As filed with the Securities and Exchange Commission on April 30, 1998
Registration No. 33-25153
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 11
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, 1998 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 March 25, 1998.
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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, 1998
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, 1998
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 $7.9 billion as of
December 31, 1997.
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 $14.3 billion as of December 31, 1997. 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 totaled $1,409,708, $1,851,468 and $1,979,926 in 1995, 1996 and
1997 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 this connection, the President's 1999
Budget Proposal has recommended legislation that, if enacted, would adversely
modify the federal taxation of certain insurance and annuity contracts. For
example, one proposal would tax transfers among investment options and tax
exchanges involving variable contracts. A second proposal would reduce the
"investment in the contract" under cash value life insurance and certain annuity
contracts, thereby increasing the amount of income for purposes of computing
gain. 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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<PAGE>
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. The operational expenses for each of these
Funds reflects the effects of expense reimbursements paid to GIAC for certain
administrative and shareholder servicing expenses incurred by GIAC on their
behalf. For the year ended December 31, 1997, GIAC was reimbursed $696,767 by
the Strategic Trust and $483,127 by the Centurion Fund. 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, 1997, GIAC received $241,031 from
Value Line on behalf of the Centurion Fund and $407,319 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 ten series) and (5) GIAC Funds, Inc. (a
series fund that issues its shares in three series).
Name Title Business History
---- ----- ----------------
JOSEPH A. CARUSO Vice President and Vice President and Corporate
Secretary 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. Vice President and
Secretary, Guardian Investor
Services Corporation;
Secretary, 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. Senior Vice
President, Guardian Investor
Services Corporation to
present; Vice President, Equity
Operations, prior thereto. 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.
RYAN W. JOHNSON Vice President, Equity Vice President, Equity Sales,
Sales The Guardian Life Insurance
Company of America 3/95 -
present; Second Vice President,
Equity Sales 3/95 - 2/98;
Regional Sales Director for
Equity Products, Western
Division, prior thereto. Senior
Vice President, Guardian
Investor Services Corporation.
EDWARD K. KANE Executive Vice Executive Vice President, The
President and Director Guardian Life Insurance Company
of America 1/97-present; Senior
Vice President and General
Counsel prior thereto; Director
11/88-present. 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.
EILEEN C. McDONNELL Vice President, Group Vice President, Group Pensions,
Pensions The Guardian Life Insurance
Company of America 9/97 -
present; Vice President, Group
Marketing 9/95 - 9/97. Vice
President, Strategic Marketing,
The Equitable Life Assurance
Society of the United States,
1/95 - 9/95; Vice President,
Northern Operations 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;
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.
THOMAS G. SORRELL Vice President Vice President, The Guardian
Life Insurance Company of
America 7/94 - present;
Director of Fixed Income,
White River Corporation,
12/93 - 7/94; Director of
Fixed Income, Fund American
Enterprises, 4/93 - 12/93.
Vice President, Guardian
Asset Management
Corporation. Officer,
various mutual funds within
the Guardian Fund Complex.
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.
Year 2000 Compliance
Like other financial and business organizations around the world, GIAC
could be adversely affected if the computer systems it uses internally, the
systems of its service providers, and related computer systems do not properly
process and calculate date-related information and data beginning on January 1,
2000. Many computer systems today cannot distinguish the year 2000 from the year
1900 because of the way dates were encoded and calculated in these systems. GIAC
has been actively working to deal with this problem, and expects that its
systems and others upon which it is reliant will be adapted before January 1,
2000. However, there can be no assurance that these preparations will be
successful.
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 the statutory basis financial
statements of GIAC are set forth in this Prospectus. The statutory basis
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, 1997
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
-------- ---- ---- ----
<S> <C> <C> <C> <C>
FIFO Cost ....................................................... -- $ 4,091,006 $ 267,032 $ 39,993
Assets
Shares owned in underlying fund -- Note 1 ..................... -- 113,680 22,380 3,999
Net asset value per share (NAV) ............................... -- 46.05 12.11 10.00
Total Assets (Shares x NAV) ................................ $ 8,468,427 5,234,945 271,024 39,993
----------- ----------- ----------- -----------
Liabilities
Due to The Guardian Insurance & Annuity Company, Inc. ......... 55,718 38,552 1,854 756
----------- ----------- ----------- -----------
Net Assets .................................................. $ 8,412,709 $ 5,196,393 $ 269,170 $ 39,237
=========== =========== =========== ===========
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset
International Centurion Management
Fund Fund Trust
---- ---- -----
<S> <C> <C> <C>
FIFO Cost ....................................................... $ 1,023,354 $ 721,254 $ 905,620
Assets
Shares owned in underlying fund -- Note 1 ..................... 61,510 29,996 46,687
Net asset value per share (NAV) ............................... 18.27 25.52 22.13
Total Assets (Shares x NAV) ................................ 1,123,796 765,487 1,033,182
----------- ----------- -----------
Liabilities
Due to The Guardian Insurance & Annuity Company, Inc. ......... 5,440 3,458 5,658
----------- ----------- -----------
Net Assets .................................................. $ 1,118,356 $ 762,029 $ 1,027,524
=========== =========== ===========
</TABLE>
THE GUARDIAN SEPARATE ACCOUNT C
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ........................................ $ 111,814 $ 51,589 $ 15,909 $ 1,988
Expenses-- Note 3:
Mortality and expense risk charges .......................... 43,612 27,155 1,445 227
----------- ----------- ----------- -----------
Net investment income/(expense) ................................. 68,202 24,434 14,464 1,761
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........... 274,265 178,236 (5,260) --
Reinvested realized gain distributions ...................... 814,924 555,829 -- --
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ..................... 1,089,189 734,065 (5,260) --
----------- ----------- ----------- -----------
Unrealized appreciation/(depreciation) of investments:
End of year ................................................. 1,420,168 1,143,939 3,992 --
Beginning of year ........................................... 907,705 616,871 (6,964) --
----------- ----------- ----------- -----------
Change in unrealized appreciation/(depreciation) ............ 512,463 527,068 10,956 --
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ........ 1,601,652 1,261,133 5,696 --
----------- ----------- ----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations . $ 1,669,854 $ 1,285,567 $ 20,160 $ 1,761
=========== =========== =========== ===========
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset
International Centurion Management
Fund Fund Trust
---- ---- -----
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ........................................ $ 18,280 $ 2,205 $ 21,843
Expenses-- Note 3:
Mortality and expense risk charges .......................... 5,453 4,004 5,328
----------- ----------- -----------
Net investment income/(expense) ................................. 12,827 (1,799) 16,515
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........... 35,042 38,315 27,932
Reinvested realized gain distributions ...................... 46,081 112,934 100,080
----------- ----------- -----------
Net realized gain/(loss) on investments ..................... 81,123 151,249 128,012
----------- ----------- -----------
Unrealized appreciation/(depreciation) of investments:
End of year ................................................. 100,442 44,233 127,562
Beginning of year ........................................... 90,479 65,797 141,522
----------- ----------- -----------
Change in unrealized appreciation/(depreciation) ............ 9,963 (21,564) (13,960)
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ........ 91,086 129,685 114,052
----------- ----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations . $ 103,913 $ 127,886 $ 130,567
=========== =========== ===========
</TABLE>
See notes to financial statements.
THE GUARDIAN SEPARATE ACCOUNT C
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.
THE GUARDIAN SEPARATE ACCOUNT C
STATEMENTS OF OPERATIONS
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.
33 & 34
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
-------- ---- ---- ----
<S> <C> <C> <C> <C>
1995 Increase/(Decrease) from Operations
Net investment income/(expense) ...... $ 49,194 $ 16,011 $ 12,519 $ 9,983
Net realized gain/(loss) from sale of
investments .......................... 2,779 727 50 --
Reinvested realized gain distribution 140,113 102,047 -- --
Change in unrealized appreciation/
(depreciation) of investments ........ 641,372 383,785 18,592 --
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from
operations ........................... 833,458 502,750 31,161 9,983
----------- ----------- ----------- -----------
1995 Policy Transactions
Transfer of net premium ..................................... 1,546,300 824,023 66,022 42,349
Transfer on account of death ................................ (3,466) -- -- --
Transfer on account of other
terminations ................................................ (133,633) (69,645) (5,775) (2,762)
Transfer of policy loans .................................... (99,168) (49,762) (1,831) (4,772)
Transfer between funds ...................................... -- 30,391 (7,149) 3,703
Transfers of cost of insurance .............................. (283,696) (160,079) (13,106) (6,656)
Transfers-- other ........................................... (148,399) 4,350 (450) (143,756)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy
transactions ................................................ 877,938 579,278 37,711 (111,894)
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ....................... 1,711,396 1,081,848 68,872 (101,911)
Net Assets at December 31, 1994 ............................. 2,556,604 1,221,147 168,969 171,881
----------- ----------- ----------- -----------
Net Assets at December 31, 1995 -- .......................... $ 4,268,000 $ 2,302,995 $ 237,841 $ 69,970
=========== =========== =========== ===========
1996 Increase/(Decrease) from Operations
Net investment income/(expense) ............................. $ 55,926 $ 23,872 $ 14,607 $ 2,095
Net realized gain/(loss) from sale of investments ........... 222,679 111,916 (793) --
Reinvested realized gain distributions ...................... 498,605 384,957 -- --
Change in unrealized appreciation/(depreciation)
of investments ............................................ 206,488 167,054 (8,081) --
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ........... 983,698 687,799 5,733 2,095
----------- ----------- ----------- -----------
1996 Policy Transactions
Transfer of net premium ..................................... 1,620,112 956,718 61,595 19,611
Transfer on account of death ................................ (7,086) (2,370) -- --
Transfer on account of other terminations ................... (190,477) (148,360) (4,388) (184)
Transfer of policy loans .................................... (138,977) (112,243) (2,853) (2,240)
Transfer between funds ...................................... -- 15,245 (18,996) (48,210)
Transfer of cost of insurance ............................... (339,105) (202,991) (12,564) (5,503)
Transfers-- other ........................................... 280 (233) (68) (7)
----------- ----------- ----------- -----------
Net increase/(decrease) from contract transactions .......... 944,747 505,766 22,726 (36,533)
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ....................... 1,928,445 1,193,565 28,459 (34,438)
Net Assets at December 31, 1995 ............................. 4,268,000 2,302,995 237,841 69,970
----------- ----------- ----------- -----------
Net Assets at December 31, 1996 ............................. $ 6,196,445 $ 3,496,560 $ 266,300 $ 35,532
=========== =========== =========== ===========
1997 Increase/(Decrease) from Operations
Net investment income/(expense) ............................. $ 68,202 $ 24,434 $ 14,464 $ 1,761
Net realized gain/(loss) from sale of investments ........... 274,265 178,236 (5,260) --
Reinvested realized gain distributions ...................... 814,924 555,829 -- --
Change in unrealized appreciation/(depreciation)
of investments ............................................ 512,463 527,068 10,956 --
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ........... 1,669,854 1,285,567 20,160 1,761
----------- ----------- ----------- -----------
1997 Policy Transactions
Transfer of net premium ..................................... 1,519,578 904,080 53,331 13,751
Transfer on account of death ................................ -- -- -- --
Transfer on account of other terminations ................... (401,099) (187,545) (23,029) (2,861)
Transfer of policy loans .................................... (229,239) (114,168) (8,063) (1,622)
Transfer between funds ...................................... -- 21,379 (28,393) (3,759)
Transfer of cost of insurance -- Note 3 ..................... (342,731) (209,606) (11,113) (3,562)
Transfers -- other .......................................... (99) 126 (23) (3)
----------- ----------- ----------- -----------
Net increase/(decrease) from contract transactions .......... 546,410 414,266 (17,290) 1,944
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ....................... 2,216,264 1,699,833 2,870 3,705
Net Assets at December 31, 1996 ............................. 6,196,445 3,496,560 266,300 35,532
----------- ----------- ----------- -----------
Net Assets at December 31, 1997 ............................. $ 8,412,709 $ 5,196,393 $ 269,170 $ 39,237
=========== =========== =========== ===========
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset
International Centurion Management
Fund Fund Trust
---- ---- -----
<S> <C> <C> <C>
1995 Increase/(Decrease) from Operations
Net investment income/(expense) ...... $ 6,972 $ (416) $ 4,125
Net realized gain/(loss) from sale of
investments .......................... (61) 1,506 557
Reinvested realized gain distribution 24,029 9,710 4,327
Change in unrealized appreciation/
(depreciation) of investments ........ 19,960 106,286 112,749
----------- ----------- -----------
Net increase/(decrease) resulting from
operations ........................... 50,900 117,086 121,758
----------- ----------- -----------
1995 Policy Transactions
Transfer of net premium ..................................... 254,498 138,717 220,691
Transfer on account of death ................................ -- -- (3,466)
Transfer on account of other
terminations ................................................ (12,127) (17,753) (25,571)
Transfer of policy loans .................................... (16,935) (10,360) (15,508)
Transfer between funds ...................................... (19,593) (3,435) (3,917)
Transfers of cost of insurance .............................. (41,071) (23,906) (38,878)
Transfers-- other ........................................... 115 (7,179) (1,479)
----------- ----------- -----------
Net increase/(decrease) from policy
transactions ................................................ 164,887 76,084 131,872
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ....................... 215,787 193,170 253,630
Net Assets at December 31, 1994 ............................. 346,189 265,160 383,258
----------- ----------- -----------
Net Assets at December 31, 1995 --
Note 4 ...................................................... $ 561,976 $ 458,330 $ 636,888
=========== =========== ===========
1996 Increase/(Decrease) from Operations
Net investment income/(expense) ............................. $ 7,887 $ (801) $ 8,266
Net realized gain/(loss) from sale of investments ........... 33,418 43,704 34,434
Reinvested realized gain distributions ...................... 11,818 64,447 37,383
Change in unrealized appreciation/(depreciation)
of investments ............................................ 56,249 (31,359) 22,625
----------- ----------- -----------
Net increase/(decrease) resulting from operations ........... 109,372 75,991 102,708
----------- ----------- -----------
1996 Policy Transactions
Transfer of net premium ..................................... 256,230 129,308 196,650
Transfer on account of death ................................ -- -- (4,716)
Transfer on account of other terminations ................... (17,977) 7,422 (26,990)
Transfer of policy loans .................................... 39,663 (28,339) (32,965)
Transfer between funds ...................................... 20,755 14,896 16,310
Transfer of cost of insurance ............................... (45,943) (30,245) (41,859)
Transfers-- other ........................................... 288 1 299
----------- ----------- -----------
Net increase/(decrease) from contract transactions .......... 253,016 93,043 106,729
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ....................... 362,388 169,034 209,437
Net Assets at December 31, 1995 ............................. 561,976 458,330 636,888
----------- ----------- -----------
Net Assets at December 31, 1996 ............................. $ 924,364 $ 627,364 $ 846,325
=========== =========== ===========
1997 Increase/(Decrease) from Operations
Net investment income/(expense) ............................. $ 12,827 $ (1,799) $ 16,515
Net realized gain/(loss) from sale of investments ........... 35,042 38,315 27,932
Reinvested realized gain distributions ...................... 46,081 112,934 100,080
Change in unrealized appreciation/(depreciation)
of investments ............................................ 9,963 (21,564) (13,960)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ........... 103,913 127,886 130,567
----------- ----------- -----------
1997 Policy Transactions
Transfer of net premium ..................................... 227,487 145,329 175,600
Transfer on account of death ................................ -- -- --
Transfer on account of other terminations ................... (40,702) (84,701) (62,261)
Transfer of policy loans .................................... (58,998) (20,958) (25,430)
Transfer between funds ...................................... 9,229 (1,761) 3,305
Transfer of cost of insurance -- Note 3 ..................... (46,890) (31,027) (40,533)
Transfers -- other .......................................... (47) (103) (49)
----------- ----------- -----------
Net increase/(decrease) from contract transactions .......... 90,079 6,779 50,632
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ....................... 193,992 134,665 181,199
Net Assets at December 31, 1996 ............................. 924,364 627,364 846,325
----------- ----------- -----------
Net Assets at December 31, 1997 ............................. $ 1,118,356 $ 762,029 $ 1,027,524
=========== =========== ===========
</TABLE>
See notes to financial statements.
35 & 36
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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). However, a
policyowner can only invest in up to four investment divisions.
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.
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.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the
37
<PAGE>
Purchases and Sales
During the years ended December 31, 1997 and December 31, 1996, 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,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .......... $1,351,858 $1,171,180 $ 362,720 $ 231,645
The Guardian Bond Fund, Inc. ........... 68,021 67,808 71,403 29,174
The Guardian Cash Fund, Inc. ........... 19,905 26,105 15,973 60,284
Baillie Gifford International Fund ..... 327,517 410,261 180,076 132,884
Value Line Centurion Fund, Inc. ........ 259,712 323,326 143,793 163,333
Value Line Strategic Asset
Management Trust .................... 276,462 238,292 110,907 81,492
---------- ---------- ---------- ----------
Total ............................... $2,303,475 $2,236,972 $ 884,872 $ 698,812
========== ========== ========== ==========
</TABLE>
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: In some instances the calculation of total assets may not agree due
to rounding.
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Policyowners of The Guardian Separate Account C, "Select Guard"
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the investment divisions
relating to The Guardian Stock Fund, Inc., The Guardian Bond Fund, Inc., The
Guardian Cash Fund, Inc., Baillie Gifford International Fund, Value Line
Centurion Fund, Inc. and Value Line Strategic Asset Management Trust
(constituting The Guardian Separate Account C, "Select Guard") at December 31,
1997, 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, 1997 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 13, 1998
39
<PAGE>
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- --------------------------------------------------------------------------------
40
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1997 - $492,052,307; 1996 - $491,271,164) ............. $ 484,747,832 $ 490,445,948
Affiliated mutual funds, at market ............................... 30,551,186 2,755,672
Investment in subsidiary ......................................... 12,073,143 7,746,643
Policy loans - variable life insurance ........................... 72,737,781 68,143,068
Cash and short-term investments .................................. 23,602,410 17,825,039
Investment in joint venture ...................................... 345,492 285,874
Accrued investment income receivable ................................ 13,303,271 10,553,405
Due from parent and affiliates ...................................... 7,573,304 6,507,913
Other assets ........................................................ 12,557,432 12,173,268
Receivable from separate accounts ................................... 30,203,923 11,606,587
Variable annuity and EISP/CIP separate account assets ............... 6,810,882,719 5,248,159,777
Variable life separate account assets ............................... 414,699,239 342,921,803
-------------- --------------
TOTAL ADMITTED ASSETS .......................................... $7,913,277,732 $6,219,124,997
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves .......................................... $ 339,797,646 $ 329,681,355
Fixed immediate reserves ......................................... 7,397,461 5,874,894
Life reserves .................................................... 67,799,492 65,462,693
Minimum death benefit guarantees ................................. 1,117,645 1,257,777
Policy loan collateral fund reserve .............................. 70,734,812 65,762,820
Accrued expenses, taxes, & commissions ........................... 1,592,997 2,712,360
Due to parent and affiliates ........................................ 20,408,087 15,304,638
Federal income taxes payable ........................................ 10,939,640 4,743,447
Other liabilities ................................................... 20,540,325 30,079,434
Asset valuation reserve ............................................. 26,305,528 15,121,269
Variable annuity and EISP/CIP separate account liabilities .......... 6,750,575,077 5,193,574,218
Variable life separate account liabilities .......................... 413,364,790 335,769,184
-------------- --------------
TOTAL LIABILITIES .............................................. $7,730,573,500 $6,065,344,089
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 ..................................... 43,305,940 14,382,616
-------------- --------------
Total Common Stock and Surplus ................................. 182,704,232 153,780,908
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS .................... $7,913,277,732 $6,219,124,997
============== ==============
</TABLE>
See notes to statutory basis financial statements.
41
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations:
Variable annuity considerations ............. $ 995,209,301 $ 731,792,764 $ 537,841,762
Life insurance premiums and fixed
annuity considerations .................... 68,222,360 44,874,269 73,938,212
Net investment income ......................... 47,993,754 42,366,902 36,293,598
Amortization of IMR ........................... 111,783 333,219 257,380
Net gain from operations of separate accounts . 5,780,327 8,860,462 --
Service fees .................................. 76,350,291 58,774,486 46,560,286
Variable life -- cost of insurance ............ 11,205,120 4,844,028 4,232,564
Reserve adjustments on reinsurance ceded ...... 7,885,341 30,636,445 (32,192,749)
Commission and expense allowances ............. 16,268,128 14,508,840 10,057,974
Other income .................................. 5,178,266 2,535,356 1,127,526
--------------- --------------- ---------------
1,234,204,671 939,526,771 678,116,553
--------------- --------------- ---------------
Benefits and expenses:
Benefits:
Death benefits .............................. 5,340,675 6,785,456 4,774,584
Annuity benefits ............................ 687,719,014 426,072,773 276,568,762
Surrender benefits .......................... 17,620,583 17,459,706 17,660,413
Increase in reserves ........................ 18,291,585 82,891,516 65,349,399
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ............... 359,468,681 323,093,897 252,772,988
Variable Life ............................... (630,102) (10,417,095) (17,796,371)
Commissions ................................... 43,352,989 39,233,431 34,364,742
General insurance expenses .................... 59,476,685 42,523,892 25,888,456
Taxes, licenses and fees ...................... 3,743,414 3,723,858 2,477,492
Reinsurance terminations ...................... 182,535 (15,470,015) 11,002,701
--------------- --------------- ---------------
1,194,566,059 915,897,419 673,063,166
--------------- --------------- ---------------
Income before income taxes and realized
gains from investments ...................... 39,638,612 23,629,352 5,053,387
Federal income taxes .......................... 12,073,500 3,941,460 439,667
--------------- --------------- ---------------
Income from operations, net of federal
income taxes, and before net realized
gains ....................................... 27,565,112 19,687,892 4,613,720
Realized gains from investments, net of federal
income taxes, net of transfer to IMR ........ 472,127 7,540 342,455
--------------- --------------- ---------------
Net income .................................... $ 28,037,239 $ 19,695,432 $ 4,956,175
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
42
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
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
========== ============ =========== ============
Net income from operations ....................... 28,037,239 28,037,239
Increase in unrealized appreciation of Company's
investment in joint venture ................... 42,908 42,908
Increase in unrealized appreciation of Company's
investment in subsidiary ...................... 4,326,500 4,326,500
Increase in unrealized appreciation of Company's
investment in other assets .................... 9,384 9,384
Increase in unrealized appreciation of Company's
investment in an affiliated mutual fund ....... 7,271,233 7,271,233
Decrease in non-admitted assets .................. 83,011 83,011
Disallowed interest maintenance reserve .......... (197,600) (197,600)
Surplus changes resulting from reinsurance ....... 534,908 534,908
Net increase in asset valuation reserve .......... (11,184,259) (11,184,259)
---------- ------------ ----------- ------------
Balances at December 31, 1997 .................... $2,000,000 $137,398,292 $43,305,940 $182,704,232
========== ============ =========== ============
</TABLE>
See notes to statutory basis financial statements.
43
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and
deposit funds ................................... $ 1,065,244,583 $ 780,710,735 $ 611,169,979
Investment income ................................. 46,412,248 42,413,736 36,912,131
Commissions and expense allowances on
reinsurance ceded ............................... 22,679,622 37,315,301 (22,118,484)
Other income ...................................... 67,084,996 47,357,962 44,220,753
Death benefits .................................... (5,492,854) (6,900,438) (4,420,866)
Surrender benefits ................................ (17,780,564) (2,774,865) (17,660,413)
Annuity benefits .................................. (689,207,046) (424,511,908) (276,163,436)
Commissions, other expenses
and taxes (excluding FIT) ....................... (101,213,566) (78,968,214) (57,714,112)
Net transfers to separate accounts ................ (356,017,200) (307,856,562) (231,230,812)
Federal income taxes (excluding tax on
capital gains) .................................. (5,094,779) 682,025 (1,557,444)
Increase in policy loans .......................... (4,594,714) (4,300,868) (4,522,280)
Other operating expenses and sources .............. (140,580) 2,077,342 (8,945,084)
--------------- --------------- ---------------
Net cash provided by insurance activities ............ 21,880,146 85,244,246 67,969,932
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities 315,404,430 224,692,954 63,122,215
Purchases of investment securities ................ (331,151,548) (309,590,319) (118,543,796)
Federal income tax on capital gains ............... (355,657) (505,496) 992,810
--------------- --------------- ---------------
Net cash used in investing activities ................ (16,102,775) (85,402,861) (54,428,771)
--------------- --------------- ---------------
Net increase (decrease) in cash ................. 5,777,371 (158,615) 13,541,161
Cash and short-term investments,
beginning of year ............................. 17,825,039 17,983,654 4,442,493
--------------- --------------- ---------------
Cash and short-term investments, end of year .... $ 23,602,410 $ 17,825,039 $ 17,983,654
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
44
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 1 -- 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, domiciled in the state of Delaware, 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 other broker dealer firms that 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.
GISC, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934 and is a registered investment
advisor under the Investment Adviser'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 fourteen
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. 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. The amounts provided by the
Company to establish separate account investment portfolios (seed money) are not
included in separate account liabilities.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a statutory basis of accounting that is prescribed or
permitted by the Insurance Department of the State of Delaware which is a
comprehensive basis of accounting other than generally accepted accounting
principles (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
45
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
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.
Use of Estimates: 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, lapse, expense and investment
experience. Such estimates are primarily based on historical experience and, in
many cases, state insurance laws that 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. The Company has recorded in accordance with NAIC
requirements, the net gain from the operations of the separate accounts in the
operations of the general account in 1997 and 1996 instead of in 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 $10,000,000
in 1997, $9,500,000 in 1996 and 6,700,000 in 1995.
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.
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount
46
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
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 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 of 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 prior years. Any net negative IMR amounts are treated as a
non-admitted asset.
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 Company no longer offers the fixed annuity contracts.
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 1997 and 1996 was 5.75%. The interest rate credited on the
fixed rate option that is offered to certain variable annuity contractowners was
5.50% during 1997. For the fixed rate option currently issued, the issue and
renewal interest rates credited varies from month to month and ranged from 5.25%
to 5.40% in 1997. For single premium deferred annuities the rates ranged from
5.00% to 6.00% in 1997. Fixed immediate reserves are a liability within the
general account for those annuitants that have elected a fixed annuity payout
option. The immediate contract reserve is computed using the 1971 IAM Table and
the 1983 IAM Table and a 4% discount rate.
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, 6.5% for annual pay
variable life policyowners and 7% for other 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,
1997 and 1996 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $82,380 and $123,785, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
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.
47
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Revenue also includes 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
$162,522,811 and $142,722,353 at December 31, 1997 and 1996, 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 included in operations for 1997
and 1996, and in surplus in 1995.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1997 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 1997, 1996 and 1995 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $ 13,873,514 $ 8,270,274 $ 1,768,688
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (291,470) (1,478,476) 337,668
DAC Tax ........................................ 1,712,811 867,731 666,260
Dividend from subsidiary ....................... (3,500,000) (3,325,000) (2,345,000)
Other-- net .................................... 278,645 (393,069) 12,051
------------ ------------ ------------
Federal income taxes .............................. $ 12,073,500 $ 3,941,460 $ 439,667
============ ============ ============
</TABLE>
The provision for federal income taxes includes deferred taxes in 1997,
1996 and 1995 of $181,145, $353,051 and $304,923, respectively, applicable to
the difference between the tax basis and the financial statement basis of
recording investment income relating to accrued market discount.
48
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
For The Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Fixed maturities .................. $31,806,228 $28,234,145 $25,795,915
Affiliated money market funds ..... 524,277 121,733 130,729
Subsidiary ........................ 10,000,000 9,500,000 6,700,000
Policy loans ...................... 3,386,194 3,089,114 2,847,532
Short-term investments ............ 2,280,599 1,204,805 1,166,264
Joint venture dividend ............ 1,047,525 623,160 684,306
Other ............................. 59,779 55,301 14,951
----------- ----------- -----------
49,104,602 42,828,258 37,339,697
Less: Investment expenses ......... 1,110,848 461,356 1,046,099
----------- ----------- -----------
Net investment income ............. $47,993,754 $42,366,902 $36,293,598
=========== =========== ===========
Gross realized gains and losses, less applicable federal income taxes and
transfer to IMR, are summarized as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Realized gains from dispositions:
U.S. Government bonds .................... $ 722,440 $ 1,014,811 $ 438,127
Corporate debt securities ................ 413,022 1,014,562 555,817
Common stocks ............................ 174 -- --
Seed investment redeemed ................. -- -- 717,499
Foreign exchange ......................... 2,791 11,599 --
Realized losses from dispositions:
U.S. Government bonds .................... 744,168 181,025 7,498
Corporate debt securities ................ 399,618 617,325 370,353
Foreign exchange ......................... 5,773 -- 10,145
Short term investments ................... 1,218 191 --
----------- ----------- -----------
Net realized capital gains (losses) ...... (12,350) 1,242,431 1,323,447
----------- ----------- -----------
Federal income tax expense (benefit):
Current .................................. (269,216) 829,609 622,821
Deferred ................................. (209,059) (394,759) (42,290)
----------- ----------- -----------
Total federal income tax expense (benefit) (478,275) 434,850 580,531
----------- ----------- -----------
Transfer to IMR ............................. (6,202) 800,041 400,461
----------- ----------- -----------
Net realized gains (losses) ................. $ 472,127 $ 7,540 $ 342,455
=========== =========== ===========
</TABLE>
49
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
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.
The cost and estimated market values of investments by major investment
category at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
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 ....................... $ 65,358,213 $ 1,550,649 $ 16,198 $ 66,892,664
Obligations of states and political
subdivisions ....................... 71,909,687 795,387 41,850 72,663,224
Debt securities issued by foreign
governments ........................ 7,062,711 -- 115,745 6,946,966
Corporate debt securities ............. 340,417,221 6,143,061 1,010,829 345,549,453
Common stock of subsidiary ............ 9,398,292 2,674,851 -- 12,073,143
Affiliated mutual funds ............... 23,279,949 7,271,237 -- 30,551,186
------------ ------------ ------------ ------------
$517,426,073 $ 18,435,185 $ 1,184,622 $534,676,636
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
For The 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>
50
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
The amortized cost and estimated market value of debt securities at
December 31, 1997 and 1996, by contractual maturity, is shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
As of December 31, 1997
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less .......................... $ 59,694,316 $ 59,737,770
Due after one year through five years ............ 234,805,896 236,867,373
Due after five years through ten years ........... 103,002,869 106,604,446
Due after ten years .............................. 21,552,124 22,383,887
------------ ------------
419,055,205 425,593,476
Sinking fund bonds
(including collateralized mortgage obligations) 65,692,627 66,458,831
------------ ------------
$484,747,832 $492,052,307
============ ============
As of December 31, 1996
---------------------------
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
============ ============
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with affiliated companies 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 $76,669,184
and $447,494,766 at December 31, 1997 and 1996, 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.
51
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
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>
For The Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits .................. $(43,873,731) $(83,250,212) $(41,212,253)
Net investment income .................. -- (61,779) --
Commission and expense allowances ...... 7,885,341 14,508,839 10,057,974
Reserve adjustments .................... 16,268,128 30,636,445 (32,192,749)
Other income ........................... 1,875,163 (25,000) --
------------ ------------ ------------
Revenues ............................. (17,845,099) (38,191,707) (63,347,028)
Policyholder benefits .................. (10,975,075) (26,873,945) (57,577,405)
Increase in aggregate reserves ......... 22,859,719 (5,658,260) (11,909,990)
Reinsurance terminations ............... (27,421,066) (15,470,015) 11,002,701
General expenses ....................... (40,452) (81,667) (48,640)
------------ ------------ ------------
Deductions ........................... (15,576,874) (48,083,887) (58,533,334)
------------ ------------ ------------
Net income (loss) from reinsurance ceded $ (2,268,225) $ 9,892,180 $ (4,813,694)
============ ============ ============
</TABLE>
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>
For The Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits ................... $ (389,221) $ 41,133,358 $ 7,153,623
Net investment income ................... 45,288 94,657 62,847
Other income ............................ (62,752) 375,404 32,528
------------ ------------ ------------
Revenues .............................. (406,685) 41,603,419 7,248,998
Policyholder benefits ................... 3,967,619 8,076,053 5,086,702
Increase in aggregate reserves .......... (31,677,857) 31,556,908 (357,463)
Reinsurance expenses .................... 27,603,602 (452,476) 1,451,058
Other expenses .......................... 1,885,300 551,319 54,043
------------ ------------ ------------
Deductions ............................ 1,778,664 39,731,804 6,234,340
------------ ------------ ------------
Net income (loss)from reinsurance assumed $ (2,185,349) $ 1,871,615 $ 1,014,658
============ ============ ============
</TABLE>
52
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
The Company terminated, during 1997, an assumption agreement with an
unaffiliated company. Under this agreement, included in the consolidated
statements of income are $(2.3) million, $20.2 million and $7.2 million of
premiums at December 31, 1997, 1996 and 1995, respectively.
Note 7 -- Related Party Transactions
Registered representatives of the Guardian Investor Services Corporation
produce a major portion of the Company's business. During 1997, 1996 and 1995,
premium and annuity considerations produced by GISC amounted to $564,519,265,
$528,353,595 and $400,148,692, respectively. The related commissions paid to
GISC amounted to $1,979,926, $1,851,468 and $1,409,708 for 1997, 1996 and 1995,
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
$60,009,449 in 1997, $41,129,644 in 1996 and $24,989,111 in 1995, and, in the
opinion of management, were considered appropriate for the services rendered.
The company had 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 had contributed capital to GREA since it was
established to provide for funds and to preserve liquidity. Effective December
19, 1997, GREA was liquidated and, as a result, $6,746,290 was returned to GIAC
in the form of capital and there was a realized gain recorded of $969,045
included in the net gain from operations of separate accounts.
A significant portion of the Company's separate account assets is invested
in affiliated mutual funds. These funds consist of The Guardian Park Avenue
Fund, The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian
Bond Fund, The Baillie Gifford International Fund, The Baillie Gifford Emerging
Markets Fund, The Guardian Baillie Gifford International Fund, The Guardian
Asset Allocation Fund, The Guardian Investment Quality Bond Fund, The Guardian
Cash Management Fund and The Guardian Cash Fund. Each of these funds has an
investment advisory agreement with GISC, except for The Baillie Gifford
International Fund, The Baillie Gifford Emerging Markets Fund and The Guardian
Baillie Gifford International Fund. The investments as of December 31, 1997 and
1996 are as follows:
53
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
1997 1996
-------------- --------------
The Guardian Park Avenue Fund ................ $ 371,662,107 $ 251,812,050
The Guardian Stock Fund ...................... 3,222,051,866 2,226,887,181
The Guardian Small Cap Stock Fund ............ 60,104,422 --
The Guardian Bond Fund ....................... 355,417,535 354,316,320
The Baillie Gifford International Fund ....... 442,651,457 400,894,824
The Baillie Gifford Emerging
Markets Fund ............................... 65,038,546 45,571,916
TheGuardian Baillie Gifford International Fund 3,378,730 19,720
The Guardian Asset Allocation Fund ........... 14,910,420 46,623
The Guardian Investment Quality Bond Fund .... 1,546,854 9,385
The Guardian Cash Management Fund ............ 22,250,501 3,113,523
The Guardian Cash Fund ....................... 368,122,449 378,321,710
-------------- --------------
$4,927,134,887 $3,660,993,252
============== ==============
The Company, in agreement with Baillie Gifford Overseas Ltd., has a joint
venture company - Guardian Baillie Gifford Ltd. (GBG) - that 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),
The Guardian Baillie Gifford International Fund (GBGIF) and The Guardian Baillie
Gifford Emerging Markets Fund (GBGEMF). The Funds, except for The Guardian
Baillie Gifford Emerging Markets Fund, are offered in the U.S. as investment
options under certain variable annuity contracts and variable life policies.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1997 and 1996 this
amounted to $2,888,149 and $2,755,672, respectively. The Company also made an
investment in an affiliated small cap stock mutual fund during 1997, The
Guardian Small Cap Stock Fund. At December 31, 1997 this investment amounted to
$27,663,037.
54
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
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 Annual Statement:
<TABLE>
<CAPTION>
Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Transfers to separate accounts .................. $ 1,054,380,697 $ 767,741,428 $ 582,715,569
Transfers from separate accounts ................ (782,891,638) (518,683,141) (398,531,802)
--------------- --------------- ---------------
Net transfers to separate accounts ............ 271,489,059 249,058,287 184,183,767
--------------- --------------- ---------------
Reconciling Adjustments:
Mortality & expense guarantees-- variable annuity 70,027,514 53,219,656 41,474,872
Mortality & expense guarantees-- variable life .. 2,021,656 1,687,711 1,571,955
Administrative fees-- variable annuity .......... 4,095,230 3,867,120 3,513,459
Cost of insurance-- variable life ............... 11,205,120 4,844,028 4,232,564
--------------- --------------- ---------------
Total adjustments ............................. 87,349,520 63,618,515 50,792,850
--------------- --------------- ---------------
Transfers as reported in the Statement of
Operations of GIAC ............................ $ 358,838,579 $ 312,676,802 $ 234,976,617
=============== =============== ===============
</TABLE>
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
For the Year Ending 1997 For the Year Ending 1996
------------------------ ------------------------
Amount % Amount %
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ....... $ 46,276,766 10.19% $ 44,480,214 10.22%
------------ ------ ------------ ------
Total with adjustment or at
market value ..................... 46,276,766 10.19 44,480,214 10.22
at book value without adjustment
(minimal or no charge or
adjustment) ...................... 313,725,462 69.05 302,433,090 69.45
Not subject to discretionary withdrawal 94,338,339 20.76 88,546,538 20.33
------------ ------ ------------ ------
Total (gross) ......................... 454,340,567 100.00 435,459,842 100.00
Reinsurance ceded ..................... -- -- 4,879 --
------------ ------ ------------ ------
Total ................................. $454,340,567 100.00% $435,454,963 100.00%
============ ====== ============ ======
</TABLE>
This does not include $6,647,606,347 and $5,098,658,097 of non-guaranteed
annuity reserves held in separate accounts, and $3,572,284 and $2,927,130 at
December 31, 1997 and 1996, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
55
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 10 - Statutory Financial Information
The following reconciles the statutory net income of the Company as
reported to the regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory net income ......................... $ 28,037,239 $ 19,695,432 $ 4,956,175
Adjustments to restate to the basis of GAAP:
Net income of subsidiaries ................ 4,326,500 142,201 298,534
Change in deferred policy acquisition costs 41,883,919 42,525,493 31,247,939
Deferred premiums ......................... (5,542,795) 3,238,115 (1,643,253)
Re-estimation of future policy benefits ... (3,353,249) 26,953,558 297,442
Reinsurance ............................... 12,372,471 (36,353,822) 15,465,956
Deferred federal income tax expense ....... (16,212,244) (13,074,280) (15,681,250)
Elimination of interest maintenance reserve (111,783) (333,219) (257,381)
Other, net ................................ 201,840 (2,444,872) 2,598,780
------------ ------------ ------------
Consolidated GAAP net income ................. $ 61,601,898 $ 40,348,606 $ 37,282,942
============ ============ ============
</TABLE>
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Statutory capital and surplus ................. $ 182,704,232 $ 153,780,908 $ 141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs .......... 267,369,685 221,475,216 178,010,226
Elimination of asset valuation reserve ..... 26,305,528 15,121,269 9,341,353
Re-estimation of future policy benefits .... 41,283,947 31,167,840 4,214,282
Establishment of deferred federal income tax (84,703,745) (65,164,526) (53,962,281)
Unrealized gains on investments ............ 7,852,564 2,313,203 10,655,552
Other liabilities .......................... (33,486,652) (32,389,767) 1,811,239
Deferred premiums .......................... (7,024,891) (1,482,096) (4,720,211)
Other, net ................................. (3,468,519) (2,215,098) (1,276,761)
------------- ------------- -------------
Consolidated GAAP stockholder's equity ... $ 396,832,149 $ 322,606,949 $ 285,951,326
============= ============= =============
</TABLE>
56
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying statutory basis balance sheets of The
Guardian Insurance & Annuity Company, Inc. as of December 31, 1997 and 1996, and
the related statutory basis statements of operations, of changes in common stock
and surplus and of cash flows for the three years in the period ended December
31, 1997. 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 report dated February 9, 1996.
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, 1997 and 1996, or the results of its operations or its cash flows for the
three years in the period ended December 31, 1997, 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
PRICE WATERHOUSE LLP
New York, New York
57
<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
58
<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.
59
<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.
60
<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.
61
<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.
62
<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.
63
<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.
REPRESENTATION PURSUANT TO SECTION 26
The Guardian Insurance & Annuity Company, Inc. hereby represents that the
fees and charges deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by The Guardian Insurance & Annuity Company, Inc.
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 Representation pursuant to Section 26 of The Investment Company Act of
1940.
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. 11 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, 1998.
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* Executive 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, 1998
----------------------------
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
- ------ -----------
1(A)(1) Resolution of the Board of Directors of The Guardian Insurance &
Annuity Company, Inc. establishing The Guardian Separate Account
C.
1(A)(3) Form of Broker-Dealer Supervisory and Service Agreement
1(A)(6)(a) Certificate of Incorporation of Guardian Insurance & Annuity
Company, Inc.
1(A)(6)(b) By-laws of Guardian Insurance & Annuity Company, Inc.
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
27 Financial Data Schedule
Resolution of Board of Directors of The Guardian Insurance & Annuity Company
Inc. Establishing The Guardian Separate Account C.
Proposed GIAC Board Resolutions Relating to Scheduled (Annual)
Premium Variable Life Insurance Product
1. RESOLVED, that the Board of Directors of GIAC hereby establishes,
pursuant to Section 2932 of the Delaware Insurance Code, a separate account to
be designated "The Guardian Separate Account C" (hereinafter in these
resolutions referred to as the "Account") to serve as a segregated asset account
to receive, hold and invest amounts arising from (a) premium paid for scheduled
(annual) premium variable life insurance policies, issued by GIAC through the
Account (the "APVLI Policies"); and (b) such assets of GIAC as the proper
officers of GIAC my deem prudent and appropriate to have invested in the same
manner as the assets applicable to its reserve liability under the APVLI
Policies and lodged in the Account, and such amounts, together with the
dividends, interest and gains produced thereby shall be invested and reinvested,
subject to the rights of the holders of such APVLI Policies, in units of the
Account at the value of such units at the time of acquisition.
2. RESOLVED, that the Board of Directors approves of the offering of
certain investment options -- The Guardian Bond Fund, The Guardian Cash Fund,
The Guardian Stock Fund, Value Line Centurion Fund, Value Line Strategic Asset
Management Trust and Value Line U.S. Government Securities Trust -- to
policyowners of the APVLI Policies which are presently offered to owners of
other variable life and variable annuity contracts issued by GIAC and agrees to
abide by the conditions for offering such funds to these different variable
contracts as imposed by the Securities and Exchange Commission (SEC) and
previously agreed to by GIAC as set forth in Investment Company Act Release
Number 111685 (August 20, 1985).
3. RESOLVED, that the Board of Directors of GIAC authorizes $100,000 in
the aggregate be deposited into the Account as "seed capital" to commence its
operations and that the officers of GIAC are given discretion as to the timing
of such deposit of seed capital.
4. RESOLVED, that the Account shall be registered as a unit investment
trust under the Investment Company Act of 1940 and Securities Act of 1933 ("the
1933 Act"), and that the officers of GIAC be and they hereby are authorized to
sign and file with the SEC, or cause to be signed and filed with the SEC, a
registration statement on behalf of the Account, as registrant, under the 1933
Act ("1933 Act Registration") and any exemptive applications, no--action
requests or other documents as they may deem necessary to effectuate
registration of the units of the Account.
5. RESOLVED, that the officers of GIAC are authorized and directed to sign
and file with the SEC, or cause to be signed and filed with the SEC, amendments
of such 1933 Act Registration or other documents as they may deem necessary or
advisable from time to time respecting the Account.
<PAGE>
6. RESOLVED, that the signature of any director or officer of GIAC
required by law to affix his signature to such l933 Act Registration, or to any
amendment thereof, may be affixed by said director or officer personally, or by
an attorney-in-fact duly constituted in writing by said director or officer to
sign his name thereto.
7. RESOLVED, that the officers of GIAC are authorized and directed to
employ Guardian Investor Services Corporation ("GISC") to serve as distributor
of the APVLI Policies and to prepare any and all agreements necessary for GISC
to provide such services to the Account, subject to final approval by the Board
of Directors of GIAC or by the Investment Committee of the Board.
8. RESOLVED, that the officers of GIAC are authorized and directed to sign
and file with the SEC, or cause to be signed and filed with the SEC, such
periodic reports under the Investment Company Act of 19140 respecting the
Account as they may deem necessary or advisable from time to time.
9. RESOLVED, that the officers of GIAC be and they hereby are authorized to
take whatever steps that may be necessary or desirable to comply with such of
the laws and regulations of the several states as may be applicable to the
establishment of the Account and the sale of the APVLI Policies.
10. RESOLVED, that the officers of GIAC be and they hereby are authorized,
in the name and on behalf of GIAC, to execute and deliver such corporate
documents and certificates and to take such further action as may be necessary
or desirable in order to effectuate the purposes of the foregoing resolutions.
Exhibit 99.1(A)(3)
THE GUARDIAN INSURANCE & ANNUITY COMPANY
BROKER-DEALER SUPERVISORY AND SERVICE
AGREEMENT
Agreement by and between The Guardian Insurance & Annuity Company, Inc.
("GIAC"), a Delaware corporation, Guardian Investor Services Corporation
("GISC"), a registered broker-dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers Inc. ("NASD"), and
- --------------------------------------------------------------------------------
("Broker-Dealer") also a registered broker-dealer with the SEC under the
Securities Exchange Act of 1934 and a member of the NASD.
- --------------------------------------------------------------------------------
I. WITNESSETH
- --------------------------------------------------------------------------------
Whereas, GIAC proposes to have Broker-Dealer's registered representatives
("Representatives") who are also insurance agents solicit and sell certain
Insurance and Annuity Contracts (the "Plans") more particularly described in
this Agreement and which are deemed to be securities under the Securities Act of
1933; and
Whereas, GIAC has appointed GISC as the Distributor of the Plans and has agreed
with GISC that GISC shall be responsible for the training and supervision of
such Representatives, with respect to the solicitation and offer or sale of any
of the Plans, and also for the training and supervision of any other "persons
associated" with Broker-Dealer who are engaged directly or indirectly therewith;
and GISC proposes to delegate, to the extent legally permitted, said supervisory
duties to Broker-Dealer; and
Whereas, GIAC and GISC propose to have Broker-Dealer provide certain
administrative services to facilitate solicitation for and sales of the Plans.
Now therefore, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
- --------------------------------------------------------------------------------
II. APPOINTMENT OF BROKER-DEALER
- --------------------------------------------------------------------------------
GIAC and GISC hereby appoint Broker-Dealer to supervise solicitations for and
sales of the Plans and to provide certain administrative services to facilitate
solicitations for and sales of the Plans.
<PAGE>
- --------------------------------------------------------------------------------
III. AUTHORITIES AND DUTIES OF BROKER-DEALER
- --------------------------------------------------------------------------------
A. PLANS
The Plans issued by GIAC to which this Agreement applies are listed in Exhibit
A. These Plans may be amended from time to time by GIAC. GIAC, in its sole
discretion and without notice to Broker-Dealer, may suspend sales of any Plans
or may amend any policies or contract evidencing such Plans.
B. LICENSING
Broker-Dealer shall, at all times when performing its functions under this
agreement, be registered as a securities broker with the SEC and NASD and
licensed or registered as a securities broker-dealer in the states and other
local jurisdictions that require such licensing or registration in connection
with variable annuity sales activities or the supervision of Registered
Representatives who perform such activities in the respective location.
Broker-Dealer shall assist GISC in the appointment of Representatives under the
applicable insurance laws to sell the Plans. Broker-Dealer shall fulfill all
requirements set forth in the General Letter of Recommendation, attached as
Exhibit B, in conjunction with the submission of licensing/appointment papers
for all applicants as insurance agents of GIAC. All such licensing/appointment
papers should be submitted to GISC by Broker-Dealer.
C. SECURING APPLICATIONS
All applications for Plans shall be made on application forms supplied by GIAC
and all payments collected by Broker-Dealer or any Representative of
Broker-Dealer shall be remitted promptly in full, together with such
applications, forms and any other required documentation, directly to GIAC at
the address indicated on such application or to such other address as GIAC may,
from time to time, designate in writing. Broker-Dealer shall review all such
applications for completeness. Checks or money orders in payment on any such
Plan shall be drawn to the order of "The Guardian Insurance & Annuity Company."
All applications are subject to acceptance or rejection by GIAC at its sole
discretion.
D. MONEY RECEIVED BY BROKER-DEALER
All money payable in connection with any of the Plans, whether as premium,
purchase payment or otherwise, and whether paid by or on behalf of any
policyholder, contract owner or certificate holder or anyone else having an
interest in the Plans, is the property of GIAC, and shall be transmitted
immediately in accordance with the administrative procedures of GIAC without any
deduction or offset for any reason, including by example, but not limitation,
any deduction or offset for compensation claimed by Broker-Dealer.
<PAGE>
E. SUPERVISION OF REPRESENTATIVES
Broker-Dealer shall have full responsibility for the training and supervision of
all Representatives associated with Broker-Dealer who are engaged directly or
indirectly in the offer or sale of the Plans, and all such persons shall be
subject to the control of Broker-Dealer with respect to such persons'
securities-regulated activities in connection with the Plans. Broker-Dealer will
cause the Representatives to be trained in the sale of the Plans: will use its
best efforts to cause such Representatives to qualify under applicable federal
and state laws to engage in the sale of the Plans; and will cause such
Representatives to be registered representatives of Broker-Dealer before such
Representatives engage in the solicitation of applications for the Plans; and
will cause such Representatives to limit solicitation of applications for the
Plans to jurisdictions where GIAC has authorized such solicitation.
Broker-Dealer shall cause such Representatives' qualifications to be certified
to the satisfaction of GISC and shall notify GISC if any Representative ceases
to be a registered representative of Broker-Dealer.
F. REPRESENTATIVES AGREEMENT
Broker-Dealer shall cause each such Representative to execute a Registered
Representative's Agent Agreement with GIAC before a Representative shall be
permitted to solicit applications for the sale of the Plans. GISC shall furnish
Broker-Dealer with copies of Registered Representative's Agent Agreements for
execution by the Representatives.
G. COMPLIANCE WITH NASD RULES OF FAIR PRACTICE AND FEDERAL AND STATE SECURITY
LAWS
Broker-Dealer shall fully comply with the requirements of the NASD and of the
Securities Exchange Act of 1934 and all other applicable federal or state laws
and will establish such rules and procedures as may be necessary to cause
diligent supervision of the securities activities of the Representatives. Upon
request by GISC, Broker-Dealer shall furnish such appropriate records as may be
necessary to establish such diligent supervision.
H. NOTICE OF REPRESENTATIVE'S NONCOMPLIANCE
In the event a Representative fails or refuses to submit to supervision of
Broker-Dealer or otherwise fails to meet the rules and standards imposed by
Broker-Dealer on its Representatives, Broker-Dealer shall certify such fact to
GIAC and shall immediately notify such Representative that he or she is no
longer authorized to sell the Plans, and Broker-Dealer shall take whatever
additional action may be necessary to terminate the sales activities of such
Representative relating to the Plans.
I. PROSPECTUSES, SALES PROMOTION MATERIAL AND ADVERTISING
Broker-Dealer shall be provided, without any expense to Broker-Dealer, with
prospectuses relating to the Plans and such other material as GISC determines to
be necessary or desirable for use in connection with sales of the Plans. No
sales promotion materials or any advertising relating
<PAGE>
to the Plans shall be used by Broker-Dealer unless the specific item has been
approved in writing by GISC.
J. RIGHT OF REJECTION
Broker-Dealer and/or GIAC, each at their sole discretion, may reject any
applications or payments remitted by Representative through the Broker-Dealer
and may refund an applicant's payments to the applicant. In the event such
refunds are made, and if Representative has received compensation based on an
applicant's Payment that is refunded, Representative shall promptly repay such
compensation to the Broker-Dealer. If repayment is not promptly made, the
Broker-Dealer may, at its sole option, deduct any amounts due it from
Representative from future commissions otherwise payable to Representative.
K. ASSIGNMENT
Neither this Agreement nor any of its benefits may be assigned by Representative
without the written consent of GIAC and GISC, and any assignment of this
agreement, compensation or other benefits or obligations hereunder shall not be
valid if made without such consent.
- --------------------------------------------------------------------------------
IV. COMPENSATION
- --------------------------------------------------------------------------------
A. SUPERVISORY FEES, SERVICE FEES AND COMMISSIONS
Supervisory and service fees payable to Broker-Dealer and commissions payable to
Representatives in connection with the Plans shall be paid by GIAC to the
person(s) entitled thereto through Broker-Dealer or as otherwise required by
law. GISC will provide Broker-Dealer with a copy of GIAC's current Dealer
Concession and Commissions Schedule. These fees and commissions will be paid as
a percentage of premiums or purchase payments (premiums and purchase payments
are hereinafter referred to collectively as "Payments") received in cash or
other legal tender and accepted by GIAC on applications obtained by the various
Representatives of the Broker-Dealer. Upon termination of this Agreement, all
compensation to the Broker-Dealer hereunder shall cease; however, Broker-Dealer
shall continue to be liable for any chargebacks pursuant to the provisions of
said Dealer Concession and Commissions Schedule or for any other amounts
advanced by or otherwise due GIAC hereunder.
B. TIME OF PAYMENT
GIAC shall pay any compensation due Broker-Dealer and Representatives of
Broker-Dealer within fifteen (15) days after the end of the calendar month in
which Payments upon which such compensation is based are accepted by GIAC.
C. AMENDMENT OF SCHEDULES
GIAC may, upon at least ten (10) days prior written notice to Broker-Dealer
change the Dealer Concession and Commissions Schedule. Any such change shall be
by written amendment of the
<PAGE>
particular schedule or schedules and shall apply to compensation due on
applications received by GIAC after the effective date of such notice.
D. PROHIBITION AGAINST REBATES
If Broker-Dealer or any Representative of Broker-Dealer shall rebate or offer to
rebate all or any part of a Payment on a policy or contract or certificate
issued by GIAC, or if Broker-Dealer or any Representative of Broker-Dealer shall
withhold any Payment on any policy or contract or certificate issued by GIAC,
the same may be grounds for termination of this Agreement by GIAC. If
Broker-Dealer or any Representative of Broker-Dealer shall at any time induce or
endeavor to induce any owner of any policy or contract issued hereunder or any
certificate holder to discontinue Payments or to relinquish any such policy or
contract or certificate except under circumstances where there is reasonable
grounds for believing the policy, contract or certificate is not suitable for
such person, any and all compensation due Broker-Dealer hereunder shall cease
and terminate.
E. INDEBTEDNESS
Nothing in this Agreement shall be construed as giving Broker-Dealer the right
to incur any indebtedness on behalf of GIAC. Broker-Dealer hereby authorizes
GIAC to set off liabilities of Broker-Dealer to GIAC against any and all amounts
otherwise payable to Broker-Dealer by GIAC.
- --------------------------------------------------------------------------------
V. GENERAL PROVISIONS
- --------------------------------------------------------------------------------
A. WAIVER
Failure of any party to insist upon strict compliance with any of the conditions
of this Agreement shall not be construed as a waiver of any of the conditions,
but the same shall remain in full force and effect. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute a waiver of
any other provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.
B. INDEPENDENT CONTRACTORS
GIAC and GISC are independent contractors with respect to Broker-Dealer and to
Representatives.
C. LIMITATIONS
No party other than GIAC shall have the authority on behalf of GIAC to make,
after, or discharge any policy or contract or certificate issued by GIAC, to
waive any forfeiture or to grant, permit, nor to extend the time of making any
Payments, nor to guarantee dividends, nor to alter the forms which GIAC may
prescribe or substitute other forms in place of those prescribed by GIAC, nor to
<PAGE>
enter into any proceeding in a court of law or before a regulatory agency in the
name of or on behalf of GIAC.
D. FIDELITY BOND
Broker-Dealer represents that all directors, officers, employees and
Representatives of Broker-Dealer who are licensed pursuant to this Agreement as
GIAC agents for state insurance law purposes or who have access to funds of
GIAC, including but not limited to funds submitted with applications for the
Plans or funds being returned to owners or certificate holders, are and shall be
covered by a blanket fidelity bond, including coverage for larceny and
embezzlement, issued by a reputable bonding company. This bond shall be
maintained by Broker-Dealer at Broker-Dealer's expense. Such bond shall be, at
least, of the form, type and amount required under the NASD Rules of Fair
Practice. GIAC may require evidence, satisfactory to it, that such coverage is
in force and Broker-Dealer shall give prompt, written notice to GIAC of any
notice of cancellation or change of coverage.
Broker-Dealer assigns any proceeds received from the fidelity bonding company to
GIAC to the extent of GIAC's loss due to activities covered by the bond. If
there is any deficiency amount, whether due to a deductible or otherwise,
Broker-Dealer shall promptly pay GIAC such amount on demand and Broker-Dealer
hereby indemnities and holds harmless GIAC from any such deficiency and from the
costs of collection thereof (including reasonable attorneys' fees).
E. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the parties
to it and their respective successors and assigns provided that Broker-Dealer
may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of GIAC.
F. REGULATIONS
All parties agree to observe and comply with the existing The Guardian In laws
and rules or regulations of applicable local, state, or federal regulatory
authorities and with those which may be enacted or adopted during the term of
this Agreement regulating the business contemplated hereby in any jurisdiction
in which the business described herein is to be transacted.
G. NOTICES
All notices or communications shall be sent to the address shown in sub
paragraph L of Section V of this Agreement or to such other address as the party
may request by giving written notice to the other parties.
H. GOVERNING LAW
This Agreement shall be construed in accordance with governed by the laws of the
state of New York.
<PAGE>
I. AMENDMENT OF AGREEMENT
GIAC reserves the right to amend this Agreement at any time and the submission
of an application by a Representative of a Broker-Dealer after notice of any
such amendment has been sent to the other parties shall constitute the other
parties' agreement to any such amendment.
J. SALES PROMOTION MATERIALS AND ADVERTISING
Broker-Dealer shall not print, publish or distribute any advertisement, circular
or any document relating to the Plans or relating to GIAC unless such
advertisement, circular or document shall have been approved in writing by GIAC
or by GISC; and in the case of items within the scope of Section 111,
sub-Paragraph 1, approved in writing by GISC, provided, however, that nothing
herein shall prohibit Broker-Dealer from advertising life insurance and
annuities in general or on a generic basis.
K. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty (30)
days prior written notice; and may be terminated, for cause, by any party
immediately; and shall be terminated if GISC or Broker-Dealer shall cease to be
registered Broker-Dealers under the Securities Exchange Act of 1934 and members
of the NASD.
L. ADDRESS FOR NOTICES
The Guardian Insurance & Annuity Company
3900 Burgess Place
Bethlehem, PA 18017
The Guardian Insurance & Annuity Company, Inc.
By: /s/ Joseph A. Caruso
-------------------------------
Joseph A Caruso, Secretary
For Broker-Dealer
- -----------------------------------
Firm Name
- -----------------------------------
Address
- -----------------------------------
City, State, Zip
- -----------------------------------
Corporate Federal Tax ID#
- -----------------------------------
Print Name
<PAGE>
- -----------------------------------
Signature Title
Guardian Investor Services Corporation
By
--------------------------------
John M. Smith, President
- -----------------------------------
Date
EB-72 5/93
<PAGE>
EXHIBIT B
GENERAL LETTER OF RECOMMENDATION
Broker-Dealer hereby certifies to GIAC that all the following requirements will
be fulfilled in conjunction with the submission of licensing/appointment papers
for all applicants as agents of GIAC submitted by Broker-Dealer. Broker-Dealer
will, upon request, forward proof of compliance with same to GIAC in a timely
manner.
1. We have made a thorough and diligent inquiry and investigation relative to
each applicants identity, residence and business reputation and declare that
each applicant is personally known to us, has been examined by us, is known to
be of good moral character, has a good business reputation, is reliable, is
financially responsible and is worthy of a license. Each individual is
trustworthy, competent and qualified to act as an agent for GIAC to hold himself
out in good faith to the general public. We vouch for each applicant.
2. We have on file a U-4 form which was completed by each applicant. We have
fulfilled all the necessary investigative requirements for the registration of
each applicant as a registered representative through our NASD-member firm, and
each applicant is presently registered as a NASD registered representative.
The above information in our files indicates no fact or condition which would
disqualify the applicant from receiving a license and all the findings of all
investigative information is favorable.
3. We certify that all educational requirements have been met for the specific
state each applicant is requesting a license in, and that all such persons have
fulfilled the appropriate examination, education and training requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license, we
certify that those items forwarded to GIAC are those of the applicant and the
securities registration is a true copy of the original.
5. We hereby warrant that the applicant is not applying for a license with GIAC
in order to place insurance chiefly and solely on his life or property, lives or
property of his relatives, or property or liability of his associates.
6. We certify that each applicant will receive close and adequate supervision,
and that we will make inspection when needed of any or all risks written by
these applicants, to the end that the insurance interest of the public will be
properly protected.
7. We will not permit any applicant to transact insurance as an agent until duly
licensed therefore. No applicants have been given a contract or furnished
supplies, nor have any applicants been permitted to write, solicit business, or
act as an agent in any capacity, and they will not be so permitted until the
certificate of authority or license applied for is received.
CERTIFICATE OF INCORPORATION
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
---ooOoo---
ARTICLE I
Section 1.1 Name. The name or the corporation (hereinafter called the
Corporation) is:
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
ARTICLE II
Section 2.1 Registered Office and Registered Agent. The address of the
Corporation's registered office in the State of Delaware is 100 West lOth
Street, City of Wilmington. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III
Section 3.1 Corporate Purposes. A primary purpose of the Corporation is to
engage in and carry on the business of insurance as permitted under the laws of
Delaware. In addition, and without limitation by the foregoing, the purpose of
the Corporation is to engage in any lawful act
<PAGE>
2.
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
Section 3.2 Management and Other Contracts. The Corporation may enter into
a management, supervisory or investment advisory contract and other contracts
with, and may otherwise do business with, any firm or organization
notwithstanding that the directors or officers of the Corporation may be
employees, directors or officers of such firms or organizations, and in the
absence of fraud the Corporation and such firms or organizations may deal freely
with each other, and such contracts or any other contract or transaction between
the Corporation and such firms or organizations shall not be invalidated or in
any wise affected thereby, nor shall any director or officer of the Corporation
be liable to the Corporation or to any stockholder or creditor thereof or to any
other person for any loss incurred by it or him under or by reason of any such
contracts or transactions; provided that nothing herein shall protect any
director or officer of the Corporation against any liability to the Corporation
or to its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office; and provided always that such
contracts or transactions shall have been
<PAGE>
3.
fair as to the Corporation as of the time it was authorized, approved or
ratified by the Board of Directors, a committee thereof, or the stockholders.
ARTICLE IV
Section 4.1 Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is twenty thousand (20,000) shares,
all of which shall be one class of common stock of the par value of One Hundred
Dollars ($100.00) each.
ARTICLE V
Section 5.1 Power of Board to Make By-Laws. The Board may make, alter or
repeal from time to time any of the By-Laws of the Corporation, except any
particular By-Law which is specified as not subject to alteration or repeal by
the Board. Any such particular By-Law may be altered or repealed only by the
affirmative vote at a meeting of the holders of a majority of the shares of
capital stock outstanding or by the written consent of the holders of a majority
of such shares.
Section 5.2 Elections of Directors Need Not Be By Written Ballot. The
elections of directors need not be by written ballot unless the By-Laws of the
Corporation shall so provide.
<PAGE>
4.
ARTICLE VI
Section 6.1 Incorporators. The names and mailing addresses of the
incorporators of the Corporation are:
NAME MAILING ADDRESS
---- ---------------
B. J. CONSONO 100 West Tenth Street
Wilmington, Delaware 19899
F. J. OBARA, Jr. 100 West Tenth Street
Wilmington, Delaware 19899
J. L. RIVERA 100 West Tenth Street
Wilmington, Delaware 19899
ARTICLE VII
Section 7.1 Reservation of Right to Amend Certificate. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate in the manner now or hereafter prescribed by law, and all
rights and powers conferred in this Certificate on stockholders, directors and
officers are subject to this reserved power.
Section 7.2 Right to Amend By-Laws. The Board of Directors is expressly
authorized to make, alter or repeal the By-Laws of the Corporation, except as
otherwise provided in any By-Law adopted by the stockholders.
WITNESS the signatures of the undersigned this 2nd day of March, 1970.
B. J. CONSONO
F. J. OBARA, Jr.
J. L. RIVERA
<PAGE>
5.
STATE OF DELAWARE )
) ss:
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 2nd day of March, 1970, personally came
before me, a Notary Public for the State of Delaware, B. J. CONSONO, F. J.
OBARA, Jr., and J. L. RIVERA all of the parties to the foregoing certificate of
incorporation, known to me personally to be such, and severally acknowledged the
said certificate to be the act and deed of the signers respectively and that the
facts stated therein are true.
GIVEN under my hand and seal of office the day and year aforesaid.
A. DANA ATWELL
---------------------------------------
Notary Public
*************************************
A. DANA ATWELL
NOTARY PUBLIC
APPOINTED OCT. 27, 1969
STATE OF DELAWARE
TERM TWO YEARS
*************************************
<PAGE>
6.
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
I, EUGENE BUNTING, Secretary of State of the State of Delaware, DO HEREBY
CERTIFY that the above and foregoing is a true and correct copy of Certificate
of Incorporation of "THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.", as
received and filed in this office the second day of March, A. D. 1970, at 10
o'clock A. M.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Dover this second day of March in the year of our Lord one thousand nine
hundred and seventy.
EUGENE BUNTING
Secretary of State
R. H. CALIMELL
Ass't. Secretary of State
*************************************
Secretary's Office
1855 Delaware 1793
*************************************
<PAGE>
7.
Received for Record
March 2nd, A. D. 1970.
Leo J. Dugan, Jr., Recorder.
STATE OF DELAWARE :
: SS.:
NEW CASTLE COUNTY :
Recorded in the Recorder's Office at Wilmington, in Incorporation
Record Vol. Page &c., the 2nd day of March, A. D. 1970.
Witness my hand and official seal.
Leo J. Dugan, Jr.
Recorder.
*************************************
Recorders Office
New Castle Co. Del.
Mercy Justice
*************************************
<PAGE>
PAGE 1
State of Delaware
[State Seal]
Office of Secretary of State
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC. FILED IN THIS OFFICE ON THE
FOURTH DAY OF SEPTEMBER, A.D. 1986, AT 10 O'CLOCK A.M.
----------
[Department of State Seal] /s/ Michael Harkins
-----------------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION: 0933991
726247055 DATE: 09/04/1986
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
****
The Guardian Insurance & Annuity Company, Inc. a corporation organized and
existing under and by virtue of the General Corporation Law or the State or
Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting or the Board or Directors or The Guardian
Insurance & Annuity Company, Inc. (the "Corporation") resolutions were duly
adopted setting forth a proposed amendment of the certificate of Incorporation
of the Corporation, declaring said amendment to be advisable and calling a
meeting of the stockholders of the Corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the certificate of Incorporation of the Corporation be
amended by changing the Article thereof numbered "III" and Section thereof
numbered "3.2" so that, as amended, said Article and Section shall be and
read as follows:
"Management and other Contracts. The Corporation may enter into a
management, supervisory or investment advisory contract and other contracts
with, and may otherwise do business with, any firm or organization
notwithstanding that the directors or officers of the Corporation may be
employees, directors or officers of such firms or organizations, and in the
absence of fraud the Corporation and such firms or organizations may deal
freely with each other, and such contracts or any other contract or
transaction between the Corporation and such firms or organizations shall
not be invalidated or in any wise affected thereby, nor shall any director
or officer of the Corporation be liable to the Corporation or to any
stockholder or creditor thereof or to any other person for any loss
incurred by it or him under or by reason of any such contracts or
transactions; provided that nothing herein shall protect any director or
officer of the Corporation against any liability to the Corporation or to
its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office; and provided always that
such contracts or transactions shall have been fair as to the Corporation
as of
<PAGE>
the time it was authorized, approved or ratified by the Board of Directors,
a committee thereof, or the stockholders. No director of the Corporation
shall be liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit."
SECOND: that thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, The Guardian Insurance & Annuity Company, Inc. has
caused its corporate seal to be hereunto affixed and this certificate to be
signed by Arthur V. Ferrara, its President, and Herbert N. Grolnick,
its Secretary, this 29th day of August, 1986.
By /s/ Arthur V. Ferrara
-----------------------------------
Arthur V. Ferrara, President
Attest:
By /s/ Herbert N. Grolnick
-----------------------------------
(CORPORATE SEAL) Herbert N. Grolnick, Secretary
BY-LAWS
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
---ooOoo---
ARTICLE I
OFFICES
Section 1. The registered office shall be in Wilmington, Delaware.
Section 2. The corporation may have offices also at such other places
within and without the State of Delaware as the board of directors may from time
to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of the stockholders for the election of directors shall
be held in New York, New York at such place as may be fixed from time to time by
the board of directors. Meetings of stockholders for any other purpose may be
held at such time and place,
<PAGE>
2.
within or without the State of Delaware, as shall be stated in the notice of the
meeting.*
Section 3. In order that the corporation may determine the stockholders
entitled to notice of or to, vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than fifty nor less than ten days before the date of
such meeting, nor more than fifty days prior to any other action. A
determination of stockholders shall apply to any adjournment
- ----------
* Section 2 amended on 11-30-89 to read as follows: "Unless otherwise
provided by the board of directors, the annual meeting of stockholders
shall be held not less than thirty (30) and not more than one hundred
twenty (120) days after the end of the corporation's last preceding fiscal
year, and at such meeting the stockholders shall elect, by a plurality
vote, a board of directors, and shall transact such other business as may
properly be brought before the meeting.
<PAGE>
3.
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
Section 4. Written notice of the annual meeting, and any special meeting
stating the place, date and hour thereof, shall be given to each stockholder
entitled to vote thereat not less than ten nor more than fifty days before the
date of the meeting.
Section 5. The officer who has charge of the stock ledger of the
corporation shall prepare, and produce a complete list of the stockholders
entitled to vote at said meeting in accordance with Section 219(a) Title 8 of
the Delaware Code.
Section 6. Special meetings of the stockholders may be called by the
president and shall be called by the president or secretary by resolution of the
board of directors or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such resolution or request shall state the
purpose or purposes of the proposed meeting.
<PAGE>
4.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, so long as the adjournment is not for more than thirty days and a new
record date is not fixed for the adjourned meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the original meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the
<PAGE>
5.
stock having voting power present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one upon which
by express provision of the statutes or of the certificate of incorporation a
different vote is required in which case such express provision shall govern and
control the decision of such question.
Section 10. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
No proxy or power of attorney to vote shall be used to vote at a meeting of the
stockholders unless it shall have been filed with the secretary of the meeting
when required by the inspectors of election. All questions regarding the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided by two inspectors of election who shall be appointed
by the board of directors, or if not so appointed, then by the presiding officer
of the meeting.
<PAGE>
6.
Section 11. Whenever stockholders are required or permitted to take any
action by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken, signed by the holders of all outstanding
stock entitled to vote thereon, all in accordance with Section 228, Title 8 of
the Delaware Code.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be five.* By amendment of this by-law the number may be increased or
decreased from time to time by the board of directors within the limits
permitted by law, but no decrease in the number of directors shall change the
term of any director in office at the time thereof. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this article, and each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Directors
need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number
- ----------
* Amended by board of directors on 11/20/86 to delete the number "five" and
insert in its place "at least seven."
<PAGE>
7.
of directors may be filled by a majority of the directors then in office, though
less than a quorum, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected, unless sooner
displaced.
Section 3. The business of the corporation shall be managed by its board of
directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors shall
be held immediately following the adjournment of the meeting of stockholders and
at the place thereof. No notice of such meeting shall be necessary to the
directors in order legally to constitute the meeting, provided a quorum be
present. In the event such meeting is not so held, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors.
<PAGE>
8.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board of directors.
Section 7. Special meetings of the board of directors may be called by the
president and shall be called by the secretary on the written request of two
directors. Notice of special meetings of the board of directors shall be given
to each director at least three days before the meeting if by mail or at least
24 hours before the meeting if given in person or by telephone or by telegraph.
The notice need not specify the business to be transacted.
Section 8. At meetings of the board of directors, one-third of the
directors at the time in office but in no event less than two* directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors. If a quorum shall not be present at any meeting of
the board of directors the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
- ----------
* Amended by board of directors on 11/20/86 to delete the phrase "one-third
of the directors at the time in office but in no event less than two" and
insert in its place the word "five."
<PAGE>
9.
Section 9. The board of directors may, by resolution adopted by a majority
of the whole board, designate one or more committees, each committee to consist
of two or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the board of
directors. The board may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
or in any written consent of the committee. The member or members of any such
committee present at any meeting and not disqualified from voting may, whether
or not he or they constitute a quorum, unanimously appoint another member of the
board of directors to act at the meeting in the place of any absent or
disqualified member.
Section 10. The committees shall keep regular minutes of their proceedings
and report the same to the board of directors.
<PAGE>
10.
Section 11. Any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting if a written consent thereto is signed by all members of the board or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the board or committee.
Section 12. The directors may be paid their expenses of attendance at each
meeting of the board of directors and may be paid a fixed sum for attendance at
each meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like reimbursement and compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders mailed to them at their
addresses appearing on the books of the corporation shall be deemed to be given
at the time when deposited in the United States mail.
<PAGE>
11.
Section 2. Whenever any notice is required to be given a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent of notice.
Attendance of a person at a meeting of stockholders or of directors shall
constitute a waiver of notice of such meeting except when the stockholder or
director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors at its first meeting after each annual meeting of stockholders and
shall be a president, who shall be a director, and a vice president, a
secretary, a treasurer and such other officers and agents as the board desires
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the board or as
set forth in these by-laws. Any number of offices may be held by the same
person.
<PAGE>
12.
Section 2. The salaries of all officers of the corporation shall be fixed
by the board of directors.
Section 3. Any officer may be removed at any time by the board of directors
with or without cause. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise shall be filled by the board of
directors if the office is not discontinued.
*Section 4. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and shall have
general and active management of the business of the corporation and shall see
that all orders and resolutions of the board of directors are carried into
effect. He shall execute on behalf of the corporation and may affix or cause the
seal to be affixed to all instruments requiring such execution except to the
extent the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation or as
provided herein.
Section 5. The vice presidents shall act under the direction of the
president and in the absence or disability of the president, in the order of
seniority spe-
- ----------
* Amended by board of directors 6/3/82 to read: "Unless the board of
directors shall elect a chairman as chief executive officer, the president
shall be the chief executive officer of the corporation...."
<PAGE>
13.
cified by the board, they shall perform the duties and exercise the powers of
the president. They shall perform such other duties and have such other powers
as the president or the board of directors may from time to time prescribe.
Section 6. The secretary shall act under the direction of the president.
Subject to the direction of the president he shall attend all meetings of the
board of directors and all meetings of the stockholders and record the
proceedings. He shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and shall perform
such other duties as may be prescribed by the president or the board of
directors. He shall keep in safe custody the seal of the corporation and cause
it to be affixed to any instrument requiring it.
Section 7. The treasurer shall act under the direction of the president.
Subject to the direction of the president he shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging
<PAGE>
14.
to the corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the corporation in such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the president or the board of directors, taking
proper vouchers for such disbursements, and shall render to the president and
the board of directors, at its regular meetings, or when the board of directors
so requires, an account of all his transactions as treasurer and of the
financial condition of the corporation. He may affix or cause to be affixed the
seal of the corporation to any instrument requiring it.
Section 8. On behalf of the corporation any officer may execute and affix
the corporate seal to documents necessary in the management of the affairs of
the corporation. Where two signatures are required, any two officers may execute
such documents.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
president or a
<PAGE>
15.
vice president and the treasurer or the secretary of the corporation, certifying
the number of shares owned by him in the corporation.
Section 2. The board of directors may direct a new certificate of stock to
be issued in place of any certificate theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 3. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it
<PAGE>
16.
shall be the duty of the corporation, if it is satisfied that all provisions of
the certificate of the incorporation and these by-laws regarding transfer of
shares and restrictions on such transfers have been complied with, to issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. The corporation shall be entitled to recognize the person
registered on its books as the owner of shares to be the exclusive owner for all
purposes including voting and dividends, and the corporation shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
MISCELLANEOUS
Section 1. Dividends upon the shares of the capital stock of the
corporation may be declared and paid by the board of directors from the funds
legally available. Dividends may be paid in cash, in property,
<PAGE>
17.
or in shares of the capital stock of the corporation.
Section 2. Before the payment of any dividends there may be set aside, out
of any funds of the corporation available for dividends, such sum or sums as the
board of directors from time to time in its absolute discretion may think
proper, as a reserve or reserves to meet contingencies or for any other purpose
the directors shall think conducive to the interest of the corporation. The
board of directors may modify or abolish any such reserve.
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
Section 4. The fiscal year of the corporation shall be the calendar year
unless changed by the board of directors.
Section 5. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a
<PAGE>
18.
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE VIII
INDEMNIFICATION
Every person who was or is a party or is threatened to be made a party to
or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
and pursuant to any procedure specified in the General Corporation Law of the
State of Delaware from time to time against all expenses, liability and loss
(including attorneys' fees, judgments, fines and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him in connection therewith. Such
right of indemnification
<PAGE>
19.
shall not be exclusive of any other right which such directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any by-law, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article.
The board of directors may cause the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the corporation would have the power to indemnify
such person.
The board of directors may from time to time adopt further by-laws with
respect to indemnification and may amend these and such by-laws to provide at
all times the fullest indemnification permitted by the General Corporation Law
of the State of Delaware.
<PAGE>
20.
ARTICLE IX
AMENDMENTS
Section 1. The by-laws may be amended by a majority vote of all the stock
issued and outstanding and entitled to vote at any annual or special meeting of
the stockholders, provided notice of intention to amend shall have been
contained in the notice of the meeting.
Section 2. The board of directors by a majority vote of the whole board at
any meeting may amend these by-laws, including by-laws adopted by the
stockholders, but the stockholders may from time to time specify particular
provisions of the by-laws which shall not be amended by the board of directors.
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. 11 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 27, 1998
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. 11 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
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 11 to the Separate Account C registration statement
on Form S-6 (the "Registration Statement") of our report dated February 13,
1998, relating to the financial statements of The Guardian Separate Account C
and our report dated February 10, 1998, relating to the statutory basis
financial statements of 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 such Registration Statement.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the "Annual
Report to Shareholders" dated December 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000841694
<NAME> Separate Account C - Select Guard
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 7,048,259
<INVESTMENTS-AT-VALUE> 8,468,427
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,468,427
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,718
<TOTAL-LIABILITIES> 55,718
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 68,202
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,089,189
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,420,168
<NET-ASSETS> 8,412,709
<DIVIDEND-INCOME> 111,814
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 43,612
<NET-INVESTMENT-INCOME> 68,202
<REALIZED-GAINS-CURRENT> 1,089,189
<APPREC-INCREASE-CURRENT> 512,463
<NET-CHANGE-FROM-OPS> 1,669,854
<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> 43,612
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43,612
<AVERAGE-NET-ASSETS> 7,304,577
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1,601,652
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
