fund which has called a meeting. If the Investment
Company Act of 1940 or any regulations thereunder should be amended, or if the
present interpretation thereof should change, and as a result GIAC determines
that it is permitted to vote the shares of the Funds in its own right, it may
elect to do so.
GIAC determines the number of shares attributable to a Policy by dividing
the Policyowner's investment base in the applicable investment division by the
net asset value per Fund share as of the record date for the meeting. Fractional
votes will be counted.
The record date shall be no more than 90 days before the meeting of the
Fund. Voting instructions will be solicited by written communication to
Policyowners at least 10 days before such meeting.
GIAC will vote shares for which it has not received instructions in the
same proportion as it votes shares for which it has received instructions. GIAC
will also vote any shares which are not otherwise attributable to Policyowners
in the same proportion as it votes shares for which it has received
instructions.
(b) GIAC's Limited Right to Disregard Voting Instructions
If permitted by state insurance regulatory authorities, GIAC may disregard
voting instructions furnished by Policyowners if such instructions would require
shares to be voted so as to cause a change in the sub-classification or
investment objective of a Fund or to approve or disapprove an investment
advisory contract for a Fund. GIAC may also disregard voting instructions that
would require a change in the investment policy of a Fund or its investment
adviser, provided that GIAC's disapproval of the change is reasonable and is
based on a good faith determination that such change would be contrary to state
law or otherwise inappropriate, in view of the Fund's objective and purpose. If
GIAC disregards voting instructions, it will explain its actions in the next
semi-annual report to Policyowners.
Reports to Policyowners
Shortly after each Policy anniversary, GIAC will send the Policyowner a
statement that sets forth the death benefit, cash value and amount of
outstanding Policy loan as of the Policy anniversary date. In addition, the
statement will indicate the allocation of the investment base among the
Account's investment divisions as of the first day of the current Policy year.
Also, twice each year, Policyowners will receive semi-annual reports containing
the financial statements of the Account and the Funds.
24
<PAGE>
Other Important Policy Provisions
(a) Payment Options
The proceeds of this Policy will be paid in one lump sum unless otherwise
provided. All or part of this sum may be applied under any payment option, or in
any other manner GIAC approves.
(b) Election of Payment Options
During the insured's lifetime, the Policyowner may choose any option for
payment of the death proceeds. If no election is in force when the proceeds
become payable, the payee may make an election subject to the following
conditions: (1) for death proceeds, election must be made within one year after
the insured's death; and (2) for other proceeds, election must be made within 60
days after the proceeds become payable.
Any payment option election must be in a written form satisfactory to
GIAC.
(c) Options Available for Payment of Policy Proceeds
Option 1 -- Proceeds Left at Interest. GIAC will hold the proceeds, making
monthly interest payments. They early interest rate will be at least 3%. Any
additional interest will be determined yearly at GIAC's discretion, and added to
the monthly interest payment.
Option 2 -- Payments of a Specified Amount. GIAC will make monthly
payments of a specified amount until the proceeds and interest are fully paid.
The total amount paid each year must be at least 10% of the original proceeds.
Interest will be added to the proceeds each year; the yearly interest rate will
be at least 3%. Any additional interest will be determined yearly by GIAC at its
discretion.
Option 3 -- Payments for a Specified Period. GIAC will make monthly
payments for the number of years elected. The guaranteed payments shown in the
Option 3 table in the Policy include interest at 3% a year. Any additional
interest will be determined yearly by GIAC at its discretion.
Option 4 -- Life Income with 10 Years Guaranteed. GIAC will make monthly
payments for 10 years and for the remaining lifetime of the person on whose life
the option is based. The minimum monthly payment will be based on the applicable
amount in the Option 4 table shown in the Policy.
Option 5 -- Refund Life Income. GIAC will make monthly payments until the
total amount paid equals the proceeds settled, and for the remaining lifetime of
the person on whose life the option is based. The minimum monthly payment will
be based on the applicable amount in the Option 5 table shown in the Policy.
Option 6 -- Joint and Survivor Income with 10 Years Guaranteed. GIAC will
make monthly payments for 10 years and for the remaining lifetime of either of
the two persons on whose life the option is based. The monthly payment will be
at least the applicable amount shown in the Option 6 table in the Policy.
(d) Policyowner
The Policyowner of the Policy is the individual or entity named in the
application or in any later change shown in GIAC's records. While the insured is
living and subject to any assignment shown on GIAC's records, the Policyowner
alone has the right to receive all benefits and exercise all rights this Policy
grants or GIAC allows.
Successor Policyowner. A numbered sequence may be used to name successor
Policyowners. If the Policyowner dies, ownership passes to the next designated
successor Policyowner then living. If no successor Policyowner is then living,
ownership passes to the Policyowner's estate. No successor owner is permitted
when the insured and the Policyowner are the same person.
Joint Policyowner. If more than one person is named with no number or the
same number, they are considered by GIAC to be joint Policyowners. Any Policy
transaction requires the signatures of all persons named jointly. Unless
otherwise provided, if a joint Policyowner dies, ownership passes to the
surviving joint Policyowner(s). When the last joint Policyowner dies, ownership
passes to that person's estate, unless otherwise provided.
(e) Beneficiary
The beneficiary under the Policy is the individual or entity named in the
application or in any later change shown in GIAC's records. GIAC will pay the
death proceeds to the beneficiary. Unless otherwise provided, in order to
receive proceeds at the insured's death, a beneficiary must be living on the
earlier of: (1) the date proof of the insured's death is received at GIAC's
Customer Service Office; or (2) the 15th day after the insured's death.
Unless otherwise provided, if no designated beneficiary is living on such
earlier date, the Policyowner or the Policyowner's estate is the beneficiary.
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<PAGE>
Contingent Beneficiary. A numbered sequence may be used to name contingent
beneficiaries. The beneficiary is the living person(s) designated by the lowest
number in the sequence.
Concurrent Beneficiary. If more than one person is named with no number or
the same number, they are concurrent beneficiaries. These persons, or the
survivor(s), share equally, unless otherwise provided. If a beneficiary does not
survive the insured, this share passes to the Policyowner or the Policyowner's
estate, unless otherwise provided.
(f) Change of Policyowner or Beneficiary
The Policyowner may change the Policyowner or beneficiary by written
request satisfactory to GIAC. The change will take effect on the date the
request is signed, whether or not the insured is living when GIAC receives the
request at its Customer Service Office. However, the change will not apply to
any payments made or actions taken by GIAC before the request is received.
(g) Riders to the Policy
When the Policy is first issued, or after issue while the insured is
alive, the Policyowner may be able to obtain optional insurance benefits for an
additional premium. These benefits will be described in one or more riders to
the Policy. Three such riders are described in the subsection entitled
"Additional Coverage Riders to the Policy." Other examples are riders which (1)
pay an additional amount if the insured dies in an accident and (2) waive
certain premiums if the insured is totally disabled, as defined by the rider,
while the rider is in effect. The amount of insurance provided by riders other
than the Additional Coverage Riders does not depend on the performance of the
Policy's investment options.
(h) Mistatement of Age or Sex
If the age or sex of the insured has been mistated, any benefit under the
Policy will be that which the premiums would have purchased for the correct age
or sex, unless GIAC is not permitted to consider the sex of the insured.
(i) Deferment of Payments
GIAC can delay the payment of death benefit proceeds if the Policy is
being contested and may postpone the calculation or payment of a benefit or
transfer of amounts that are influenced by the investment performance of the
Account's investment divisions if: (1) the New York Stock Exchange is closed for
trading or trading has been suspended; or (2) the SEC restricts trading or
determines that a state of emergency exists which may make payment or transfer
impracticable.
(j) Payments to GIAC
All sums payable to GIAC under the Policies should be sent to: The
Guardian Insurance & Annuity Company, Inc. at its Customer Service Office, P.O.
Box 26210, Lehigh Valley, Pennsylvania 18002-6210. Registered, certified or
express mail should be sent to such office at 3900 Burgess Place, Bethlehem,
Pennsylvania 18017.
(k) Assignment
No assignment will bind GIAC unless the original, or a satisfactory copy,
is filed at its Customer Service Office. Afterward, the rights of any
Policyowner or beneficiary will be subject to the assignment. The entire Policy,
including any attached rider, will be subject to the assignment. GIAC will rely
solely on the assignee's statement as to the amount of the assignee's interest.
GIAC will not be responsible for the validity of any assignment. Unless
otherwise provided, the assignee may exercise all rights this Policy grants
except (1) the right to change the Policyowner or beneficiary; and (2) the right
to elect a payment option.
(l) Incontestability
The Policy is incontestable after it has been in force during the
insured's lifetime for two years from its issue date, except for non-payment of
premiums. The contestable period of any additional benefit rider attached to the
Policy is stated in the rider.
(m) Suicide Exclusion
If the insured commits suicide, while sane or insane, within two years
from the Policy issue date, GIAC's liability in connection with the Policy and
the Additional Coverage Riders will be limited to the premiums paid.
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<PAGE>
THE INVESTMENT OPTIONS
The Guardian Separate Account C (the "Account")
The Account, a separate investment account of GIAC, is used only to
support the death benefits and cash values of annual premium variable life
insurance policies. The assets in this Account are kept separate from GIAC's
general account and other separate accounts. Income and realized and unrealized
gains or losses from assets in the Account are credited to, or charged against,
the Account without regard to other income, gains or losses in GIAC's other
accounts. GIAC owns the assets in the Account and is required to maintain assets
which are at least equal to the reserves and other liabilities of the Account.
Assets equal to such reserves and other liabilities may not be charged with
liabilities that arise from any other business GIAC conducts. However, GIAC may
transfer to its general account assets which exceed the reserves and other
liabilities of the Account.
The Account was established by GIAC under Delaware law in 1988, and is
registered as a unit investment trust with the SEC under the Investment Company
Act of 1940. Such registration does not involve supervision of the Account's
management or GIAC by the SEC.
All assets of the Account are held in custody for safekeeping by GIAC. The
assets of each investment division of the Account are kept physically segregated
and held separate and apart from assets of the other divisions. The Account
maintains a record of all purchases and redemptions of the Fund shares held in
each Account division.
GIAC allocated assets to the Account to facilitate the commencement of its
operations. GIAC may accumulate in the Account the charge for expense and
mortality risks and investment results applicable to those assets that are in
excess of net assets for variable life insurance policies. At some future date,
GIAC may transfer assets in excess of the reserves and other liabilities of the
Account to its general account. However, GIAC would not make any such transfer
if it could have a material adverse effect on the Account.
There are currently six investment divisions within the Account, which
invest in shares of the six corresponding Funds offered under the Policy. The
Policyowner may choose to invest in up to four investment divisions of the
Account at any given time.
The Funds
Each Fund is a diversified, open-end management investment company
registered with the SEC under the Investment Company Act of 1940. Such
registration does not involve supervision by the SEC of the investments or
investment policy of a Fund. The shares of each Fund are purchased by GIAC for
the appropriate division of the Account at net asset value (i.e., without sales
load). All dividends and capital gains distributions received from a Fund are
reinvested in that Fund's shares at net asset value and retained in the
applicable division. Fund shares will be redeemed by GIAC at their net asset
value to the extent necessary to make payments under a Policy.
The investments of each Fund are subject to the risks of changing economic
conditions and the ability of the Fund's management to anticipate such changes.
There can be no assurance that each Fund's investment objective will be
achieved.
The following Funds are currently available for investment under the
Policy:
o The Guardian Stock Fund (the "Stock Fund")
The primary investment objective of the Stock Fund is long-term
growth of capital. The Stock Fund attempts to achieve this goal by
investing at least 80% of the value of its assets in a diversified
portfolio of U.S. common stocks and convertible securities. Income
is not a specific objective, although it is anticipated that
long-term growth of capital will be accompanied by growth of income.
o The Guardian Bond Fund (the "Bond Fund")
The primary objective of the Bond Fund is to obtain maximum income
without undue risk of principal. Capital appreciation is a secondary
objective. To attain these objectives, the Bond Fund normally
invests at least 80% of the value of its assets in (1) investment
grade debt obligations and (2) U.S. government securities and
obligations of U.S. government agencies and instrumentalities. The
Bond Fund's portfolio may contain commercial paper, convertible
debentures and short-term money market instruments as seem
appropriate to achieve its investment objectives.
o The Guardian Cash Fund (the "Cash Fund")
The principal objective of the Cash Fund is to seek as a high a
level of current income as is consistent with the preservation of
capital and maintenance of liquidity. The Cash Fund invests
primarily in high quality, short-term U.S. dollar denominated money
market instruments which mature in 13 months or less. The Cash Fund
maintains the average maturity of its holdings at less than 90 days.
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o Baillie Gifford International Fund (the "BG International Fund")
The principal investment objective of BG International Fund is
long-term capital appreciation. BG International Fund invests
primarily in common stocks issued by companies domiciled outside of
the United States and securities convertible into, exchangeable for,
or which carry the right to buy such common stocks. Current income
is not a significant criterion in investment selection although it
is anticipated that capital appreciation will normally be
accompanied by investment income.
o Value Line Strategic Asset Management Trust (the "Strategic Trust")
The investment objective of the Strategic Trust is to achieve a high
total investment return consistent with reasonable risk. The
Strategic Trust invests in a broad range of common stocks, bonds and
money market instruments in accordance with an asset allocation
strategy developed by Value Line, Inc. ("Value Line") which uses
computer models for investments in the stock and bond markets. The
Value Line models attempt to determine the appropriate mix of
portfolio investments for the Strategic Trust based on economic and
market trends. There are no limits on the percentage of the
Strategic Trust's portfolio that can be invested in stocks, bonds or
money market instruments.
o Value Line Centurion Fund (the "Centurion Fund")
The primary investment objective of the Centurion Fund is long-term
growth of capital. The Centurion Fund invests substantially all of
its assets in common stocks ranked 1 or 2 [on a scale of 1 (highest
rating) to 5 (lowest rating)] for year-ahead relative performance
("timeliness") by the Value Line Ranking System. This Ranking System
has been used substantially in its present form since 1965. The
results of the Ranking System are published weekly in The Value Line
Investment Survey for approximately 1,700 stocks. Value Line, the
Centurion Fund's investment adviser, believes that the Ranking
System provides objective standards for the selection of stocks
which can be expected to outperform the market in general over the
next six to twelve months.
GISC is the investment manager and principal underwriter of the Stock
Fund, the Bond Fund and the Cash Fund. The annual investment management fee paid
by these Guardian-sponsored mutual funds to GISC is 0.50% of each Fund's
respective average daily net assets. If, in any year, certain expenses of any of
these Funds exceeds 1.0% of the average net asset value of that particular Fund,
the investment advisory fee is subject to reduction.
The investment manager of BG International Fund is Guardian Baillie
Gifford Limited, a company formed through a joint venture between GIAC and
Baillie Gifford Overseas Limited ("BG Overseas"). BG Overseas is wholly owned by
the Scottish investment management partnership, Baillie Gifford & Co. BG
Overseas acts as sub-investment manager to BG International Fund. BG
International Fund pays an annual investment management fee to Guardian Baillie
Gifford Limited that is equal to 0.80% of the Fund's average daily net assets.
No separate or additional fee is payable by BG International Fund to BG Overseas
for the latter's services as sub-investment manager. GISC acts as the principal
underwriter for BG International Fund.
Value Line is the investment manager for the Strategic Trust and Centurion
Fund. The principal underwriter for these Value Line-sponsored Funds is Value
Line Securities, Inc., a subsidiary of Value Line. The annual investment
management fee paid by these Funds to Value Line is 0.50% of each Fund's
respective average daily net assets. Each of these Funds also reimburses GIAC
for certain expenses incurred by GIAC on their behalf. For the year ended
December 31, 1996, GIAC was reimbursed $601,135 by the Strategic Trust and
$406,412 by the Centurion Fund. Value Line has agreed to reimburse these Funds
for certain expenses (exclusive of interest, taxes and brokerage expenses) which
in any year exceed 2.0% of the first $10 million of such Fund's average net
assets, 1.5% of the next $20 million of average net assets and 1.0% of the
average net assets in excess of $30 million. GIAC has also entered into an
agreement with Value Line, Inc. pursuant to which Value Line compensates GIAC
for marketing the Centurion Fund and the Strategic Trust to GIAC's policyowners.
For the year ended December 31, 1996, GIAC received $153,151 from Value Line on
behalf of the Centurion Fund and $259,361 from Value Line on behalf of the
Strategic Trust.
All of the Funds are also available to other separate accounts supporting
certain GIAC variable life insurance policies and variable annuity contracts. It
is possible that certain conflicts of interest may arise in connection with the
use of the same Funds under both variable life insurance policies and variable
annuity contracts. In the event of a conflict, GIAC may take action to protect
Policyowners. (See the accompanying prospectuses for the Funds for more
information about potential conflicts of interest.)
A more detailed description of the investment objectives, policies,
charges and expenses of the Funds may be found in the accompanying
prospectuses for the Funds. Read the prospectuses carefully before
investing.
Substitution of Investments
If GIAC's management determines that a Fund no longer suits the purposes
of the Policy due to a change in its investment objectives or restrictions, or
if a Fund's shares should no longer be available for investment, GIAC can
28
<PAGE>
substitute shares of another mutual fund. Before doing so, GIAC may be required
to obtain approval from the SEC, the Delaware Insurance Department and other
regulatory authorities.
A Policyowner may exchange a Policy for a fixed-benefit life insurance
policy in accordance with the subsection entitled "Right to Exchange for
Fixed-Benefit Life Insurance" if any Fund to which the Policyowner has allocated
any portion of the investment base changes its investment adviser or makes
material changes in its investment objectives or restrictions. GIAC will notify
the Policyowner, in writing, if there is any such change and will describe the
terms of exchange to a fixed-benefit life insurance policy at that time. The
Policyowner will be able to exchange his or her Policy within 60 days of receipt
of such notice, or of the effective date of the change, whichever is later.
OTHER INFORMATION
Management of GIAC
The directors and officers of GIAC are named below together with
information about their principal occupations and affiliations during the past
five years. The business address of each director and officer is 201 Park Avenue
South, New York, New York 10003. The "Guardian Fund Complex" referred to in the
biographical information is comprised of (1) The Guardian Stock Fund, (2) The
Guardian Bond Fund, (3) The Guardian Cash Fund, (4) The Park Avenue Portfolio (a
series trust that issues its shares in eight series) and (5) GIAC Funds, Inc. (a
series fund that issues its shares in three series).
Name Title Business History
---- ----- ----------------
CHARLES E. ALBERS Vice President, Senior Vice President, The
Equity Securities Guardian Life Insurance Company
of America 1/91-present.
Executive Vice President of
Guardian Investor Services
Corporation and Guardian Asset
Management Corporation.
Director, Guardian Baillie
Gifford Limited. Officer of
various mutual funds within the
Guardian Fund Complex.
MICHELE S. BABAKIAN Vice President Vice President, Fixed Income
Securities, The Guardian Life
Insurance Company of America
1/95-present; Second Vice
President prior thereto. Vice
President of Guardian Asset
Management Corporation,
Guardian Investor Services
Corporation and various mutual
funds within the Guardian Fund
Complex.
JOSEPH A. CARUSO Secretary Vice President and Corporate
Secretary, The Guardian Life
Insurance Company of America
3/96-present; Second Vice
President and Corporate
Secretary, 1/95-2/96; Corporate
Secretary 10/92-12/94;
Assistant Secretary prior
thereto. Secretary, Guardian
Investor Services Corporation,
Guardian Asset Management
Corporation, Guardian Baillie
Gifford Limited and various
mutual funds within the
Guardian Fund Complex.
PHILIP H. DUTTER Director Management Consultant
(self-employed). Director of
The Guardian Life Insurance
Company of America
3/88-present. Director of
Guardian Investor Services
Corporation.
JOHN M. FAGAN Vice President Vice President, Life Policy
Operations, The Guardian Life
Insurance Company of America
3/92-present. Vice President of
Guardian Investor Services
Corporation.
ARTHUR V. FERRARA Director Retired. Chairman of the Board
and Chief Executive Officer,
The Guardian Life Insurance
Company of America 1/93-12/95;
President and Chief Executive
Officer prior thereto. Director
1/81-present. Director
(Trustee) of Guardian Investor
Services Corporation and
various mutual funds within the
Guardian Fund Complex.
CHARLES G. FISHER Vice President Second Vice President and
and Actuary Actuary, The Guardian Life
Insurance Company of America
12/86-present.
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<PAGE>
Name Title Business History
---- ----- ----------------
WILLIAM C. FRENTZ Vice President, Vice President, Real Estate,
Real Estate The Guardian Life Insurance
Company of America
1/85-present.
LEO R. FUTIA Director Retired. Former Chairman of the
Board and Chief Executive
Officer, The Guardian Life
Insurance Company of America;
Director 5/70-present. Director
(Trustee) of Guardian Investor
Services Corporation and
various mutual funds within the
Guardian Fund Complex. Director
(Trustee) of various mutual
funds sponsored by Value Line,
Inc.
ALEXANDER M. GRANT, JR. Second Vice President Second Vice President,
Investments, The Guardian Life
Insurance Company of America
1/97-present; Assistant Vice
President, Investments
9/93-12/96; Investment Officer
prior thereto. Second Vice
President, Guardian Investor
Services Corporation. Officer
of various mutual funds within
the Guardian Fund Complex.
EARL C. HARRY Treasurer Treasurer, The Guardian Life
Insurance Company of America
11/96-present; Assistant
Treasurer prior thereto.
Treasurer of Guardian Investor
Services Corporation.
THOMAS R. HICKEY, JR. Vice President, Vice President, Equity
Operations Operations, The Guardian Life
Insurance Company of America
3/92-present. Vice President,
Guardian Investor Services
Corporation. Vice President of
various mutual funds within the
Guardian Fund Complex.
PETER L. HUTCHINGS Director Executive Vice President and
Chief Financial Officer, The
Guardian Life Insurance Company
of America 5/87-present.
Director of Guardian Investor
Services Corporation and
Guardian Asset Management
Corporation.
FRANK J. JONES Executive Vice Executive Vice President and
President, Chief Chief Investment Officer, The
Investment Officer Guardian Life Insurance Company
and Director of America 1/94-present; Senior
Vice President and Chief
Investment Officer prior
thereto. Director, Guardian
Investor Services Corporation.
Officer of various mutual funds
within the Guardian Fund
Complex.
EDWARD K. KANE Senior Vice President Executive Vice President, The
and Director Guardian Life Insurance Company
of America 1/97-present; Senior
Vice President and General
Counsel prior thereto; Director
11/88-present. Senior Vice
President and Director,
Guardian Investor Services
Corporation. Director, Guardian
Asset Management Corporation.
ANN T. KEARNEY Second Vice President Second Vice President, Group
Pensions, The Guardian Life
Insurance Company of America
1/95-present; Assistant Vice
President and Equity Controller
6/94-12/94; Assistant
Controller prior thereto.
Controller of various mutual
funds within the Guardian Fund
Complex.
GARY B. LENDERINK Vice President, Group Vice President, Group Pensions,
Pensions The Guardian Life Insurance
Company of America
1/95-present; Second Vice
President prior thereto.
FRANK L. PEPE Vice President Vice President and Controller,
and Controller Equity Products, The Guardian
Life Insurance Company of
America 1/95-present. Second
Vice President and Equity
Controller, Equity Products
prior thereto. Vice President
and Controller of Guardian
Investor Services Corporation.
Officer of various mutual funds
within the Guardian Fund
Complex.
30
<PAGE>
Name Title Business History
---- ----- ----------------
RICHARD T. POTTER, JR. Vice President and Vice President and Equity
Counsel Counsel, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Equity Counsel
1/93-12/95; Counsel prior
thereto. Vice President and
Counsel of Guardian Investor
Services Corporation. Counsel,
Guardian Asset Management
Corporation and various mutual
funds within the Guardian Fund
Complex.
JOSEPH D. SARGENT President, Chief President, Chief Executive
Executive Officer Officer and Director, The
and Director Guardian Life Insurance Company
of America 1/96-present;
President 1/93-12/95; Executive
Vice President prior thereto.
Director (Trustee) of Guardian
Baillie Gifford Limited,
Guardian Investor Services
Corporation, Guardian Asset
Management Corporation and
various mutual funds within the
Guardian Fund Complex.
JOHN M. SMITH Executive Executive Vice President, The
Vice President Guardian Life Insurance Company
and Director of America 1/95-present; Senior
Vice President, Equity Products
prior thereto. President and
Director, Guardian Investor
Services Corporation and
Guardian Asset Management
Corporation. Officer of various
mutual funds within the
Guardian Fund Complex.
Director, Guardian Baillie
Gifford Limited.
DONALD P. SULLIVAN, JR. Vice President Second Vice President, The
Guardian Life Insurance Company
of America 1/95-present;
Assistant Vice President prior
thereto. Vice President of
Guardian Investor Services
Corporation.
WILLIAM C.WARREN Director Retired. Dean Emeritus,
Columbia Law School. Former
Chairman of the Board, Sandoz,
Inc.; Director of The Guardian
Life Insurance Company of
America since 1/57 and Director
of Guardian Investor Services
Corporation.
No officer or director of GIAC receives any compensation from the Account.
No separately allocable compensation has been paid by GIAC, or any of its
affiliates, to any person listed above for services rendered to the Account.
State Regulation
GIAC is subject to the laws of the state of Delaware governing insurance
companies and to regulation by Delaware's Commissioner of Insurance (the
"Commissioner"). In addition, it is subject to the insurance laws and
regulations of the other states and jurisdictions in which it is licensed. An
annual statement in a prescribed form, including a separate statement with
respect to the operations of GIAC's separate accounts, must be filed with the
Commissioner and with regulatory authorities of other states on or before March
1st in each year. This statement covers GIAC's operations for the preceding year
and its financial condition as of December 31st of that year. GIAC's affairs are
subject to review and examination conducted by the Commissioner at least once in
every five years.
Guardian Life, the parent company of GIAC, is subject to the laws of the
State of New York governing insurance companies and to regulation by the
Superintendent of Insurance of New York. Similarly, it is subject to the
insurance laws and regulations of the other states and jurisdictions in which it
is licensed to operate and is required to submit annual statements in the form
described above to New York and to the other states and jurisdictions. Its
affairs are subject to review and examination by the Superintendent of Insurance
of New York and his agents at all times, and a full examination is made at least
once in every five years.
Legal Proceedings
There are no legal proceedings pending which would materially affect the
financial position of GIAC or the Account.
Legal Matters
The legal validity of the Policy described in this Prospectus has been
passed upon by Richard T. Potter, Jr., Vice President and Counsel of GIAC.
31
<PAGE>
Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC on behalf of the Account relating to the offering described in this
Prospectus. This Prospectus does not include all of the information set forth in
the Registration Statement, as portions have been omitted pursuant to the rules
and regulations of the SEC. The omitted information may be obtained at the SEC's
principal office in Washington, D.C. upon payment of the SEC's prescribed fees.
Independent Accountants
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as independent accountants for the Account and for GIAC.
Experts
Actuarial matters included in this Prospectus have been examined by
Charles G. Fisher, FSA, Vice President and Actuary of GIAC. His opinion is filed
as an exhibit to the Registration Statement for the Account filed with the SEC.
Financial Statements
The financial statements of the Account and statutory basis financial
statements of GIAC are set forth in this Prospectus. The financial statements of
GIAC should be distinguished from the financial statements of the Account and
should be considered only as bearing upon the ability of GIAC to meet its
obligations under the Policy.
32
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
-------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FIFO Cost ....................... -- $2,923,631 $275,674 $36,061 $840,871 $567,021 $ 712,133
Assets
Shares outstanding ............ -- 91,747 22,714 3,606 53,960 25,486 38,980
Net asset value per share (NAV) -- 38.59 11.83 10.00 17.26 24.83 21.90
Total Assets (Shares x NAV) . $6,263,097 3,540,503 268,710 36,061 931,350 632,818 853,655
---------- ---------- -------- ------- -------- -------- --------
Liabilities
Due to The Guardian Insurance &
Annuity Co., Inc ................ 66,652 43,943 2,410 529 6,986 5,454 7,330
---------- ---------- -------- ------- -------- -------- --------
Net Assets -- Note 4 ............ $6,196,445 $3,496,560 $266,300 $35,532 $924,364 $627,364 $846,325
---------- ---------- -------- ------- -------- -------- --------
</TABLE>
See notes to financial statements.
33
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
-------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................ $ 35,529 $ 15,833 $ 8,878 $7,965 $ 2,472 $ 145 $ 236
Expenses -- Note 3:
Mortality and expense risk charges .. 10,013 5,068 676 411 1,231 1,185 1,442
--------- --------- -------- ------ -------- ------- --------
Net investment income/(expense) ....... 25,516 10,765 8,202 7,554 1,241 (1,040) (1,206)
--------- --------- -------- ------ -------- ------- --------
Realized and Unrealized Gain/(Loss)
from Investments Realized gain/(loss)
from investments:
Net realized gain/(loss) from sale
of investments .................... (3,958) 197 75 -- (314) (3,746) (170)
Reinvested realized gain distribution 40,887 35,347 670 -- -- 3,927 943
--------- --------- -------- ------ -------- ------- --------
Net realized gain/(loss) on investments 36,929 35,544 745 -- (314) 181 773
--------- --------- -------- ------ -------- ------- --------
Unrealized appreciation/ (depreciation)
of investments:
End of year ......................... 59,846 66,033 (17,475) -- 14,270 (9,130) 6,148
Beginning of year ................... 166,189 129,461 (3,570) -- 24,285 (2,821) 18,834
--------- --------- -------- ------ -------- ------- --------
Change in unrealized
appreciation/(depreciation) ........... (106,343) (63,428) (13,905) -- (10,015) (6,309) (12,686)
--------- --------- -------- ------ -------- ------- --------
Net realized and unrealized gain/(loss)
from investments ...................... (69,414) (27,884) (13,160) -- (10,329) (6,128) (11,913)
--------- --------- -------- ------ -------- ------- --------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............. $ (43,898) $ (17,119) $ (4,958) $7,554 $ (9,088) $(7,168) $(13,119)
========= ========= ======== ====== ======== ======= ========
</TABLE>
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
-------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................ $ 68,382 $ 26,433 $ 13,629 $10,252 $ 9,302 $ 1,734 $ 7,032
Expenses-- Note 3:
Mortality and expense risk charges .. 19,188 10,422 1,110 269 2,330 2,150 2,907
-------- -------- -------- ------- -------- --------- --------
Net investment income/(expense) ....... 49,194 16,011 12,519 9,983 6,972 (416) 4,125
-------- -------- -------- ------- -------- --------- --------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale
of investments .................... 2,779 727 50 -- (61) 1,506 557
Reinvested realized gain distribution 140,113 102,047 -- -- 24,029 9,710 4,327
-------- -------- -------- ------- -------- --------- --------
Net realized gain/(loss) on investments 142,892 102,774 50 -- 23,968 11,216 4,884
-------- -------- -------- ------- -------- --------- --------
Unrealized appreciation/ (depreciation)
of investments:
End of year ......................... 701,218 449,818 1,117 -- 34,230 97,156 118,897
Beginning of year ................... 59,846 66,033 (17,475) -- 14,270 (9,130) 6,148
-------- -------- -------- ------- -------- --------- --------
Change in unrealized
appreciation/(depreciation) ....... 641,372 383,785 18,592 -- 19,960 106,286 112,749
-------- -------- -------- ------- -------- --------- --------
Net realized and unrealized gain/(loss)
from investments .................... 784,264 486,559 18,642 -- 43,928 117,502 117,633
-------- -------- -------- ------- -------- --------- --------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............. $833,458 $502,570 $ 31,161 $ 9,983 $ 50,900 $ 117,086 $121,758
======== ======== ======== ======= ======== ========= ========
</TABLE>
See notes to financial statements.
34
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
COMBINED STATEMENTS OF OPERATIONS (Continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
-------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................ $ 89,043 $ 43,046 $ 15,907 $2,355 $ 12,543 $ 2,503 $ 12,689
Expenses -- Note 3:
Mortality and expense risk charges .. 33,117 19,174 1,300 260 4,656 3,304 4,423
-------- -------- -------- ------ -------- --------- --------
Net investment income/(expense) ....... 55,926 23,872 14,607 2,095 7,887 (801) 8,266
-------- -------- -------- ------ -------- --------- --------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale
of investments .................... 222,679 111,916 (793) -- 33,418 43,704 34,434
Reinvested realized gain distribution 498,605 384,957 -- -- 11,818 64,447 37,383
-------- -------- -------- ------ -------- --------- --------
Net realized gain/(loss) on investments 721,284 496,873 (793) -- 45,236 108,151 71,817
-------- -------- -------- ------ -------- --------- --------
Unrealized appreciation/ (depreciation)
of investments:
End of year ......................... 907,706 616,872 (6,964) -- 90,479 65,797 141,522
Beginning of year ................... 701,218 449,818 1,117 -- 34,230 97,156 118,897
-------- -------- -------- ------ -------- --------- --------
Change in unrealized
appreciation/(depreciation) ....... 206,488 167,054 (8,081) -- 56,249 (31,359) 22,625
-------- -------- -------- ------ -------- --------- --------
Net realized and unrealized gain/(loss)
from investments .................... 927,772 663,927 (8,874) -- 101,485 76,792 94,442
-------- -------- -------- ------ -------- --------- --------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............. $983,698 $687,799 $ 5,733 $2,095 $109,372 $ 75,991 $102,708
======== ======== ======== ====== ======== ========= ========
</TABLE>
See notes to financial statements.
35
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
-------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1994 Increase/(Decrease) from Operations
Net investment income/(expense) ...... $ 25,516 $ 10,765 $ 8,202 $ 7,554 $ 1,241 $ (1,040) $ (1,206)
Net realized gain/(loss) from sale of
investments .......................... (3,958) 197 75 -- (314) (3,746) (170)
Reinvested realized gain distribution 40,887 35,347 670 -- -- 3,927 943
Change in unrealized appreciation/
(depreciation) of investments ........ (106,343) (63,428) (13,905) -- (10,015) (6,309) (12,686)
----------- ----------- --------- --------- --------- --------- ---------
Net increase/(decrease) resulting from
operations ........................... (43,898) (17,119) (4,958) 7,554 (9,088) (7,168) (13,119)
----------- ----------- --------- --------- --------- --------- ---------
1994 Policy Transactions
Transfer of net premium .............. 1,356,622 591,660 102,211 46,236 214,236 151,568 250,711
Transfer on account of other
terminations ......................... (157,194) (73,974) (9,429) (698) (7,721) (46,397) (18,975)
Transfer of policy loans ............. (64,016) (3,059) (2,930) 4,726 (61,607) 2,651 (3,797)
Transfer between funds ............... -- 9,908 (9,666) (41,177) 40,697 655 (417)
Transfers of cost of insurance ....... (191,781) (106,927) (9,496) (6,054) (23,037) (17,476) (28,791)
Transfers-- other .................... 954 86 1 (1) 817 31 20
----------- ----------- --------- --------- --------- --------- ---------
Net increase/(decrease) from policy
transactions ......................... 944,585 417,694 70,691 3,032 163,385 91,032 198,751
----------- ----------- --------- --------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets 900,687 400,575 65,733 10,586 154,297 83,864 185,632
Net Assets at December 31, 1993 ...... 1,655,917 820,572 103,236 161,295 191,892 181,296 197,626
----------- ----------- --------- --------- --------- --------- ---------
Net Assets at December 31, 1994 --
Note 4 ............................... $ 2,556,604 $ 1,221,147 $ 168,969 $ 171,881 $ 346,189 $ 265,160 $ 383,258
=========== =========== ========= ========= ========= ========= =========
1995 Increase/(Decrease) from Operations
Net investment income/(expense) ...... $ 49,194 $ 16,011 $ 12,519 $ 9,983 $ 6,972 $ (416) $ 4,125
Net realized gain/(loss) from sale of
investments .......................... 2,779 727 50 -- (61) 1,506 557
Reinvested realized gain distribution 140,113 102,047 -- -- 24,029 9,710 4,327
Change in unrealized appreciation/
(depreciation) of investments ........ 641,372 383,785 18,592 -- 19,960 106,286 112,749
----------- ----------- --------- --------- --------- --------- ---------
Net increase/(decrease) resulting from
operations ........................... 833,458 502,750 31,161 9,983 50,900 117,086 121,758
----------- ----------- --------- --------- --------- --------- ---------
1995 Policy Transactions
Transfer of net premium .............. 1,546,300 824,023 66,022 42,349 254,498 138,717 220,691
Transfer on account of death ......... (3,466) -- -- -- -- -- (3,466)
Transfer on account of other
terminations ......................... (133,633) (69,645) (5,775) (2,762) (12,127) (17,753) (25,571)
Transfer of policy loans ............. (99,168) (49,762) (1,831) (4,772) (16,935) (10,360) (15,508)
Transfer between funds ............... -- 30,391 (7,149) 3,703 (19,593) (3,435) (3,917)
Transfers of cost of insurance ....... (283,696) (160,079) (13,106) (6,656) (41,071) (23,906) (38,878)
Transfers-- other .................... (148,399) 4,350 (450) (143,756) 115 (7,179) (1,479)
----------- ----------- --------- --------- --------- --------- ---------
Net increase/(decrease) from policy
transactions ......................... 877,938 579,278 37,711 (111,894) 164,887 76,084 131,872
----------- ----------- --------- --------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets 1,711,396 1,081,848 68,872 (101,911) 215,787 193,170 253,630
Net Assets at December 31, 1994 ...... 2,556,604 1,221,147 168,969 171,881 346,189 265,160 383,258
----------- ----------- --------- --------- --------- --------- ---------
Net Assets at December 31, 1995 --
Note 4 ............................... $ 4,268,000 $ 2,302,995 $ 237,841 $ 69,970 $ 561,976 $ 458,330 $ 636,888
=========== =========== ========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
36
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
COMBINED STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
-------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1996 Increase/(Decrease) from Operations
Net investment income/(expense) ...... $ 55,926 $ 23,872 $ 14,607 $ 2,095 $ 7,887 $ (801) $ 8,266
Net realized gain/(loss) from sale of
investments .......................... 222,679 111,916 (793) -- 33,418 43,704 34,434
Reinvested realized gain distribution 498,605 384,957 -- -- 11,818 64,447 37,383
Change in unrealized appreciation/
(depreciation) of investments ........ 206,488 167,054 (8,081) -- 56,249 (31,359) 22,625
----------- ----------- --------- -------- --------- --------- ---------
Net increase/(decrease) resulting from
operations ........................... 983,698 687,799 5,733 2,095 109,372 75,991 102,708
----------- ----------- --------- -------- --------- --------- ---------
1996 Policy Transactions
Transfer of net premium .............. 1,620,112 956,718 61,595 19,611 256,230 129,308 196,650
Transfer on account of death ......... (7,086) (2,370) -- -- -- -- (4,716)
Transfer on account of other
terminations ......................... (190,477) (148,360) (4,388) (184) (17,977) 7,422 (26,990)
Transfer of policy loans ............. (138,977) (112,243) (2,853) (2,240) 39,663 (28,339) (32,965)
Transfer between funds ............... -- 15,245 (18,996) (48,210) 20,755 14,896 16,310
Transfers of cost of insurance ....... (339,105) (202,991) (12,564) (5,503) (45,943) (30,245) (41,859)
Transfers-- other .................... 280 (233) (68) (7) 288 1 299
----------- ----------- --------- -------- --------- --------- ---------
Net increase/(decrease) from policy
transactions ......................... 944,747 505,766 22,726 (36,533) 253,016 93,043 106,729
----------- ----------- --------- -------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets 1,928,445 1,193,565 28,459 (34,438) 362,388 169,034 209,437
Net Assets at December 31, 1995 ...... 4,268,000 2,302,995 237,841 69,970 561,976 458,330 636,888
----------- ----------- --------- -------- --------- --------- ---------
Net Assets at December 31, 1996 --
Note 4 ............................... $ 6,196,445 $ 3,496,560 $ 266,300 $ 35,532 $ 924,364 $ 627,364 $ 846,325
=========== =========== ========= ======== ========= ========= =========
</TABLE>
See notes to financial statements.
37
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1 -- Organization
The Guardian Separate Account C (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on August 10, 1988.
GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of
America (Guardian Life). GIAC issues the annual premium variable life insurance
policies offered through the Account. GIAC provides for variable accumulations
and benefits under the policies by crediting the net premium payments to one or
more investment divisions established within the Account as selected by the
policyowner. The policyowner also has the ability to transfer his or her policy
value among the investment divisions within the Account. The Account currently
comprises six investment divisions which invest in shares of the following
mutual funds: The Guardian Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc.
(GBF), The Guardian Cash Fund, Inc. (GCF), Baillie Gifford International Fund
(BGIF), Value Line Centurion Fund, Inc. and Value Line Strategic Asset
Management Trust (collectively, the Funds and individually, a Fund).
GSF, GBF and GCF each has an investment advisory agreement with Guardian
Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF is
managed by Guardian Baillie Gifford Ltd., a joint venture company formed by GIAC
and Baillie Gifford Overseas Ltd.
On January 12, 1989, GIAC allocated $100,000 from its general funds to the
Account which was invested in GCF to facilitate the commencement of operations.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
The change in net assets maintained in the Account provide the basis for
the periodic determination of benefits under the policies. The net assets may
not be less than the amount required under state insurance laws to provide for
death benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in GIAC's general account to cover
the contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
Note 2 -- Significant Accounting Policies
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Net proceeds from the sale of annual premium variable life insurance
policies are invested by the Account's investment divisions in shares of the
corresponding Funds at the net asset value of each Fund's shares. All
distributions made by a Fund are reinvested in shares of the same Fund.
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of their close of business on the
valuation date.
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis. In 1996, the basis used in recording gains and losses on
investments sold was changed from the last in, first out (LIFO) basis to the
first in, first out (FIFO) basis. This change had no effect on the net assets of
the Account.
During the years ended December 31, 1996 and December 31, 1995, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
The Guardian Separate Account C Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Guardian Stock Fund $ 1,171,180 $ 871,569 $ 231,645 $ 173,923
Guardian Bond Fund 67,808 75,579 29,174 24,915
Guardian Cash Fund 26,105 70,234 60,284 182,539
Baillie Gifford International Fund 410,261 288,106 132,884 91,118
Value Line Centurion Fund 323,326 171,879 163,333 85,536
Value Line SAM Trust 238,292 215,995 81,492 74,207
------------ ------------ ------------ ------------
Total $ 2,236,972 $ 1,693,362 $ 698,812 $ 632,238
============= ============ =========== =========
</TABLE>
38
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
Note 3 -- Administrative and Mortality and Expense Risk Charges
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the Account which, on an annual basis, is equal to a rate of .50% of the
policy account value.
In addition, GIAC makes a monthly charge for the cost of life insurance,
based on the face value of the policyowner's insurance in-force, as compensation
for the anticipated cost of paying death benefits.
Under the terms of the policy, GIAC deducts charges from the gross
premiums before transferring the net premiums (gross premiums less other
contractual charges) to the Account. These other contractual charges consist of:
a) a $50 annual policy fee;
b) an administrative charge of $5 per $1,000 of the policy's face amount,
assessed against the first premium only; and
c) an annual state premium tax charge of approximately 2.5% of the basic
premium.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes in several
states. At present, these taxes are not significant. In the event of a material
change in applicable state or local tax laws, GIAC reserves the right to charge
the Account for such taxes, if any, which are attributable to the Account.
Note 4 -- Net Assets, December 31, 1996
At December 31, 1996, net assets of the Account were as follows:
Accumulation of Annual Premium
Variable Life Insurance
Policyowners' Accounts $6,196,445
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
In some instances the calculation of total assets may not agree due to
rounding.
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors of The
Guardian Insurance & Annuity Company, Inc.
and Policyowners of The Guardian Separate Account C, "Select Guard"
In our opinion, the accompanying statement of assets and liabilities and the
related combined statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the investment
divisions relating to Guardian Stock Fund, Guardian Bond Fund, Guardian Cash
Fund, Baillie Gifford International Fund, Value Line Centurion Fund and Value
Line Strategic Asset Management Trust (constituting The Guardian Separate
Account C, "Select Guard," hereafter referred to as the "Separate Account") at
December 31, 1996, and the results of each of their operations and changes in
each of their net assets for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of The Guardian Insurance & Annuity Company,
Inc.; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with 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, which included confirmation of securities at
December 31, 1996 by correspondence with the transfer agents of the underlying
funds, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
February 11, 1997
40
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
===================================================================================================
December 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1996 -- $491,271,164; 1995 -- $415,119,363) ......... $ 490,445,948 $ 405,213,799
Affiliated money market fund, at market, which approximates cost 2,755,672 2,633,939
Investment in subsidiary ....................................... 7,746,643 7,604,442
Policy loans -- variable life insurance ........................ 68,143,068 63,842,200
Cash and short-term investments ................................ 17,825,039 17,983,654
Investment in joint venture .................................... 285,874 44,418
Accrued investment income receivable ........................... 10,553,405 9,771,251
Due from parent and affiliates ................................. 6,507,913 2,982,854
Other assets ................................................... 12,173,268 9,932,726
Receivable from separate accounts .............................. 11,606,587 3,543,010
Variable annuity and EISP/CIP separate account assets .......... 5,248,159,777 4,174,493,377
Variable life separate account assets .......................... 342,921,803 311,173,536
-------------- --------------
TOTAL ADMITTED ASSETS ........................................ $6,219,124,997 $5,009,219,206
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves ...................................... $ 329,681,355 $ 300,059,252
Fixed immediate reserves ..................................... 5,874,894 4,966,569
Life reserves ................................................ 65,462,693 22,502,664
Minimum death benefit guarantees ............................. 1,257,777 1,171,951
Policy loan collateral fund reserve .......................... 65,762,820 61,798,105
Accrued expenses, taxes & commissions ............................. 2,712,360 1,250,797
Due to parent and affiliates ...................................... 15,304,638 16,072,198
Federal income taxes payable ...................................... 4,743,447 636,681
Other liabilities ................................................. 30,079,434 13,295,087
Asset valuation reserve ........................................... 15,121,269 9,341,353
Variable annuity and EISP/CIP separate account liabilities ........ 5,193,574,218 4,129,376,222
Variable life separate account liabilities ........................ 335,769,184 306,870,400
-------------- --------------
TOTAL LIABILITIES ............................................ 6,065,344,089 4,867,341,279
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized, issued and
outstanding .................................................... 2,000,000 2,000,000
Additional paid-in surplus ........................................ 137,398,292 137,398,292
Assigned and unassigned surplus ................................... 14,382,616 2,479,635
-------------- --------------
153,780,908 141,877,927
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS .................. $6,219,124,997 $5,009,219,206
============== ==============
</TABLE>
See notes to financial statements.
41
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
=======================================================================================================
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Premiums and annuity considerations:
Variable annuity considerations .................... $ 731,792,764 $ 537,841,762 $ 533,763,975
Life insurance premiums and fixed
annuity considerations ........................... 44,874,269 73,938,212 71,289,987
Net investment income ................................ 42,366,902 36,293,598 27,909,606
Amortization of IMR .................................. 333,219 257,380 542,157
Net gain from operations from separate accounts ...... 8,860,462 -- --
Service fees ......................................... 58,774,486 46,560,286 35,858,692
Variable life -- cost of insurance ................... 4,844,028 4,232,564 3,828,702
Reserve adjustments on reinsurance ceded ............. 30,636,445 (32,192,749) 84,062,188
Commissions and expense allowances ................... 14,508,840 10,057,974 19,542,388
Other income ......................................... 2,535,356 1,127,526 819,726
------------- ------------- -------------
939,526,771 678,116,553 777,617,421
------------- ------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Death benefits ..................................... 6,785,456 4,774,584 3,740,612
Annuity benefits ................................... 426,072,773 276,568,762 173,188,734
Surrender benefits ................................. 17,459,706 17,660,413 9,882,392
Increase in reserves ............................... 82,891,516 65,349,399 80,386,221
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ...................... 323,093,897 252,772,988 448,425,833
Variable life ...................................... (10,417,095) (17,796,371) (8,822,426)
Commissions .......................................... 39,233,431 34,364,742 45,602,891
General insurance expenses ........................... 42,523,892 25,888,456 15,083,859
Taxes, licenses and fees ............................. 3,723,858 2,477,492 2,731,840
Reinsurance terminations ............................. (15,470,015) 11,002,701 3,517,681
------------- ------------- -------------
915,897,419 673,063,166 773,737,637
------------- ------------- -------------
INCOME BEFORE INCOME
TAXES AND REALIZED GAINS
FROM INVESTMENTS ............................... 23,629,352 5,053,387 3,879,784
Federal income taxes ................................. 3,941,460 439,667 601,468
------------- ------------- -------------
INCOME BEFORE REALIZED
GAINS FROM INVESTMENTS ......................... 19,687,892 4,613,720 3,278,316
Realized gains from investments, net of federal income
taxes, net of transfer to IMR ...................... 7,540 342,455 (2,232)
------------- ------------- -------------
NET INCOME ....................................... $ 19,695,432 $ 4,956,175 $ 3,276,084
============= ============= =============
</TABLE>
See notes to financial statements.
42
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
===============================================================================================================
Special Assigned
Additional and Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------ -------- -------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 ................. $ 2,000,000 $ 137,398,292 $ (983,630) $138,414,662
------------ ------------- ------------ ------------
Net income from operations .................... 3,276,084 3,276,084
Decrease in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes .................... (527,471) (527,471)
Decrease in unrealized appreciation of
Company's investment in joint venture ...... (255,163) (255,163)
Increase in unrealized appreciation of
Company's investment in subsidiary ......... 24,034 24,034
Decrease in non-admitted assets ............... 5,818 5,818
Disallowed interest maintenance reserve ....... (1,124,268) (1,124,268)
Net increase in asset valuation reserve ....... (2,233,163) (2,233,163)
------------ ------------- ------------ ------------
Balances at December 31, 1994 ................. 2,000,000 137,398,292 (1,817,759) 137,580,533
------------ ------------- ------------ ------------
Net income from operations .................... 4,956,175 4,956,175
Increase in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes .................... 3,024,930 3,024,930
Decrease in unrealized appreciation of
Company's investment in joint venture ...... (6,803) (6,803)
Increase in unrealized appreciation of
Company's investment in subsidiary ......... 298,534 298,534
Increase in non-admitted assets ............... (7,078) (7,078)
Disallowed interest maintenance reserve ....... 143,080 143,080
Net increase in asset valuation reserve ....... (4,111,444) (4,111,444)
------------ ------------- ------------ ------------
Balances at December 31, 1995 ................. 2,000,000 137,398,292 2,479,635 141,877,927
------------ ------------- ------------ ------------
Net income from operations .................... 19,695,433 19,695,433
Tax on prior years separate account
seed investment unrealized gains ........... (104,732) (104,732)
Increase in unrealized appreciation of
Company's investment in joint venture ...... 241,456 241,456
Increase in unrealized appreciation of
Company's investment in subsidiary ......... 142,201 142,201
Decrease in unrealized appreciation of
Company's investment in other assets ....... (9,384) (9,384)
Increase in non-admitted assets ............... (80,815) (80,815)
Disallowed interest maintenance reserve ....... (128,107) (128,107)
Surplus changes resulting from reinsurance .... (2,073,155) (2,073,155)
Net increase in asset valuation reserve ....... (5,779,916) (5,779,916)
------------ ------------- ------------ ------------
Balances at December 31, 1996 ................. $ 2,000,000 $ 137,398,292 $ 14,382,616 $153,780,908
============ ============= ============ ============
</TABLE>
See notes to financial statements.
43
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
==========================================================================================================
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and deposit funds ..... $ 780,710,735 $ 611,169,979 $ 600,336,507
Investment income ...................................... 42,413,736 36,912,131 26,762,114
Commissions and expense allowances on
reinsurance ceded .................................... 37,315,301 (22,118,484) 104,767,754
Other income ........................................... 47,357,962 44,220,753 33,914,971
Life claims ............................................ (6,900,438) (4,420,866) (3,397,937)
Surrender benefits ..................................... (2,774,865) (17,660,413) (9,882,392)
Annuity benefits ....................................... (424,511,908) (276,163,436) (173,227,230)
Commissions, other expenses
and taxes (excluding FIT) ............................ (78,968,214) (57,714,112) (63,448,237)
Net transfers to separate accounts ..................... (307,856,562) (231,230,812) (435,548,833)
Federal income taxes (excluding tax on capital gains) .. 682,025 (1,557,444) (1,522,592)
Increase in policy loans ............................... (4,300,868) (4,522,280) (6,527,387)
Other operating expenses and sources ................... 2,077,342 (8,945,084) 2,428,502
------------- ------------- -------------
NET CASH PROVIDED BY INSURANCE
ACTIVITIES ......................................... 85,244,246 67,969,932 74,655,240
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities .... 224,692,954 63,122,215 149,529,893
Purchases of investment securities ..................... (309,590,319) (118,543,796) (230,182,416)
Net proceeds from short-term investments ............... 0 0 0
Federal income tax on capital gains .................... (505,496) 992,810 (1,233,244)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES............... (85,402,861) (54,428,771) (81,885,767)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH ...................... (158,615) 13,541,161 (7,230,527)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR .................................. 17,983,654 4,442,493 11,673,020
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR ........................................ $ 17,825,039 $ 17,983,654 $ 4,442,493
============= ============= =============
</TABLE>
See notes to financial statements.
44
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1 -- Organization
Organization: The Guardian Insurance & Annuity Company, Inc. (GIAC or the
Company) is a wholly-owned subsidiary of The Guardian Life Insurance Company of
America (The Guardian). The Company is licensed to conduct life and health
insurance business in all fifty states and the District of Columbia. The
Company's primary business is the sale of variable deferred annuity contracts
and variable and term life insurance policies. For variable products other than
401(k) products, contracts are sold by insurance agents who are licensed by GIAC
and are either Registered Representatives of Guardian Investor Services
Corporation (GISC) or of broker-dealer firms which have entered into sales
agreements with GIAC and GISC. The Company's general agency distribution system
is used for the sale of other products and policies.
Guardian Investor Services Corporation is a wholly-owned subsidiary of the
Company. GISC is a registered broker-dealer under the Securities Exchange Act of
1934 and is a registered investment advisor under the Investment Advisor's Act
of 1940. GISC is the distributor and underwriter for GIAC's variable products,
and the investment advisor to certain mutual funds sponsored by GIAC which are
investment options for the variable products.
Insurance Separate Accounts: The Company has established twelve insurance
separate accounts primarily to support the variable annuity and life insurance
products it offers. The majority of the separate accounts are unit investment
trusts registered under the Investment Company Act of 1940. Proceeds from the
sale of variable products are invested through these separate accounts in
certain mutual funds specified by the contractholders. In addition, certain
variable annuity and variable life insurance contractholders may invest in The
Guardian Real Estate Account. Participating interests in the real estate account
are registered under the Securities Act of 1933. Of these separate accounts the
Company maintains two separate accounts whose sole purpose is to fund certain
employee benefit plans of The Guardian.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabilities of the Company. The assets of
the separate accounts will not be charged with any liabilities arising out of
any other business of the Company. However, the obligations of the separate
accounts, including the promise to make annuity and death benefit payments,
remain obligations of the Company. Assets and liabilities of the separate
accounts are stated primarily at the market value of the underlying investments
and corresponding contractholders obligations.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a comprehensive basis of accounting other than generally
accepted accounting principles that is prescribed or permitted by the Insurance
Department of the State of Delaware.
Prior to 1996, these policies were considered generally accepted
accounting principles ("GAAP") for mutual life insurance companies. However, in
April, 1993, the Financial Accounting Standards Board issued Interpretation No.
40, "Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", which establishes a different definition of
GAAP for mutual life insurance companies. Under this interpretation, financial
statements of mutual life insurance companies for periods beginning after
45
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
December 15, 1995 which are prepared on the statutory basis of accounting are no
longer characterized as being in conformity with GAAP. Financial statements
prepared on a statutory basis vary from financial statements prepared on a GAAP
basis because: (1) the costs relating to acquiring business, principally
commissions and certain policy issue expenses, are charged to income in the year
incurred, whereas on a GAAP basis they would be recorded as assets and amortized
over the future periods to be benefited; (2) life insurance and annuity reserves
are based on statutory mortality and interest requirements, without
consideration of withdrawals, whereas on GAAP basis they are on anticipated
Company experience for lapses, mortality and investment yield; (3) life
insurance enterprises are required to establish a formula-based asset valuation
reserve (AVR) by a direct charge to surplus to offset potential investment
losses; under GAAP, provisions for investments are established as needed through
a charge to income; (4) realized gains and losses resulting from changes in
interest rates on fixed income investments are deferred in the interest
maintenance reserve (IMR) and amortized into investment income over the
remaining life of the investment sold; for GAAP, such gains and losses are
recognized in income at the time of sale; (5) bonds are carried principally at
amortized cost for statutory reporting and at market value for GAAP; (6) annuity
and certain insurance premiums are recognized as premium income, whereas for
GAAP they are recognized as deposits; (7) deferred federal income taxes are not
provided for temporary differences between tax and book assets and liabilities
as they are under GAAP; (8) certain reinsurance transactions are accounted for
as reinsurance for statutory purposes and as financing transactions under GAAP,
and assets and liabilities are reported net of reinsurance for statutory
purposes and gross of reinsurance for GAAP.
The following reconciles the statutory net income of the Company as
reported to regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the Year Ended
1996 1995
----- -----
<S> <C> <C>
Statutory net income ................................ $ 19,695,432 $ 4,956,175
Adjustments to restate to the basis of GAAP:
Statutory net income of subsidiaries .............. 142,201 298,534
Capitalization of deferred policy acquisition costs 42,525,493 29,971,479
Deferred premiums ................................. 4,096,976 --
Re-estimation of future policy benefits ........... 30,086,231 659,225
Reinsurance ....................................... (36,696,036) 17,635,115
Deferred federal income tax expense ............... (13,074,280) (15,221,064)
Elimination of interest maintenance reserve ....... (333,219) (257,381)
Other, net ........................................ (6,094,192) (759,141)
------------ ------------
Consolidated GAAP net income ........................ $ 40,348,606 $ 37,282,942
============ ============
</TABLE>
46
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
December 31,
-----------------------------
1996 1995
---- ----
Statutory capital and surplus ................ $ 153,780,908 $ 141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs .......... 221,475,216 185,237,251
Elimination of asset valuation reserve ..... 15,121,269 9,341,353
Re-estimation of future policy benefits .... (35,823,432) 5,870,371
Establishment of deferred federal income tax (65,126,004) (53,923,759)
Other, net ................................. 33,178,992 (2,451,817)
------------- -------------
Consolidated GAAP stockholder's equity ....... $ 322,606,949 $ 285,951,326
============= =============
The preparation of financial statements of insurance enterprises requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements. As a provider of
life insurance and annuity products, GIAC's operating results in any given
period depend on estimates of policy reserves required to provide for future
policyholder benefits. The development of policy reserves for insurance and
investment contracts requires management to make estimates and assumptions
regarding mortality, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and, in many cases, state
insurance laws which require specific mortality, morbidity, and investment
assumptions to be used by the Company. Actual results could differ from those
estimates. Management monitors actual experience, and where circumstances
warrant, revises its assumptions and the related reserve estimates.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures established by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments
carried at market are recorded directly to unassigned surplus. Realized gains
and losses on disposition of investments are determined by the specific
identification method. Effective for 1996 financial statements, the NAIC
requires and the Company has recorded the net gain from the operations of the
separate accounts in the operations of the general account instead of surplus.
Bonds: Bonds are valued principally at amortized cost. Mortgage backed
bonds are carried at amortized cost using the interest method considering
anticipated prepayments at the date of purchase. Significant changes in future
anticipated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method with PSA standard prepayment rates.
Investment in subsidiary: GIAC's investment in GISC is carried at equity
in GIAC's underlying net assets. Undistributed earnings or losses are reflected
as unrealized capital gains and losses directly in unassigned surplus. Dividends
received from GISC are recorded as investment income and amounted to $9,500,000
in 1996, $6,700,000 in 1995 and $4,900,000 in 1994.
Short-Term Investments: Short-term investments are stated at amortized cost
and consist primarily of investments having maturities at the date of purchase
of six months or less. Market values for such investments approximate carrying
value.
47
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize policyholders' surplus against
market fluctuations in the value of equities and credit related declines in the
value of bonds. Changes in the AVR are recorded directly to unassigned surplus.
The IMR captures net after-tax realized capital gains which result from changes
in the overall level on interest rates for fixed income investments and
amortizes these net capital gains into income over the remaining stated life of
the investments sold. The Company uses the group method of calculating the IMR,
consistent with the prior year.
Contract and Policy Reserves: Fixed deferred reserves represent the fund
balance left to accumulate at interest under fixed annuity contracts that were
offered directly by the Company, a fixed rate option that is offered to variable
annuity contractowners and a single premium deferred annuity that is offered by
the Company. The fixed annuity contracts are no longer offered by the Company.
The estimated fair value of contractholder account balances within the
fixed deferred reserves has been determined to be equivalent to carrying value
as the current offering and renewal rates are set in response to current market
conditions and are only guaranteed for one year.
The interest rate credited on fixed annuity contracts included in fixed
deferred reserves for 1996 and 1995 was 5.75% and 5.75%, respectively. The
interest rates credited on the fixed rate option offered to certain variable
annuity contractowners ranged from 5.25% to 5.50% during 1996. For the fixed
rate option currently issued, the issue and renewal interest rates credited
varies from month to month and ranged from 5.0% to 5.25% in 1996. For single
premium deferred annuities the rates ranged from 5.0% to 5.75% in 1996. Fixed
immediate reserves are a liability within the general account for those
annuitants who have elected a fixed annuity payout option. The immediate
contract reserve is computed using the 1971 IAM Table and a 4% discount rate.
Minimum death benefit guarantees represent a reserve for term insurance to
support guaranteed insurance amounts on variable life policies in the event of
possible declines in separate account assets, assuming a 4% discount rate and
mortality consistent with the 1958 or 1980 CSO Table applicable in the pricing
of each policy.
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values. The reserve is credited with interest at 4% per
annum for single premium variable life policyowners and 6.5% for annual pay
variable life policyowners.
Non-admitted Assets: Certain assets designated as "non-admitted assets" in
accordance with rules and regulations of the Department of Insurance of the
State of Delaware are charged directly to unassigned surplus. At December 31,
1996 and 1995 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $123,785 and $84,575, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
48
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on variable life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also include service fees from the separate accounts consisting of
mortality and expense charges, annual administration fees, charges for the cost
of term insurance related to variable life policies and penalties for early
withdrawals. Services fees were not charged on separate account assets of $142.7
million and $117.7 million at December 31, 1996 and 1995, respectively, which
represent investments in The Guardian's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently taxable, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the
applicable federal income taxes. The taxable portion of unrealized appreciation
of the Company's separate account investments is also recorded.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1996 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1996, 1995 and 1994 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 8,270,274 $ 1,768,688 $ 1,357,924
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (1,478,476) 337,668 141,295
DAC Tax ........................................ 867,731 666,260 1,575,953
Dividend from subsidiary ....................... (3,325,000) (2,345,000) (1,715,000)
Other-- net .................................... (393,070) 12,051 (758,704)
----------- ----------- -----------
Federal income taxes .............................. $ 3,941,459 $ 439,667 $ 601,468
=========== =========== ===========
</TABLE>
The provision for federal income taxes includes deferred taxes in 1996,
1995 and 1994 of $353,051, $304,923 and $99,120, respectively, applicable to the
difference between the tax basis and the financial statement basis of recording
investment income relating to accrued market discount.
49
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturities .................................... $ 28,234,145 $ 25,795,915 $ 19,949,553
Affiliated money market funds ....................... 121,733 130,729 84,083
Subsidiary .......................................... 9,500,000 6,700,000 4,900,000
Policy loans ........................................ 3,089,490 2,847,532 2,547,670
Short-term investments .............................. 1,259,730 1,181,215 622,391
Joint venture dividend .............................. 623,160 684,306 789,867
------------ ------------ ------------
42,828,258 37,339,697 28,893,564
Less: Investment expenses ........................... 461,356 1,046,099 983,958
------------ ------------ ------------
Net investment income ............................... $ 42,366,902 $ 36,293,598 $ 27,909,606
============ ============ ============
</TABLE>
Net realized gains, less applicable federal income taxes and transfer to IMR,
are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Realized capital gains (losses) ................... $ 1,242,432 $ 1,323,447 $ (3,994,715)
------------ ------------ ------------
Federal income tax expense (benefit):
Current ........................................... 829,610 622,821 (1,110,135)
Deferred .......................................... (394,759) (42,290) (248,068)
------------ ------------ ------------
Total Federal income tax expense (benefit) ........ 434,851 580,531 (1,358,203)
------------ ------------ ------------
Transfer to IMR ..................................... 800,041 400,461 (2,634,280)
------------ ------------ ------------
Net realized gains (losses) ......................... $ 7,540 $ 342,455 $ (2,232)
============ ============ ============
</TABLE>
The increase in unrealized appreciation (depreciation) on fixed maturity
securities for the years ended December 31, 1996, 1995 and 1994 was
$(9,080,348), $26,899,449 and $(23,246,030), respectively.
The market values of bonds are based on quoted prices as available. For
certain private placement debt securities where quoted market prices are not
available, fair value is estimated by management using adjusted market prices
for like securities.
50
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
The cost and estimated market values of investments by major investment
category at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies.......................... $133,436,167 $ 761,811 $ 435,887 $133,762,091
Obligations of states and political
subdivisions.......................... 40,444,325 148,692 70,771 40,522,246
Debt securities issued by foreign
governments........................... 3,491,091 -- 65,431 3,425,660
Corporate debt securities............... 313,074,365 2,279,414 1,792,612 313,561,167
Common stock of subsidiary.............. 9,398,292 -- 1,651,649 7,746,643
Affiliated mutual funds................. 2,755,672 -- -- 2,755,672
------------- ------------- ------------- ------------
$502,599,912 $ 3,189,917 $ 4,016,350 $501,773,479
============= ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies.......................... $ 86,663,351 $ 2,599,555 $ -- $ 89,262,906
Obligations of states and political
subdivisions.......................... 6,086,127 108,215 1,599 6,192,743
Debt securities issued by foreign
governments........................... 8,061,711 537,479 -- 8,599,190
Corporate debt securities............... 304,402,610 7,379,558 717,644 311,064,524
Common stock of subsidiary.............. 9,398,292 -- 1,793,850 7,604,442
Affiliated mutual funds................. 2,633,939 -- -- 2,633,939
------------- ------------- ------------- ------------
$417,246,030 $ 10,624,807 $ 2,513,093 $425,357,744
============= ============= ============= ============
</TABLE>
At December 31, 1996, the amortized cost and estimated market value of
debt securities, by contractual maturity, is shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
51
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less............................ $ 64,861,358 $ 65,045,326
Due after one year through five years.............. 286,602,923 287,118,976
Due after five years through ten years............. 74,354,923 74,503,267
Due after ten years................................ 25,247,736 25,461,329
------------ ------------
451,066,940 452,128,898
Sinking fund bonds
(including Collateralized Mortgage Obligations). 39,379,008 39,142,266
------------ ------------
$490,445,948 $491,271,164
============ ============
During 1996, proceeds from sales of investments in debt securities were
$224,681,546 and gross gains of $2,029,373 and losses of $798,350 were realized
on these sales.
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with The Guardian and outside parties to provide for
reinsurance of selected variable annuity contracts and group life and individual
life policies. Under the terms of the modified coinsurance agreements, reserves
related to the reinsurance business and corresponding assets are held by the
Company. Accordingly, policy reserves include $767,937,702 and $355,264,470 at
December 31, 1996 and 1995, respectively, applicable to policies reinsured under
modified coinsurance agreements. The reinsurance contracts do not relieve the
Company of its primary obligation for policyowner benefits. Failure of
reinsurers to honor their obligations could result in losses to the Company.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Premiums and deposits .................. $(83,250,212) $(41,212,253) $(157,953,149)
Net investment income .................. (61,779) -- --
Commission and expense allowances ...... 14,508,839 10,057,974 19,542,388
Reserve adjustments .................... 30,636,445 (32,192,749) 84,062,188
Other income ........................... (25,000) -- --
------------ ------------ -------------
Revenues ............................. (38,191,707) (63,347,028) (54,348,573)
Policyholder benefits .................. (26,873,945) (57,577,405) (60,707,011)
Increase in aggregate reserves ......... (5,658,260) (11,909,990) (16,349,743)
Reinsurance terminations ............... (15,470,015) 11,002,701 3,517,681
General expenses ....................... (81,667) (48,640) --
------------ ------------ -------------
Deductions ........................... (48,083,887) (58,533,334) (73,539,073)
------------ ------------ -------------
Net income (loss) from reinsurance ceded $ 9,892,180 ($ 4,813,694) $ 19,190,500
============ ============ =============
</TABLE>
52
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 6 -- Reinsurance Assumed
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Premiums and deposits ................... $ 41,133,358 $ 7,153,623 $ 21,245,974
Net investment income ................... 94,657 62,847 --
Other income ............................ 375,404 32,528 13,163
------------ ----------- ------------
Revenues .............................. 41,603,419 7,248,998 21,259,137
Policyholder benefits ................... 8,076,053 5,086,702 13,163
Increase in aggregate reserves .......... 31,556,908 (357,463) 21,192,811
Reinsurance expenses .................... (452,476) 1,451,058 8,503,485
Other expenses .......................... 551,319 54,043 --
------------ ----------- ------------
Deductions ............................ 39,731,804 6,234,340 29,709,459
------------ ----------- ------------
Net income (loss)from reinsurance assumed $ 1,871,615 $ 1,014,658 ($ 8,450,322)
============ =========== ============
</TABLE>
Note 7 -- Related Party Transactions
A major portion of the Company's business is produced by the registered
representatives of the Guardian Investor Services Corporation (GISC), a wholly
owned subsidiary of the Company. During 1996, 1995 and 1994, premium and annuity
considerations produced by GISC amounted to $528,353,595, $400,148,692 and
$482,872,000, respectively. The related commissions paid to GISC amounted to
$1,851,468, $1,409,708 and $1,709,799 for 1996, 1995 and 1994, respectively.
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$41,129,644 in 1996, $24,989,111 in 1995 and $14,055,494 in 1994, and, in the
opinion of management, were considered appropriate for the services rendered.
The Company has an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware Insurance law as an insurance
company separate account. GIAC has contributed capital to GREA from time to time
to provide funds for acquisitions and to preserve liquidity. At December 31,
1996 GIAC's investment amounts to $5,803,339 and maintains a 40% ownership of
GREA.
53
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
A significant portion of the Company's separate account assets are
invested in affiliated mutual funds. These funds consist of The Guardian Park
Avenue Fund, The Guardian Bond Fund, The Guardian Stock Fund, The Guardian Cash
Fund, The Guardian Baillie Gifford International Fund, The Guardian Asset
Allocation Fund, The Guardian Investment Quality Bond Fund and The Guardian Cash
Management Fund. Each of these funds has an investment advisory agreement with
GISC, except for The Guardian Baillie Gifford International Fund. The
investments as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
The Guardian Park Avenue Fund................... $ 251,812,050 $ 214,919,292
The Guardian Bond Fund.......................... 354,316,320 374,461,581
The Guardian Stock Fund......................... 2,226,887,181 1,615,270,799
The Guardian Cash Fund.......................... 378,321,710 356,820,089
The Guardian Baillie Gifford International Fund. 19,720 --
The Guardian Asset Allocation Fund.............. 46,623 --
The Guardian Investment Quality Bond Fund....... 9,385 --
The Guardian Cash Management Fund............... 3,113,523 --
-------------- --------------
$3,214,526,512 $2,561,471,761
============== ==============
</TABLE>
During November 1990, the Company entered into an agreement with Baillie
Gifford Overseas Ltd. to form a joint venture company - Guardian Baillie Gifford
Ltd. (GBG) - which is organized as a corporation in Scotland. GBG is registered
in both the United Kingdom and the United States to act as an investment advisor
for the Baillie Gifford International Fund (BGIF), the Baillie Gifford Emerging
Markets Fund (BGEMF) and the Guardian Baillie Gifford International Fund
(GBGIF). The Funds are offered in the U.S. as investment options under certain
variable annuity contracts and variable life policies. The amount of the
Company's separate account assets invested in the Funds as of December 31, 1996
and 1995 was $446,466,741 and $334,281,959, respectively.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1996 and 1995 this
amounted to $2,755,672 and $2,633,939, respectively.
54
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 8 -- Separate Accounts
The following represents a reconciliation of net transfers from GIAC to
the separate accounts. Transfers are reported in the Summary of Operations of
the Separate Account Statement:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Transfers to separate accounts ......... $ 767,741,428 $ 582,715,569 $ 688,657,147
Transfers from separate accounts ....... (518,683,141) (398,531,802) (288,606,548)
------------- ------------- -------------
Net transfers to separate accounts ... 249,058,287 184,183,767 400,050,599
------------- ------------- -------------
Reconciling Adjustments:
Mortality & expense guarantees -- Annuity 54,119,656 41,474,872 31,629,838
Mortality & expense guarantees -- VLI .. 1,687,711 1,571,955 1,341,318
Administrative fees -- VA only ......... 2,967,120 3,513,459 2,752,950
Cost of collection -- VLI .............. 4,844,028 4,232,564 3,828,702
------------- ------------- -------------
Total adjustments .................... 63,618,515 50,792,850 39,552,808
------------- ------------- -------------
Transfers as reported in the Summary of
Operations of GIAC ................... $ 312,676,802 $ 234,976,617 $ 439,603,407
============= ============= =============
</TABLE>
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
Year Ending 1996 Year Ending 1995
---------------------------- --------------------------
Amount % Amount %
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ......... $ 44,480,214 10.22% $ 39,471,103 10.27%
total with adjustment or at
market value ....................... 44,480,214 10.22 39,471,103 10.27
at book value without adjustment
(minimal or no charge or
adjustment) ........................ 302,433,090 69.45 260,636,570 67.81
Not subject to discretionary withdrawal 88,546,538 20.33 84,263,477 21.92
------------ -------- ------------ --------
Total (gross) .......................... 435,459,842 100.00 384,371,150 100.00
Reinsurance ceded ...................... 4,879 0.00 -- 0.00
------------ -------- ------------ --------
Total .................................. $435,454,963 100.00% $384,371,150 100.00%
============ ======== ============ ========
</TABLE>
This does not include $5,098,658,097 and $4,046,768,087 of non-guaranteed
annuity reserves held in separate accounts, and $2,927,130 and $1,500,869 at
December 31, 1996 and 1995, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1997
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying balance sheets of The Guardian Insurance
& Annuity Company, Inc. as of December 31, 1996 and 1995, and the related
statements of operations, of changes in common stock and surplus and of cash
flows for the three years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities (statutory basis of accounting), which is a comprehensive
basis of accounting other than generally accepted accounting principles.
Accordingly, the financial statements are not intended to represent a
presentation in accordance with generally accepted accounting principles. The
effects on the financial statements of the variances between such practices and
generally accepted accounting principles are material and are described in Note
2.
In our report dated February 9, 1996, we expressed an opinion that the
1995 financial statements, prepared using accounting practices prescribed or
permitted by insurance regulatory authorities, were presented fairly, in all
material respects, in conformity with generally accepted accounting principles.
As described in Note 2 to these financial statements, pursuant to pronouncements
of the Financial Accounting Standards Board, financial statements of mutual life
insurance companies and their wholly owned stock insurance company subsidiaries
are no longer considered presentations in conformity with generally accepted
accounting principles. Accordingly, our present opinion on the presentation of
the 1995 financial statements, as presented herein, is different from that
expressed in our previous report.
In our opinion, the financial statements referred to above (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Guardian Insurance & Annuity Company, Inc. at December
31, 1996 and 1995, or the results of its operations or its cash flows for the
three years in the period ended December 31, 1996, because of the effects of the
variances between the statutory basis of accounting and generally accepted
accounting principles, and (2) present fairly, in all material respects, its
financial position and the results of its operations and its cash flows, in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities.
/s/ Price Waterhouse LLP
56
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate the way in which death benefits and cash
values under the Policy change with the investment experience of the Account's
investment divisions. The following illustrations assume charges and values
which differ according to male or female sex classification. The illustrations
also assume the Policy contains no Additional Coverage Riders and are based on
the following additional assumptions:
1. Policy Illustration #1 is for a Policy issued to a male age 5 in the
standard underwriting class with a Guaranteed Insurance Amount of
$25,000.
2. Policy Illustration #2 is for a Policy issued to a male non-smoker
age 35 in the standard underwriting class with a Guaranteed
Insurance Amount of $100,000.
3. Policy Illustration #3 is for a Policy issued to a female non-smoker
age 35 in the standard underwriting class with a Guaranteed
Insurance Amount of $100,000.
4. Policy Illustration #4 is for a Policy issued to a male non-smoker
age 55 in the preferred underwriting class with a Guaranteed
Insurance Amount of $250,000.
The tables show how the death benefit and cash value for each illustration
may vary over an extended period of time assuming hypothetical rates of return
(i.e., investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross annual rates of 0%, 6% and 12%. The death benefit
and cash value for a Policy would be different from those shown if the actual
rates of return averaged 0%, 6% and 12% over a period of years, but fluctuated
above or below those averages during individual Policy months or years. The
death benefit and cash value would also differ if any loans were outstanding at
any time during the periods illustrated.
The amounts illustrated in the tables for the death benefit and cash value
are calculated as of the end of each Policy year. These amounts take into
account the deductions made from the premiums (see "Charges Deducted from
Premiums") and reflect a daily charge assessed against the Account for mortality
and expense risks equivalent to an effective annual charge of .50% at the
beginning of the year. The illustrations assume that the Policy's account value
is allocated equally among the six investment divisions currently available
under the Policy and that Policyowners are not limited to selecting four or
fewer investment options. Thus, the illustrated amounts reflect an average of
the investment advisory fees charged against each of the six Funds and an
average of the actual operating expenses incurred by each of the Funds during
the year ended December 31, 1996. The amounts shown in the tables assume that
the average charges for the Fund's investment advisory fees and expenses (a
total of .75%) will be applied to all monies in the Policy.
The illustrated gross annual investment rates of 0%, 6% and 12% correspond
to approximate net annual rates of -1.25%, 4.72% and 10.69% respectively, after
deduction of the charges mentioned above.
The hypothetical returns shown in the tables do not reflect any charges
for Federal income taxes against the Account, since GIAC is not currently making
such charges. However, such charges may be made in the future and, in that
event, the gross annual rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the death
benefits and cash values illustrated. (See "Possible Charge for Income Taxes.")
The second column of each table shows the amount which would accumulate if
an amount equal to the premiums were invested to earn interest (after taxes) at
5% compounded annually.
GIAC will furnish upon request a comparable illustration reflecting the
proposed insured's age, face amount, assumed underwriting class, and annual
premium amount requested.
57
<PAGE>
Policy Illustration #1
GIAC'S ANNUAL PREMIUM VARIABLE LIFE INSURANCE POLICY
Male Issue Age 5 Standard
$173.75* Annual Premium
Guaranteed Insurance Amount: $25,000
<TABLE>
<CAPTION>
Value of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End Prem. Annual Investment Annual Investment Annual Investment
of Accum. at Return of 0% Return of 6% Return of 12%
Policy Annual Interest of ----------------- ----------------- -----------------
Year Prem. 5% Per Yr. Cash Value Death Ben.** Cash Value Death Ben. Cash Value Death Ben.
---- ----- ---------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $174 $ 182 $ 0 $25,000 $ 0 $25,001 $ 1 $ 25,008
2 174 374 84 25,000 91 25,008 98 25,071
3 174 575 170 25,000 187 25,020 206 25,193
4 174 786 254 25,000 288 25,039 326 25,376
5 174 1,008 340 25,000 396 25,063 461 25,624
6 174 1,241 424 25,000 509 25,093 609 25,940
7 174 1,485 506 25,000 626 25,129 772 26,326
8 174 1,742 586 25,000 747 25,170 951 26,784
9 174 2,012 662 25,000 869 25,216 1,144 27,319
10 174 2,295 733 25,000 994 25,268 1,353 27,930
15 174 3,937 1,034 25,000 1,650 25,591 2,693 32,260
20 174 6,032 1,309 25,000 2,444 26,017 4,824 39,120
30 174 12,121 1,884 25,000 4,749 27,155 14,045 64,087
40 174 22,038 2,337 25,000 8,129 28,632 37,739 113,843
</TABLE>
This illustration assumes no loan has been taken from the Policy.
* Corresponding to semi-annual premiums of $89.48 or quarterly premiums of
$45.64.
** The death benefit can never be less than the Guaranteed Insurance Amount.
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this Prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown and will depend on a number of
factors, including the investment allocations made by a Policyowner and the
investment results of the investment divisions to which a Policyowner makes
allocations. The death benefit and cash value for a Policy would be different
from those shown if the actual rates of return averaged 0%, 6% and 12% over a
period of years, but also fluctuated above or below those averages for
individual Policy years. No representation can be made by GIAC or the Funds that
these hypothetical rates of return can be achieved for anyone year or sustained
over any period of time.
58
<PAGE>
Policy Illustration #2
GIAC'S ANNUAL PREMIUM VARIABLE LIFE INSURANCE POLICY
Male Issue Age 35 Non-Smoker
$1,559.00* Annual Premium
Guaranteed Insurance Amount: $100,000
<TABLE>
<CAPTION>
Value of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End Prem. Annual Investment Annual Investment Annual Investment
of Accum. at Return of 0% Return of 6% Return of 12%
Policy Annual Interest of ----------------- ----------------- -----------------
Year Prem. 5% Per Yr. Cash Value Death Ben.** Cash Value Death Ben. Cash Value Death Ben.
---- ----- ---------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,559 $ 1,637 $ 280 $100,000 $ 304 $100,011 $ 328 $100,103
2 1,559 3,356 1,376 100,000 1,491 100,052 1,609 100,491
3 1,559 5,160 2,445 100,000 2,720 100,122 3,012 101,173
4 1,559 7,055 3,489 100,000 3,993 100,221 4,549 102,157
5 1,559 9,045 4,504 100,000 5,308 100,347 6,229 103,453
6 1,559 11,134 5,491 100,000 6,667 100,500 8,067 105,071
7 1,559 13,328 6,446 100,000 8,067 100,678 10,074 107,024
8 1,559 15,631 7,373 100,000 9,513 100,882 12,268 109,324
9 1,559 18,050 8,270 100,000 11,002 101,109 14,664 111,983
10 1,559 20,589 9,137 100,000 12,537 101,361 17,282 115,018
15 1,559 35,323 13,034 100,000 20,927 102,946 34,469 136,433
20 1,559 54,127 16,169 100,000 30,525 105,028 61,011 170,304
30 1,559 108,757 19,868 100,000 52,790 110,432 162,105 291,714
40 1,559 197,743 20,127 100,000 77,409 117,175 382,359 530,229
</TABLE>
This illustration assumes no loan has been taken from the Policy.
* Corresponding to semi-annual premiums of $802.88 or quarterly premiums of
$409.47.
** The death benefit can never be less than the Guaranteed Insurance Amount.
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this Prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown and will depend on a number of
factors, including the investment allocations made by a Policyowner and the
investment results of the investment divisions to which a Policyowner makes
allocations. The death benefit and cash value for a Policy would be different
from those shown if the actual rates of return averaged 0%, 6% and 12% over a
period of years, but also fluctuated above or below those averages for
individual Policy years. No representation can be made by GIAC or the Funds that
these hypothetical rates of return can be achieved for any one year or sustained
over any period of time.
59
<PAGE>
Policy Illustration #3
GIAC'S ANNUAL PREMIUM VARIABLE LIFE INSURANCE POLICY
Female Issue Age 35 Standard Non-Smoker
$1,282.00* Annual Premium
Guaranteed Insurance Amount: $100,000
<TABLE>
<CAPTION>
Value of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End Prem. Annual Investment Annual Investment Annual Investment
of Accum. at Return of 0% Return of 6% Return of 12%
Policy Annual Interest of ----------------- ----------------- -----------------
Year Prem. 5% Per Yr. Cash Value Death Ben.** Cash Value Death Ben. Cash Value Death Ben.
---- ----- ---------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,282 $ 1,346 $ 145 $100,000 $ 159 $100,008 $ 173 $100,072
2 1,282 2,760 1,048 100,000 1,131 100,044 1,217 100,416
3 1,282 4,244 1,929 100,000 2,138 100,109 2,359 101,041
4 1,282 5,802 2,787 100,000 3,179 100,201 3,610 101,954
5 1,282 7,438 3,621 100,000 4,254 100,319 4,976 103,164
6 1,282 9,156 4,429 100,000 5,362 100,462 6,468 104,682
7 1,282 10,960 5,211 100,000 6,503 100,631 8,095 106,517
8 1,282 12,854 5,966 100,000 7,677 100,823 9,870 108,681
9 1,282 14,843 6,700 100,000 8,889 101,038 11,812 111,186
10 1,282 16,931 7,411 100,000 10,141 101,276 13,937 114,048
15 1,282 29,047 10,652 100,000 17,040 102,780 27,955 134,294
20 1,282 44,510 13,367 100,000 25,082 104,764 49,845 166,424
30 1,282 89,433 17,449 100,000 45,353 109,968 137,168 282,230
40 1,282 162,609 19,296 100,000 70,888 116,567 341,058 511,039
</TABLE>
This illustration assumes no loan has been taken from the Policy.
* Corresponding to semi-annual premiums of $660.23 or quarterly premiums of
$336.72.
** The death benefit can never be less than the Guaranteed Insurance Amount.
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this Prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown and will depend on a number of
factors, including the investment allocations made by a Policyowner and the
investment results of the investment divisions to which a Policyowner makes
allocations. The death benefit and cash value for a Policy would be different
from those shown if the actual rates of return averaged 0%, 6% and 12% over a
period of years, but also fluctuated above or below those averages for
individual Policy years. No representation can be made by GIAC or the Funds that
these hypothetical rates of return can be achieved for any one year or sustained
over any period of time.
60
<PAGE>
Policy Illustration #4
GIAC'S ANNUAL PREMIUM VARIABLE LIFE INSURANCE POLICY
Male Issue Age 55 Preferred Non-Smoker
$8,762.50* Annual Premium
Guaranteed Insurance Amount: $250,000
<TABLE>
<CAPTION>
Value of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End Prem. Annual Investment Annual Investment Annual Investment
of Accum. at Return of 0% Return of 6% Return of 12%
Policy Annual Interest of ----------------- ----------------- -----------------
Year Prem. 5% Per Yr. Cash Value Death Ben.** Cash Value Death Ben. Cash Value Death Ben.
---- ----- ---------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $8,763 $ 9,201 $ 2,058 $250,000 $ 2,265 $250,053 $ 2,475 $ 250,491
2 8,763 18,861 7,833 250,000 8,610 250,193 9,418 251,828
3 8,763 29,005 13,371 250,000 15,076 250,419 16,906 254,030
4 8,763 39,656 18,673 250,000 21,661 250,726 24,986 257,122
5 8,763 50,839 23,746 250,000 28,368 251,113 33,713 261,129
6 8,763 62,582 28,583 250,000 35,186 251,577 43,126 266,082
7 8,763 74,912 33,181 250,000 42,111 252,114 53,278 272,014
8 8,763 87,858 37,526 250,000 49,121 252,723 64,208 278,958
9 8,763 101,451 41,611 250,000 56,198 253,402 75,963 286,953
10 8,763 115,724 45,425 250,000 63,325 254,147 88,588 296,038
15 8,763 198,536 60,713 250,000 99,636 258,789 167,303 359,476
20 8,763 304,227 69,910 250,000 136,193 264,782 279,300 458,621
30 8,763 611,279 71,066 250,000 202,258 279,924 650,103 808,886
40 8,763 1,111,433 62,018 250,000 261,781 298,262 1,370,291 1,489,580
</TABLE>
This illustration assumes no loan has been taken from the Policy.
* Corresponding to semi-annual premiums of $4,512.69 or quarterly premiums
of $2,301.47.
** The death benefit can never be less than the Guaranteed Insurance Amount.
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this Prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown and will depend on a number of
factors, including the investment allocations made by a Policyowner and the
investment results of the investment divisions to which a Policyowner makes
allocations. The death benefit and cash value for a Policy would be different
from those shown if the actual rates of return averaged 0%, 6% and 12% over a
period of years, but also fluctuated above or below those averages for
individual Policy years. No representation can be made by GIAC or the Funds that
these hypothetical rates of return can be achieved for any one year or sustained
over any period of time.
61
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484
Under Article VIII of GIAC's By-Laws, as supplemented by Section 3.2 of
GIAC's Certificate of Incorporation, any past or present director or officer of
GIAC (including persons who serve at GIAC's request, or for its benefit, as
directors or officers of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise [hereinafter referred to
as a "Covered Person"]) is indemnified to the fullest extent permitted by law
against liability and all expenses reasonably incurred by such Covered Person in
connection with any action, suit or proceeding to which such Covered Person may
be a party or otherwise involved by reason of being or having been a Covered
Person. However, this provision does not protect a Covered Person against any
liability to either GIAC or its stockholder to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office. This provision does protect a director of GIAC against
any liability to GIAC or its stockholder for monetary damages or for breach of
fiduciary duty as a director of GIAC, except for liability (i) for any breach of
the director's duty of loyalty to GIAC or its stockholder, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 61 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
The signatures.
Written consents of the following persons:
Richard T. Potter, Jr., Esq.
Charles G. Fisher, F.S.A.
Price Waterhouse LLP
II-1
<PAGE>
The following exhibits:
1.A (1) Resolution of the Board of Directors of The Guardian Insurance
& Annuity Company, Inc. establishing The Guardian Separate
Account C.*
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution and Service Agreement between The Guardian
Insurance & Annuity Company, Inc. and Guardian Investor
Services Corporation.**
(b) (i) Form of Broker-Dealer Supervisory and Service
Agreement.*
(ii) Form of Registered Representative's Agreement.*
(c) Schedule of Sales Commissions.**
(4) Not Applicable.
(5) Specimen of Annual Premium Variable Life Insurance Policy.***
(6) (a) Certificate of Incorporation of The Guardian Insurance &
Annuity Company, Inc.*
(b) By-laws of The Guardian Insurance & Annuity Company,
Inc.*
(7) Not Applicable.
(8) Amended and Restated Agreement for Services and Reimbursement
Therefor, between The Guardian Life Insurance Company of
America and The Guardian Insurance & Annuity Company, Inc. +++
(9) Not Applicable.
(10) Form of Application for Annual Premium Variable Life Insurance
Policy.*
(11) Memorandum on the Policy Issuance, Transfer and Redemption
Procedures and on the Method of Computing Cash Adjustment upon
Exchange of the Policy Pursuant to Rule 6e-2(b)(12)(ii) and
Rule 6e-2(b)(13)(v)(B).***
(12) Undertaking by The Guardian Insurance & Annuity Company, Inc.
to Guarantee Certain Obligations of Guardian Investor Services
Corporation.**
2. See Exhibit 1.A(5).
3.(a) Opinion and Consent of Richard T. Potter, Jr., Esq.+
3.(b) Consent of Richard T. Potter, Jr., Esq.
4. None.
5. Not Applicable.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
7. Consent of Price Waterhouse LLP.
8. Powers of Attorney executed by a majority of the Board of Directors
and certain principal officers of The Guardian Insurance & Annuity
Company, Inc.++
- ----------
* Incorporated by reference to the Form S-6 Registration Statement filed by
Registrant on October 24, 1988 (Reg. No. 33-25153).
** Incorporated by reference to Pre-Effective Amendment No. 1 to the Form S-6
Registration Statement filed by Registrant on January 19, 1989 (Reg. No.
33-25153).
*** Incorporated by reference to Post-Effective Amendment No. 1 to the Form
S-6 Registration Statement filed by Registrant on September 18, 1989 (Reg.
No. 33-25153).
+ Incorporated by reference to Post-Effective Amendment No. 4 to the Form
S-6 Registration Statement filed by Registrant on April 24, 1992 (Reg. No.
33-25153).
++ Incorporated by reference to Post-Effective Amendment No. 3 and
Post-Effective Amendment No. 5 to the Form S-6 Registration Statement
filed by Registrant on April 29, 1991 and April 29, 1993, respectively
(Reg. No. 33-25153).
+++ Incorporated by reference to Post-Effective Amendment No. 7 to the Form
S-6 Registration Statement filed by Registrant on April 24, 1995 (Reg. No.
33-25153).
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, The Guardian Separate Account C, certifies that it meets all of the
requirements for effectiveness of this Amendment pursuant to Rule 485(b) and has
duly caused this Post-Effective Amendment No. 9 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 30th day of April, 1997.
THE GUARDIAN SEPARATE ACCOUNT C
(Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Depositor)
By: /s/ Thomas R. Hickey, Jr.
------------------------------------------
THOMAS R. HICKEY, JR.
VICE PRESIDENT, ADMINISTRATION
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 principal officers of The Guardian Insurance &
Annuity Company, Inc. in the capacities and on the date indicated.
/s/ Joseph D. Sargent* Chairman of the Board and Chief Executive
- --------------------------------- Officer
Joseph D. Sargent
(Principal Executive Officer)
/s/ Frank J. Jones Executive Vice President, Chief Investment
- --------------------------------- Officer and Director
Frank J. Jones
(Principal Financial Officer)
/s/ Charles E. Albers* Vice President, Equity Securities
- ---------------------------------
Charles E. Albers
/s/ Edward K. Kane* Senior Vice President, General Counsel
- --------------------------------- and Director
Edward K. Kane
/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/ Philip H. Dutter* Director
- ---------------------------------
Philip H. Dutter
/s/ Arthur V.Ferrara Director
- ---------------------------------
Arthur V. Ferrara
/s/ Leo R. Futia* Director
- ---------------------------------
Leo R. Futia
Director
- ---------------------------------
Peter L. Hutchings
/s/ William C. Warren* Director
- ---------------------------------
William C. Warren
*By: /s/ Thomas R. Hickey, Jr. Date: April 30, 1997
----------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
Pursuant to a Power of Attorney
II-4
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3 (b) Consent of Richard T. Potter, Jr., Esq.
6 Opinion and Consent of Charles G. Fisher, F.S.A.
7 Consent of Price Waterhouse LLP
Ex 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 9 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated February 11, 1997, relating to the
financial statements of The Guardian Separate Account C and our report dated
February 11, 1997, relating to The Guardian Insurance & Annuity Company, Inc.,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Independent Accountants" in the Registration Statement.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
New York, New York
April 25, 1997
Ex 99.3(b)
CONSENT OF COUNSEL
I hereby consent to the reference to my name under the heading "Legal
Matters" in Post-Effective Amendment No. 9 to the Registration Statement on Form
S-6 for The Guardian Separate Account C and to the filing of this consent as an
exhibit to the Registration Statement.
/s/ Richard T. Potter, Jr.
---------------------------------
Richard T. Potter, Jr.
Counsel
Ex 99.6
April 29, 1997
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
Sir or Madam:
In my capacity as Vice President and Actuary of The Guardian Insurance &
Annuity Company, Inc. ("GIAC"), I am familiar with and have provided actuarial
advice concerning the following: (a) the preparation of Post-Effective Amendment
No. 9 to the Registration Statement for The Guardian Separate Account C (the
"Account") filed on Form S-6 with the Securities and Exchange Commission under
the Securities Act of 1933 (the "Registration Statement"); and (b) the
preparation of the form of annual premium variable life insurance policy (the
"Policy") offered by GIAC and described in the Post-Effective Amendment.
It is my professional opinion that:
1. The "sales load" for Policies issued in the preferred, standard or
substandard classes, whether smoker or non-smoker, complies with paragraph
(c)(4) of Rule 6e-2 under the Investment Company Act of 1940.
2. The illustrations of death benefits, cash values and accumulated
premiums, and the assumptions upon which they are based, as set forth in the
section of the prospectus entitled "Illustrations of Death Benefits and Cash
Values," are consistent with the provisions of the Policy. The rate structure of
the Policy has not been designed so as to make the relationship between premiums
and benefits, as shown in the illustrations, appear to be correspondingly more
favorable for proposed insureds who are aged 5, 35 or 55 and in the standard
underwriting class than for proposed insureds who are other ages or in other
underwriting classes.
3. The examples set forth in the section of the prospectus entitled "The
Policy" are based on the assumptions stated in the illustrations and are
consistent with the provisions of the Policy.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the heading "Experts" in
the prospectus.
Very truly yours,
/s/ Charles G. Fisher
Charles G. Fisher, F.S.A.
Vice President and Actuary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
SEPARATE ACCOUNT C - SELECT GUARD
This schedule contains financial information extracted from the "Annual
Report to Shareholders" dated December 31, 1996.
</LEGEND>
<CIK> 0000841694
<NAME> SEPARATE ACCOUNT C - SELECT GUARD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5,355,391
<INVESTMENTS-AT-VALUE> 6,263,097
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,263,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 66,652
<TOTAL-LIABILITIES> 66,652
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 55,926
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 721,284
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 907,706
<NET-ASSETS> 6,196,445
<DIVIDEND-INCOME> 89,043
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 33,117
<NET-INVESTMENT-INCOME> 55,926
<REALIZED-GAINS-CURRENT> 721,284
<APPREC-INCREASE-CURRENT> 206,488
<NET-CHANGE-FROM-OPS> 983,698
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33,117
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33,117
<AVERAGE-NET-ASSETS> 5,232,223
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 927,772
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
